TEST MARKETS

 A test market, in the field of business and marketing, is a geographic region or demographic
group used to gauge the viability of a product or service in the mass market prior to a wide scale
roll-out.
 Test markets according to Professor Wolters is the firm test markets in a small markets to see
what works best. So basically, test markets is done even before you launch your product, if you
had already the information or result about your product, you can still make changes.
 It is useful for evaluating different sales promotion.
 So test markets are used whenever a product manager uses different sales promotion. One of
the reason is that, product manager will be able to know what pricing experiments will be used
and what special price promotions for their product will be used.
 In the test markets, companies tend to use different strategies or tests to know how things
work.
 We have this “Pre Market Test” wherein, you as a product manager needs to test products with
your potential clients to gauge their interests beforehand or before it will go out of the market.
 When you run tests with your potential clients, you have information to understand how are
you going to sold your products.

DIFFERENT KINDS OF TEST MARKETS

1. Simulated Test Markets – firms set up false or not real world experiments to see how customers
do.
2. Controlled Test Markets – we pay stores to carry our merchandise and get information from
them. It is controlled by means of, controlled of how it is being sold, what products sold well,
what didn’t sell well.
3. Standard Test Market – a small representative market where a firm can run a complete
marketing campaign. In this test market, is it like going to a certain city to perform your
marketing campaign about your product so people will have knowledge about what are you
selling.
EVALUATING TRADE PROMOTIONS

So first, let us define what is Trade Promotion.

Trade Promotion

 Trade promotion are directed not to the final customer but through which the goods are sold.
 Trade Promotion is a marketing technique aimed at increasing demand for products in retail
stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-
obligation gifts, and more.
 Meaning, trade promotion is used to increase the demands of a certain product or commodity.
In the trade promotion, it can help the company to determine the advantages of their products
against the products of their competitors.
 If Trade promotion will be effective, it will result from market penetration, or the successful
selling of product into a specific market.
 . Moreover, companies use Trade Promotions to improve distribution of their product(s) at
retailers and strengthen relationships with retailers .
 Lastly, Trade Promotions can be leveraged to introduce new product launches into retail stores.

What is Evaluating Trade Promotions?

There is a problem that exist in trade promotion which is the “gray market” issue. Gray market or gray
market refers to the trade of a commodity through distribution channels that are not authorized by the
original manufacturer or trade mark proprietor. Grey market products are products traded outside the
authorized manufacturer's channel.

Meaning, they will buy products to the producer and sell it to the unauthorized dealers. Gray markets
are unauthorized but they are not considered as illegal.

One way to evaluate trade promotion is as a necessary cost of doing business. There will be a lost
revenue when gray market is in the picture. this lost revenue caused by the gray markets will determine
how effective trade price promotion was. Because mostly, trade promotions are often failures.

According to the estimate made by Abraham and Lodish, 1990, only 16% of the trade promotions in the
supermarket was profitable.

TRADE PROMOTION CONSISTED OF 3 BASIC TYPES

 Off-invoice discounts
Off-invoice deductions, which are agreed-upon discounts taken directly off a supplier's sales
invoice, are among the more-common types of trade-channel sales promotions.
 Manufacturers typically offer them to distributors, and distributors may offer them to
retailers. Small-business suppliers may use them to drive new business and to build up a buyer
base for long-term benefits.

So, the purpose of off invoice discounts is to motivate to have quick and larger sales from the
customers.
Basically, it is a deduction made by the manufacturers. It is refer to the amount of the
deduction from the original price.

 Sales drive discounts

Consist of a percentage payment to the channels when it sold to units to the retailers.

 Special fall premiums

It was the direct payment to the manufacturer’s own sales force.

A different approach uses an expert system style modelling method (PROMOTER) based on the
result of many past promotions.
 This approach or modelling method will begin by developing a baseline level based on trend and
seasonality or any factors. So with the help of the trends, or any factors, it will obviously affect
sales.
 Baseline estimation will rely on periods when promotion is zero. Basically, baseline will serve as
a starting point which all future sales is being measured.
 Incremental sales are computed as the difference between baseline and actual sales, that will be
used to evaluate the promotion. Also, incremental sales refer to the number of units sold
through a sales promotion.

General finding from PROMOTER

 Trade deals tends to have lower “pass through”, meaning, savings will be passed to consumers
rather than the manufacturers hope.
 Retailers tend to forward buy when they are offered promotions.
 The effectiveness of trade deals varies greatly across sizes of products and markets.