NIKOLAY KOROTKOV
September 2010
i
DECLARATION
Nikolay Korotkov
ii
ACKNOWLEDGEMENTS
iii
“Simulated test marketing and its practical application in the Russian FMCG market”.
Nikolay Korotkov. September 2010
ABSTRACT
Currently, the world’s leading FMCG companies generate 30% to 50% of their
revenues by expanding into emerging markets. However, the approaches to
successful new product sales forecasting are not sufficiently well established in such
markets. The following study is an attempt to help in setting up effective Simulated
Test Marketing (STM) services in developing countries, particularly in Russia. This
dissertation reviews various theoretical and practical aspects of new product sales
forecasting, including STM, in the context of new product development (NPD) stages,
phases of market life-cycle and types of new product. A theoretical examination
undertaken has shown considerable structural differences between saturated
“western” markets and developing Russian FMCG market, rising the question about
applicability of traditional “western” STM models outside their origin countries. An
additional quantitative survey of marketing experts employed by the leading FMCG
companies in Russia has helped to develop actionable recommendations on effective
use of STM in the local environment. In particular, it is emphasized that traditional
Simulated Test Marketing is only effective in well-defined markets. Therefore, before
going with STM, it is advisable to examine available market knowledge across 8 sets
of characteristics, in particular - “consumer / shopper”, “products”, “market size and
dynamics”, “marketing / promotion”, “pricing”, “competitors / substitute products”,
“infrastructure / environment” and “finance”. For convenience, it is recommended to
refer to the template STM brief, developed on the basis of study findings. With that,
the research has revealed a number of areas for improvement of services provided
by the major vendors of Simulated Test Marketing in the Russia, in particular – taking
an individual approach to every project (i.e. shifting focus from “model-centered” to
“client-oriented” operations), “investments into local R&D - gathering local
benchmarks and learnings, performing validations”, “simplification of reporting and
modeling approaches”, “localized media models”, “reasonable timing and pricing”,
“openness in explaining modeling principles, client-friendly guidelines”, “flexibility in
forecasting”, “thoughtful and careful application of global standardized STM
techniques to local business situations”, “training local consultants”. The above
mentioned findings provide solid foundation for further development of Simulated
Test Marketing in the Russian FMCG market.
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TABLE OF CONTENTS
ACKLOWLEDGEMENTS .........................................................................................iii
ABSTRACT ..............................................................................................................iv
v
2.3.2 Best practices for new product launches: key success factors ..................42
2.4 Major challenges for new product launches in the Russian market .................45
4.2 Traditional STM approaches in the context of the Russian market .............120
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CHAPTER 5. RESEARCH METHODOLOGY ......................................................123
6.2 New product types and marketing research methods employed in Russia.131
REFERENCES ......................................................................................................154
APPENDICES .......................................................................................................169
vii
LIST OF FIGURES
Figure 1.4 The world’s leading FMCG companies in emerging markets ............. 7
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Figure 2.22 NPD process in the US FMCG market: costs, time, risks ............... 38
Figure 2.23 New product launches: typical patterns of marketing support ........ 45
Figure 2.26abcd Russian FMCG market versus key developed markets .............. 49,50
Figure 2.28ab Specifics of NPD and launches in Russia: literature review ........... 53
Figure 3.3 The link between marketing research and business processes ...... 60
Figure 3.4 The use of marketing research methods by new product type ........ 80
Figure 3.12 Simulated Test Marketing and the rise of retail in the U.S. ............ 90
Figure 3.20 Essential control questions to ensure effective use of STM ......... 105
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Figure 3.21 Forecasting instruments used in the process of STM .................. 106
Figure 4.1 Marketing research and STM markets: Russia vs US vs World.. 115
Figure 4.2abcde Russian FMCG market and Simulated Test Marketing ........ 117-120
Figure 4.3 Key STM models in the context of the Russian market ............... 121
Figure 6.2 New product types in the Russian FMCG market ....................... 132
Figure 6.3 The use of marketing research in NPD in Russia ....................... 133
Figure 6.5 Difficulties and issues that need to be addressed ....................... 135
Figure 6.6 NPD success rate and forecast accuracy in Russia .................... 135
Figure 6.8 STM market in Russia: prices and trends ................................... 137
Figure 6.11 Key factors of choice for STM (ranking) ....................................... 139
Figure 6.13 Customer satisfaction and factors that influence it ....................... 140
Figure 6.14 ACNielsen BASES: perceived strengths and weaknesses .......... 141
Figure 6.15 Ipsos DESIGNOR: perceived strengths and weaknesses ........... 142
Figure 6.16 Local STMs: perceived strengths and weaknesses ..................... 143
Figure 6.17 Other “western” STMs: perceived strengths and weaknesses ..... 143
Figure 6.18 Key areas of STM improvement in the Russian FMCG market ... 144
x
”Successful forecast is the culmination of knowledge”
Nikolay Kondratiev (1926) 1
CHAPTER 1
INTRODUCTION
1.1 Aim
The ultimate aim of the present study is to enrich the theory of marketing with the
1.2 Justification
The high importance of dissertation topic has been recently recognized both by
academics and marketing practitioners due to a rapidly growing demand for reliable
new product sales forecasting technique in the Fast Moving Consumer Goods sector
(FMCG) in the emerging markets, particularly in Russia. For this reason, particular
(Clemente, 2002, p.391), a simulated test market (STM) is “a form of market testing
consumers maneuver through the store and view the products on display. This
simulated test market would generate information on the marketing stimuli, with the
resultant data used in marketing planning, estimating market demand and sales
markets are vastly different (Usunier, 2000). Many Russian marketing research
practitioners, argue that Russian FMCG market is quite unique (Kachalov, 2008).
Obviously, many traditional marketing research tools originally developed for the
1
(Kondratiev, 1993, p.120)
1
mature western markets are not directly applicable in the emerging markets, such as
According to the recent study by Wherry (2006), the “global average” accuracy of
forecasts is about ±9%. However, the observed accuracy for the Russian market is
not reported and is not available from the independent reliable sources. Moreover,
the effectiveness of Simulated Test Marketing in Russia hasn’t been discussed yet in
the academic and business literature. Therefore, the following questions require
further investigation: (1) ”Which forecasting techniques are used to predict new
product sales in the Russian FMCG market and why?”; (2) “If traditional methods of
Simulated Test Marketing are used, what are their advantages and disadvantages in
Taking into account the need for information that is described above, the author
who are NPD, business and consumer insights experts working for the biggest
2
FMCG manufacturers in Russia. It is supposed that the study results will support
decision making and business planning processes within these companies and will
BRIC countries, has been rapidly changing over the past few decades driven by the
of free time, anxiety about health, the need for excitement, individuality, comfort and
participation in social life. The rise and spread of these trends is heavily boosted by
global trade, i.e. rapid development of retail networks and distribution channels
Figure 1.1 FMCG market landscapes are now changing rapidly driven by …
3
Concerning the academic interpretation of innovation phenomena, i.e. “what” fuels
innovation boom nowadays, there are two traditional schools of thought: “market-
based” and “resource-based” (Trott, 2008, p.20). The “market-based” (or “market
pull”) point of view suggests that “market conditions provide the context which
facilitate or constrain the extent of firm innovation activity” (Porter, 1985, cited in
Trott, 2008, p.20). The “resource-based” (or “technology push”) view argue that
“market-driven orientation does not provide a secure foundation” for innovations and
“markets in accordance to its own view” (Hamel and Prahalad, 1994, cited in Trott,
2008, p.9-20). By now it has been recognized, that the truth lies in between these
two extremes: obviously, technological invention is necessary but not sufficient for
successful new product launch (Trott, 2008). Consumer acceptance and marketing
plans should be tested in advance with tools such as Simulated Test Marketing, i.e. it
concepts. Urban and Hauser (1993) found out 13 major factors initiating the need for
innovations nowadays. These factors are: (1) financial goals of profit (“and the
resulting impact on stock price”), (2) growth in sales and market share (“this allows a
cycle (“as the product moves from maturity to decline, profits may fall. To regain
profitability, the organization direct its effort toward the new product”), (5) technology
decline”), (6) globalization (“the advent of increased global trade has put … strong
forces on firms to develop new products”, (7) regulation (“in many cases new
material costs and availability (“as raw material costs and availability change
4
opportunities”), (10) demographic and lifestyle changes (“lifestyle generates
consumption changes”), (11) customer requests (“a source of many new products is
and distributors can also be a force in innovation”), (13) alliances (“this can initiate
(Urban and Hauser, 1993, pp.6-13). Urban and Hauser (1993) suggest that “if the
trends in the underlying initiating factors continue, we will see more new product
development activity in the future” (Urban and Hauser, 1993, p. 13). Nowadays, the
and shows dramatic double digit growth each consecutive year (Mintel, 2007) (see
Figure 1.2).
result of processes discussed above. According to Mintel (2007), about 182 000
brands and line extensions were introduced globally in 2006, reaching the number of
500 items a day. The key booming areas are focused on mind, body, and general
good health. Sales of “Low/Minus claims”, organic products and products with ethical
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positioning had doubled within a year. However, even nowadays the process of New
Product Development (NPD) is still dominated by failure. Research shows that, out of
all product prototypes available to a company, only 15% will actually appear on the
market (i.e. 85% will be dropped during development and testing stages), out of that
only 35% will remain on shelves in the next few years, and, finally, only 5% will reach
a break-even point (Booz Allen & Hamilton, 1988, Clancy et al., 2003, Armstrong et
al., 2009). In terms of finance, that means the process is extremely costly as 95% of
As for emerging markets, the rate of ROI for innovations has not been determined
yet: it may be lower due to the low market saturation or, vice versa, it may be higher
due to various hidden market entry barriers. According to corporate reports of the
global FMCG leaders, emerging markets are considered of highest importance due
to their significant contribution into overall corporate growth. The fact that more than
85% of global population live in developing countries, make these markets extremely
6
Developing and emerging markets generate over 30% of
Figure 1.4
revenue for the biggest multinationals
* - Eastern Europe, Africa/Middle East, Latin America, Asia and Pacific excluding Japan
** - w/o petfood business, *** - w/o Export and Holding companies
Sources: Colgate (2009), Unilever (2009), TCCC(2009), Nestle (2009), ABInBev (2009), Danone (2009), Henkel (2009), Pepsico
(2009), Loreal (2009), P&G (2009), Kraft (2009), Reckitt Benckiser (2009)
In Russia, promotional budgets for new products may reach into tens of millions in
P&G 302
L`OREAL 191
UNILEVER 144
DANONE 124
NESTLE 123
MARS-RUSSIA 123
RECKITT BENCKISER 117
HENKEL GROUP 112
COCA-COLA 107
WIMM-BILL-DANN 96
BALTICA 81
COLGATE-PALMOLIVE 77
TV ad spendings in 2008, mln $
PEPSI CO 68
WRIGLEY`S 59
KRAFT FOODS 55
SUN INBEV 53
Therefore, the amount of savings possible due to improvements in new product sales
protocols, research and forecasting methods) makes the study on this topic very
7
worthwhile. Given the continuous rise of costs, FMCG manufacturers show keen
techniques to reduce financial risks associated with innovations (Urban and Hauser,
Figure 1.6
Key drivers of failure can be revealed before launch, in
particular with Simulated Test Marketing …
Poor Positioning
Insufficient ROI
approach that is able to help in addressing a majority of the issues listed above.
Therefore, the findings from the present study have practical implications of
parsimony) the latter two largely define the scope of limitations (Sekaran, 2003).
Generalizability, according to Sekaran (2003, p.149), is “to what extent would the
8
recommendations from the study, the following limitations must be taken into
account:
The literature review provides only a snapshot of key ideas and approaches on
The literature review contains information taken only from the open sources.
The findings from the study are based on an aggregated expert opinion of
which are the end-users of sales forecasting techniques and Simulated Test
Marketing. These findings, therefore, are not transferrable to any market, other
than Russian FMCG (i.e. emerging markets are under-researched in this study),
Besides introduction, this dissertation comprises six chapters, where every chapter is
divided into sections. Chapter 2 starts a literature review, introducing the terms of
“new product”, “new product development”, the types of new products and theoretical
FMCG markets and Russian FMCG market. Chapter 3 explains the role of
application in the mature western markets. Chapter 4 starts discussion about sales
forecasting for new consumer products and its practical use in Russia. This chapter
presents various points of view on the topic, available in the literature. Chapter 5
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describes a methodological approach to the study, outlining study objectives,
sampling design and questionnaire structure. The last Chapter 7 presents key
results and findings from the study, starting from sample profile and ending with
practical recommendations for effective and efficient use of Simulated Test Marketing
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CHAPTER 2
This is the question that is not very easy to answer as it may seem at first sight. First
of all, the phrase “new product” comprises two words: “new” and “product”. A broad
is manufactured or refined for sale” (Oxford University, 2010). The origin of the word
comes from Latin “producere” or “bring forth”. The meaning of the word “new” is
distributors, stakeholders, state regulators) may have different views on what “new
product” is (Trott, 2008). Let us consider the term in the “marketing” context. As
pointed out by McDonald (2007, p.3), “the central idea of marketing is of a matching
between a company’s capabilities and the wants of customers in order to achieve the
maximize the item’s appeal to consumers who purchase it to satisfy a given need”
academics (Armstrong et al, 2009, Kotler, 1998, Dibb et al, 1997, Trott, 2008). Also,
social and psychological utilities and needs” (Dibb et al, 1997, p.242). Despite minor
differences in academic concepts about the key forces shaping the “product”, there is
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Dibb et al (1997, p.253), Kotler (1998) and Armstorng et al (2009) suggest that there
These levels are: (1) core product (“the level of a product that provides the perceived
or real core benefit or service”), (2) actual product, (“a composite of the features and
capabilities offered in a product: quality and durability, design and product styling,
product”). With that, they point out that products may be organized in various forms in
“product lines” etc.), that can be of various depth and width (see Figure 2.1).
Figure 2.1
A product is multi-dimensional. Some views on key “product”
intrinsics in the context of marketing…
Augmented
product
Packaging Features
Brand
Installation Warranty
Sources: Adapted from Armstrong et al (2009), Dibb et al (1997), Trott (2008), Groucutt (2005), Drummond et al(2008)
Following the logic, one may conclude that if any changes in product components,
the whole product can be considered new (i.e. it becomes “a product innovation”).
This, however, is not true in every case. So, what makes the “product” new, or, in
formats”. A research by Booz, Allen & Hamilton had shown that only 10% of new
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product introductions are new both to the market and the company (Booz, Allen &
scientific discovery. Apple iPhone and Sony Walkman are examples of innovation
According to Booz, Allen & Hamilton (1988) cited in Trott (2008, p.401) product
are the first kind and create a new market. They are inventions that usually contain a
products (“although not new to the market place, these products are new to the
the first time”), (3) Additions to existing lines, Line extensions (“this category is a sub-
set of new product lines above”), (4) Improvements and revisions to existing products
(“these new products are replacements of existing products in a firm’s product line”),
(5) Cost reductions (although ”this category may not be viewed as new from
branding (“these new products are essentially the discovery of new applications for
existing products. This has as much to do with consumer perception and branding as
(23%) and “new product lines” (20%). 4% of launches are “repositionings” and 9%
are “cost-reductions”. And, finally, only 10% are “new-to-the-world”, truly new
innovations, new both to consumers and companies. (see Figure 2.2 overleaf). A
survey by Schneider (2004) had confirmed the numbers recorded by Griffin (1997): a
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Figure 2.2 A profile of new product introductions in western markets…
New products
Product (New to the firm)
improvements
and cost 20%
reductions
43%
Line
Extensions, Bran
d Stretching
23%
Sources: Adapted from Griffin (1997)
Groucutt (2005, p. 171) divides all products into “two broad classifications, consumer
Fast Moving Consumer Goods (FMCG) falls within the scope of this study.
and rapidly consumed products, that demand only minimum purchasing effort,
purchased to satisfy personal or family needs” (Dibb et al, 1997, p. 243). The next
modern markets.
particular reason. New products are elements of strategies, which companies pursue
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impossible to foresee future sales for each type of new product without considering
Let us start with the term ‘market’. As per “Market segmentation” by McDonald
(2008, p.71), “the general rule for ‘market definition’ is that it should be described in
terms of customer need in a way which covers the aggregation of all the alternative
is not therefore defined in terms of what company sells, but in terms of what
customers are setting to achieve”. Thus, McDonald (2008, p.71) gives the following
definition: “a market is the aggregation of all the products and services which
There is no common point of view among leading marketing theorists about what are
the key distinctive features of ‘a market’ (i.e. how markets are distinguished from
each other). Although, it is well recognized that, markets can be described using
stable over time, which is a ‘core need’ (Dibb et al, 2008). The state of other
McDonald (2008) show, that markets can be differentiated by the following attributes:
prices, costs and profits (see Figure 2.3). In the later work dedicated to marketing
planning, McDonald (2009) refines the list of initially proposed attributes: size,
2.3). Drummond et al. (2008) suggest that markets can be described in terms of size,
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bargaining power of customers, barriers to entry/exit (see Figure 2.3). Groucutt
(2005) has identified the following key properties of ‘a market’: size, consumers,
technology, HRM (see Figure 2.3). Dibb et al (2008) point out such features as sales
needs and benefits sough), accessibility, stability (see Figure 2.3). The most
respected theorists of Simulated Test Marketing, Glenn Urban and John Hauser
(Urban and Hauser, 1993) propose to consider seven key market parameters: (1)
growth potential (consisting of ‘size of the market’, ‘growth rate of sales’, ‘life cycle
stage’), (2) entry barriers (‘order of entry’, ‘time to be established’), (3) economies of
competition’, ‘share potential for product’, ‘rivalry intensity’), (5) investment (into
production, promotion, technology and managerial talent), (6) reward (profits, return –
on- investment), (7) risk (stability, probability of losses) (see Figure 2.3).
Figure 2.3
Modern views on market characteristics have much in common,
although differ in details…
Sources: Adapted from McDonald (2008,2009), Drummond et al (2008), Groucutt (2005), Dibb et al (2008), Urban et al (1993)
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Obviously, there’s much in common between these point of views, for example, all
order to develop a consistent framework, that is required for further analysis, the
author had synthesized a list of essential market attributes based on the modern
theories discussed above. This list consists of eight sets of features (see Figure 2.4).
Sources: Adapted from McDonald (2008,2009), Drummond et al (2008), Groucutt (2005), Dibb et al (2008), Urban et al (1993)
consumers involved), (2) Market size and dynamics (size of market (volume/value),
life cycle stage, growth rate of sales, granularity (structural complexity), predictability,
(5) Pricing (price levels and price variation, price elasticity / sensitivity), (6)
order of entry, maximum share/sales potential for a new entrant), (7) Finance
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(investments and costs, reward - profitability, ROI, operational margin, risk -
channels, regulations).
development. This is proven with empirical studies and even theoretically modeled
(Lilien et al, 1992, Urban and Hauser, 1993). The phenomena of ‘Life Cycle’ is
2003, 2008, McDonald, 2008, 2009, Armstrong et al, 2008, Clemente, 2002,
Drummond et al, 2008, Groucutt, 2005, Trott, 2008 and other). There’s a consensus
concerning the number and stages and their essence – “there is a universal
According to Fowler and Thomas (1993) cited in Groucutt (2005, p. 198), the concept
of a life cycle “is used to predict the strategic needs associated with products as they
age within the marketplace. It allows for the development of strategies appropriate to
the life stage and anticipates the need for changes in strategy as progression from
one stage to the next occurs”. A typical life pattern of the market usually involves five
key stages: (1) introduction or embryonic stage, (2) growth, (3) early maturity, (4) late
maturity or saturation and (5) decline. A very detailed overview of stages and
the life – style concept is the model of ‘innovation’s diffusion’ (Lilien et al, 1992). The
model suggests that new products are adopted over time by consumers within social
over time”. Each stage of adoption is directly linked to the particular life stage of the
market (or product) life cycle: innovators are pioneers on the market at the
‘embryonic’ life - cycle stage, while early adopters and early majority join them at the
‘growth’ stage. Late majority become consumers at the ‘maturity’ (or ‘saturation’)
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stage, while maximum penetration is achieved with ‘laggards’ on the final stage (see
Figure 2.6). To summarize, both theories are very useful to help managers foresee
the future state of the market and avoid simply extrapolating next year’s sales from
Figure 2.6
A theory of ‘Innovation Diffusion’ is directly linked to the ‘Market
Life Cycle’ .…
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Further discussion about ‘life-cycle’ and ‘diffusion’ models goes beyond the scope of
the current study. The limitations of both models (such as different forms of shapes,
duration of stages and cycles, static nature) are summarized by Groucutt (2005).
terms of life stage. To succeed, they employ a variety of strategies applicable for
each particular stage of the market (see Figure 2.7). As literature review had shown,
these strategies can be classified into several layers, according to their scope and
business warfare strategies concept proposed by James (1984) and Porter’s generic
Porter (1985):
James (1984):
ATTACK DEFENSE
Frontal attack Position defense
Flank attack Flank defense
Encirclement attack Pre-emptive defense
Bypass attack Counter defense
Business Guerilla ("partisans") attack Mobile defense
Contraction defense
positioning’ strategies: (1) Market leaders – “this is the position that many companies
leader by attempting to win increased market share”, (3) market followers – “these
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organizations do not seek to challenge either the market leaders or challengers, and
satisfied with their own profitable market segments and market share”, (4) market
segments and are unlikely to interest either the market leaders or challengers”. As
argued by Ansoff (2007), organizations of every type listed above can undertake
(i.e. penetrating currently existing market), (2) product development (i.e. moving by
developing new products for current markets), (3) market development (i.e. moving
by bringing existing products into new markets) or (4) diversification (i.e. creating new
directions are closely related with market evolution (see Figure 2.8)
Figure 2.8
Strategic Directions are closely related with the Life Cycle of the
market .…
4 4 4
In the context of chosen long-term strategic direction, firms implement the number of
mid-term business strategies, which are usually classified by analogy with warfare
strategies (James, 1984). The early research on the topic (James, 1984, p. 15) had
identified the following forms of strategies: (1) sequential - “successive steps, each
contingent on the preceding step, that lead to the final objective", (2) cumulative – a
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collection of seemingly random actions with a single final objective, (3) indirect -
using “various indirect pressures to defeat an enemy and thereby avoid direct
attack with a new marketing entrant, or defense of a market from competitive attack",
aggressively pursuing market share, when the fight is taken to the competitors”, while
defensive strategies are employed “to protect your existing customer base and
ensure that market share is retained”. Nowadays this topic is broadly discussed in
the academic literature on strategic marketing planning (Johnson et al, 2008, Kotler,
2000, Groucutt, 2005, Armstrong et al, 2009, Drummond et al, 2008, McDonald,
and flanking attacks, encirclement, guerilla and bypass attacks (see Figure 2.9).
Sources: James (1984, pp.15-170), Groucutt (2005, pp. 113-114), Kotler (1998) cited in Drummond (2008, p. 163)
22
A summary of views on defensive strategies is exhibited on Figure 2.10. These
Sources: James (1984, pp.15-170), Groucutt (2005, pp. 113-114), Kotler (1998) cited in Drummond (2008, p. 163)
The upper “product-related” layer of strategies (see Figure 2.7) comprises three
Porter’s generic product positioning strategies, which are: (1) overall cost leadership -
”being the low cost producer in an industry for a given level of quality“, (2)
are valued by customers”, (3) focus – “concentration on the narrow segment and
set of “proactive” and “reactive” new product strategies defined by Urban and Hauser
(1993, p. 19-24). “Proactive” sub-set consists of the following: (1) Research and
to create new markets “, (2) Marketing – “foreseeing consumer needs and develop
products that provide benefits to satisfy these needs”, (3) Entrepreneurial – “a special
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enthusiasm and generating resources”, (4) Acquisition – “other firms are purchased
with products new to acquiring firm and perhaps to the market”, (5) Alliances - “non-
formal less rigid forms of co-operation between firms to put together a new product
competitive new products”, (2) Imitative ("me too") – “is based on quickly copying a
new product before its maker is assured of being successful”, (3) Second but better –
“in this case the firm does not just copy the competitive product, but identifies ways to
improve the product and its positioning”, (4) Responsive – “purposively reacting to
customer's requests”.
At the bottom line, as pointed out by McDonald (2009, p. 298), all the marketing
strategies discussed above “are concerned with the four major elements of the
marketing mix, which are product, price, place and promotion”. According to the
al (1994) cited in Trott (2008), strategic focus shifts on different marketing elements,
depending on the type of new product, as discussed in Section 2.1 (i.e. “new-to-the-
where changes are concerned with “product”, the emphasis should be laid on
unique and appealing image, encouraging product trial via promotion and advertising.
educate consumers about new category and stimulate development of the core need,
related to the new product. These areas of emphasis are exhibited on Figure 2.11
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Figure 2.11 Change of strategic focus by new product type.…
The next few sections examine each type of new product introduction in view of
moment they appear there is no market (see Figure 2.12a), i.e. there is no
established or clearly articulated need for such products. At this early stage,
according to the recent studies by Hamel and Prahalad (1994), Martin (1995) and
Veryzer (2003) cited in (Trott, 2008, p.57), consumers have “difficulty in describing
and articulating their needs” and their frequent responses are along the lines “I want
my usual product only cheaper and better”. Research shows that “new-to-the-world”
products “require changes in thinking and behavior and hence require more from
consumer. Unsurprisingly, these products carry a high risk of failure” (Trott, 2007,
really new consumer product, you cannot launch a product - you have to launch a life
style” (Schneider, 2004, p.71). As pointed out by Martin (1995) consumers “can be
25
extremely unimaginative…trying to get people to change the way they do things is
the biggest obstacle facing many companies” (Martin, 1995, cited in Trott, 2008,
p.497). This is why product purchase intention measured on total population at this
stage may be dramatically low, and this is why it takes so much time to establish a
marketing effort to: (1) break through consumers’ conservatism and (2) build a
virtually new need from scratch. Although this is risky and sales are hardly
predictable, a future market leader has to lead the public from the very beginning,
rather than just follow consumers’ opinion (Akio Morita, Sony’s former charismatic
leader, cited in Trott, 2008). Indeed, ten or fifteen years ago, there weren’t many
consumers asking for cellular phones, portable computers, DVDs, flash cards, low
examined below across key market parameters, identified in the previous section:
market life stage, consumer needs, market size and dynamics (see Figure 2.12a).
Here Here
New-to-the-World
Hidden, not established and poorly articulated, or at embrionic stage, or based on use of outdated
Needs
technologies or products
Consumption occasions Very rare, infrequent or sometimes do not even exist
Consumer Profile Innovators
Number of consumers involved Max 5% of total potential number of customers in the market
Products awareness / experience / Very low product awareness, no experience and therefore substantial learning effort is required, purchase
Learning intent on total population is very low, higher PI exhibited by Innovators
Size of market (volume/value) Negligible
Life cycle stage Embryonic / Birth / Pioneering stage
Growth rate of sales Above 10% - "normally much greater than GNP (on small base)" - (McDonald, 2009, p.202)
Market size
and dynamics Granularity (structural complexity) Simple plain market structure built around the pioneering product, usually no subcategories or niches
"Hard to define accurately both in the short- and longer-term. Market forecasts differ widely" (McDonald,
Predictability
2009, p.202)
Variability / Variation High variability due to unstable demand, Variation patterns (seasonality) can be hardly recognized
26
Figure 2.12b “New-to-the-world” products in the marketing context:
New-to-the-World
Create product awareness and encourage trial (Armstrong et al, 2008), educate potential consumers while
Marketing Objectives
introducing the product
Market Leaders (Corporate positioning ), Diversification (Strategic Directions), Differentiation (Product),
Dominant strategies Attack : Bypass, Flank, Alliance (Business), Sequential (Strategy types), Entrepreneurial and R&D (New
Promotional product)
Marketing Activities such as advertising, sampling and special introductory offers, on-line, WOM campaigns, buzz are
Communication / Advertising used to increase customer AWARENESS, activities are often focused on innovators, "niche" marketing.
Great emphasis is given to educating consumers at the end of introductory stage, establishing the need.
Strong focus on a single unique brand, very often the same name is used for corporate and product
Branding
branding. No or very few line extensions
Product offers unique superior qualities. Technology plays an important role in matching product
Product characteristics / Technology characteristics to market needs. Frequent product changes. The company must seek feedback on its product
and carry out R&D to eliminate bugs
Products
Potential for substitution / Potential for substitution is very LOW as differentiation is high and competitors are not in the market yet.
Differentiation However, there's a threat of resistance or switching back to old technology products
Quality Product quality varies a lot, however, usually is settled on high level by the end of introductory stage
Price levels and variation Perceived prices are very high, no particular differentiation by price
Pricing
Price elasticity / sensitivity Hardly recognized at early stages, however, normally consumers are price-sensitive
Very easy to enter. No one dominates. If barriers exist, they are usually technology, capital or fear of the
Domination (shares of players)
unknown
Fragmentation (number of players) Not fragmented, 0
better” new product strategies (Urban and Hauser, 1993), which allow them to take
advantage of high profitability in the existing growing market without investing much
leading position in the market, yielding to originators of the product above 10%
market share (Urban and Hauser, 1993). However, they face significantly lower risks
Typically, the market is well-defined and is at the growth stage, when a majority of
27
Figure 2.13a “New-to-the-firm” products in the marketing context:
Here Here
New-to-the-Firm
Needs Emerging, often described as "exsessive" or "trendy"
Consumption occasions Growing frequency, often defined as "special occasion", not perceived as a habit yet
Profile Early adopters (at growth stage) or Early Majority (at early maturity stage)
Up to 20% of total potential number of customers in the market at growth stage, up to 50% - at early maturity
Consumer Number of consumers involved
stage
Considerable product awareness, though still low practical experience and therefore some effort on habit
Products awareness / experience /
development is required. Consumers show some loyalty to chosen brands, however, seek for alternative
Learning
options
Size of market (volume/value) Significant and measurable, up to 50% of total market potential has been realized
Life cycle stage Growth (generally), or Early Maturity
Rapid growth, above 20% " sustained strong growth above GNP…Rate decelerates towards end of stage" -
Growth rate of sales
Market size (McDonald, 2009, p.202)
and dynamics Granularity (structural complexity) Very few layers or subcategories
"Greater percentage of demand is met and upper limits of demand becoming clearer. Discontinuities, such
Predictability
as price reductions based on economies of scale may occur" (McDonald, 2009, p.202)
Variability / Variation Sustainable upward general tendency, seasonal variations can be identified
New-to-the-Firm
Marketing Objectives Capture rapidly increasing sales opportunities, maximise sales and market share
Market Challengers or Followers (Corporate positioning), Product Development (Strategic Directions), Any
Dominant strategies of the three Generic strategies (Product), Reactive (New Product): Imitative, Second - but-Better. Frontal,
Promotional
Flank or Bypass attacks on the leaders (Business), Alliance strategy is possible
Marketing
Aggressive marketing using mass communications, heavy promotional expenses. Common tool is an IMC
Communication / Advertising
campaign with focus on building brand awareness and distinctive brand image
Branding Focus on building powerful individual brands
Need for continued improvement in production processes to reduce costs and improve the product to
Product characteristics / Technology
successfully differentiate it from competitors products
Products Potential for substitution / Substitution threat is MODERATE despite aggressive promotion of alternatives. This is due to low market
Differentiation saturation and low category penetration
Quality Quality usually is quite high
Price levels and variation High prices, allowing for price-skimming
Pricing
Price elasticity / sensitivity Visible price elasticity, however, this is the best opportunity for price skimming
Although first entrée's domination is challenged at this stage, market leadership has not been yet
Domination (shares of players) established (may change instantly by 20%-30%). However, increased stability - a few competitors emerging
as strong (above 20% share)
Fragmentation (number of players) Few strong competitors (3-5). However, the level of fragmentation may vary
Competitive Quality of competition Despite high quality competition, there's a space for the growth without directly confronting competing firms.
rivalry Likelihood of new entrants Very High
Time to be established Up to 2 years for FMCG, much shorter than that for Introductory Stage (Urban et al, 1993)
Order of entry 2+
Maximum share/sales potential for a
2nd entree - 41%, 3d entrée -25%, 4th entrée - 18%, 5th - 14%, 6th - 11%, 7th etc - less than 10%
new entrant
Investments, Costs Lower initial investment than that for the 1st entrée
Very high short-term profitability due to booming sales and relatively low investment in R&D (vs. first market
Finance Reward - Profitability, ROI, margin
entrée) , Operational margins above 50%
Risk - Probability of Loss High risk of failure (Above 70%)
Distribution Mostly exclusive distribution,established logistics, building distribution networks
Infrastructure/ Suppliers Exclusive suppliers, established operations
Environment Retail channels Less strict barriers for entry, lower cost to get the product on shelf
Regulations Less difficulties with certification, Product standards have been set up
At the “growth” stage of the life cycle, market dynamics becomes less volatile
exhibiting sustainable upward trend. This makes sales forecasting for new entrants a
less challenging task than that for “new-to-the-world” products. However, obviously
28
2.2.3 “Brand stretching”
As new product progresses through its life cycle, there may be a need to exploit its
trademark and hence brand equity for another product on another existing growing
market. This can be caused by rising competitive threat in the origin market or this
may be due to its saturation and declining profits. (See Figures 2.14a and 2.14b).
Target Target
market market
Original
market Original
market
Brand Stretching
Needs Needs are clearly identifiable in both “original" and "target" markets
Consumption occasions Established and frequent, " well-developed consumption patterns"
Profile Majority in both markets ("Early majority" on the target market, "Late majority" in the original market)
Consumer
Number of consumers involved Over 80% in the original market, up to 50% in the "target market"
Products awareness / experience / Consumers are aware of key brands, experienced with products. Sustainable brand loyalty. No particular
Learning education about the category is needed
Significant and measurable, “original market" - up to 80% of total market potential has been realized, "target
Size of market (volume/value)
market" - up to 50% has been realized
Life cycle stage Maturity or decline in "original" market, maturity or growth in the "target" market
Market size
Growth rate of sales Up to 10%, "Approximately equals GNP" - (McDonald, 2009, p.202)
and dynamics
Granularity (structural complexity) Generally, both markets have complex structure
Predictability Good predictability. "Potential is well defined" for both markets - (McDonald, 2009, p.202)
Variability / Variation The market may experience fairly predictable seasonal variations
29
2.2.4 “Brand -, Line, Range- Extensions”
According to the recent studies, “some high-value line extensions (in the current
category) offer consumers an important additional benefit and can contribute just as
market as a totally new brand” (Schneider, 2004, p.73). (See Figures 2.15a, 2.15b).
Here
Here
30
2.2.5 “Brand re-positioning / Rebranding”
many and varied”. However, the most important one is re-engineering (or “re-
inventing”) the brand in order to extend its life and retain consumer base within a
Here
Here
31
2.2.6 “Product improvements and cost reductions”
changing their core characteristics such as quality, features and, particularly, price.
This helps them to protect their share in the mid-term. (See Figures 2.17a, 2.17b).
Here
Here
32
2.2.7 Expansion to a new geographical market
product, which already exists in another market (Ansoff, 2007). The risks here are
related with various barriers analyzed below (See Figures 2.18a, 2.18b).
Target Target
Market Market
Original Original
Market Market
33
2.2.8 Paradoxes
It’s worthy to mention, that continuous inflow of innovations into FMCG markets
attention nowadays is drawn to the works of Barry Schwartz and to the so called
amount of new products claiming new features (i.e. dramatic explosion in choice)
paradoxically generates more problems for customers, than it solves. The issue of
complex choice stifles trial and therefore undermines sales in general. According to
Trott (2008, p.62) this issue is a reflection of a major “control-chaos” paradox, which
states that innovation created to “facilitate order”, in reality can “lead to disorder”.
This paradox must be taken into consideration, when forecasting new product sales,
especially for line extensions. Mick and Fournier (1998) have identified few other
paradoxes related to the boom of new products. The most important are: (1)
lead to dependence), (2) efficiency – inefficiency (new products that are aimed to
aimed to facilitate human togetherness can lead to human separation), (4) fulfils
needs – create needs (new products designed to fulfill needs create new desires).
These paradoxes has had a great impact on modern marketing, making FMCG
companies follow ‘lean’ and ‘focus’ principle in their new product development
How to succeed in managing new product development and new product launches?
What are the best practices in organizing this process within Western companies?
This question is tricky due to the nature of the problem: the process of innovation
requires creativity and freedom, which cannot be organized by its definition. With
that, as pointed out by Urban and Hauser (1993, p. 36), “new products must be
34
developed in an environment that allows innovation to flourish. At the same time, the
risk … must be controlled”. Urban and Hauser (1993) argue that it is a very
challenging task to develop disciplined and, at the same time, creative atmosphere
within an organization. “Organizations are not creative by nature. They have been
organizations often spend too much time on routine operational aspects rather than
the world’s largest companies by Christensen (1997) had shown that “proper”
management was the principal reason why they failed many of their innovation
initiatives. At the same time, significant innovation projects are rarely, if ever, tackled
structured somehow. A typical unsuccessful attempt to structure the process and fit it
Figure 2.19
An example of failed attempt to structure NPD process:
Plans versus Reality
developing and launching new products. This is discussed in the next section.
35
2.3.1 Best practices for new product development: key frameworks
Over the recent years it has become obvious that there’s no single formula of
that led to new drugs; whereas the food industry is dominated by consumer research
that leads to many minor product changes. And yet the vast majority of textbooks that
tackle this subject, present the NPD as an eight-stage linear model regardless of
these major differences” (Trott, 2007, p.403). Indeed, marketing literature review
shows a great commonality of views about major activities within NPD process. The
evolution of the theory and arrival at eight-stage linear model is shown on Figure
2.20.
Source: Adapted from Urban et al (1993), Dibb et al (1997), Groucutt (2005), Trott (2008), Armstrong (2009)
According to Armstrong et al (2009, pp.271) the typical NPD process comprises the
following stages: (1) idea generation (“the systematic search for new product ideas”
using internal and external sources, including consumers), (2) idea screening
36
(spotting good ideas and eliminating bad ones), (3) concept development and testing
the product to the market), (5) business analysis (forecasting of sales, costs, and
profits), (6) test marketing ( “the stage at which the product and marketing program
(introducing the product to the market). With that, Urban and Hauser (1993), argue
implementation details may vary from company to company. Trott (2008, p.409)
stage prior to obtaining management approval to proceed to the next stage”, see
Figure 2.21), and (3) network models (the processes and teams are gradually built
Figure 2.21 Stage-Gate model is considered the best NPD practice nowadays
Stage 0 - Discovery: Activities designed to discover opportunities and to generate new product
ideas.
Stage 1 - Scoping: A quick and inexpensive assessment of the technical merits of the project
and its market prospects.
Stage 2 - Build Business Case: This is the critical homework stage - the one that makes or
breaks the project. Technical, marketing and business feasibility are accessed resulting
in a business case which has three main components: product and project definition;
project justification; and project plan.
Stage 3 - Development: Plans are translated into concrete deliverables. The actual design and
development of the new product occurs, the manufacturing or operations plan is
mapped out, the marketing launch and operating plans are developed, and the test
plans for the next stage are defined.
Stage 4 - Testing and Validation: The purpose of this stage is to provide validation of the entire
project: the product itself, the production/manufacturing process, customer acceptance,
and the economics of the project.
Stage 5 - Launch: Full commercialization of the product - the beginning of full production and
commercial launch.
Source: Adapted from Cooper et al (2010)
37
around continuously accumulated shared knowledge). Other models are, in fact,
extensions of the “stage-gate” model. Trott (2008) points out that, at the moment,
despite some disadvantages, such as “administrative gates” (which may slow down
the process, shifting the focus from customer to management), the model of “stage-
gate” can be considered “best practice” in the “western” FMCG markets. According to
Cooper and Edgett (2010), 85% of North American companies utilize this model to
some extent. However, as argued by Tidd and Bessant (2009), the near future will
likely see the increasing popularity of “network” models, such as “open innovation”.
According to the data by Urban and Hauser (1993) (see Figure 2.22), the cost of
new product introduction in the US FMCG market may vary from $50 thousands to
$310 millions, where 86% is typically spent on promotion and only 14% is the cost of
development. The time allocated for NPD varies from 18 to 35 months. In particular,
Figure 2.22 NPD process in the US FMCG market: Costs, Time, Risks
Likelihood of Success
in Phase
Opportunity identification 50%
Design 57%
Testing 70%
Introduction setup 65%
Grand Total 13%
However, these stages may overlap. The chance of success in all stages of
38
57% chance of successful design and prototype creation from the first run, multiplied
Some practices of “passionate” new product development existing within firms attract
much criticism. Urban and Hauser (1993, pp. 47-48) draw attention to the following
typical cases: (1) “who’s got a new idea today?” - totally spontaneous and
undisciplined idea generation, not related to company’s goals and strategies, (2)
“here’s a new technical discovery” - profound ignorance of consumer needs (3) “me
due to the lack of own ideas, (4) “let’s run it up and see what will happen” – a
systematic generation of many ideas that are not well thought, (5) “we’ve got to do
something fast” – “sales are down and we need something new to help us by the end
of this year”. Trott (2008) criticizes certain inflexibility and rigidness of NPD protocols
that are utilized nowadays. Many companies run NPD only for the sake of it, not
strategies. Finally, contemporary use of “stage gate” model is often criticized for a
visible lack of active consumer participation in the process (Von Hippel et al, 1998,
passively involved in the key stages of product development (See Figure 2.23a
overleaf). “Many industry analysts and business consultants are now arguing that
the devotion to focus groups and marketing research has gone too far”. (Christensen,
1997, Martin, 1995, Francis, 1994, cited in Trott, 2008). As confirmed by a series of
studies over the past decade, currently existing NPD protocols may stifle true
innovation at a very early stage and let minor product modifications to flourish (Von
Hippel, 2005). According to the theoretical modeling by Mahajan and Muller (1998),
which was later empirically confirmed by Voh Hippel (2005), targeting at conservative
majority and following their needs is sometimes financially more risky than
39
Figure 2.23a So far consumer involvement into new product development has
been very passive
Source: Based on Based on Von Hippel et al (1998, 2002, 2005), Allam et al (2002)
According to Von Hippel et al (1999, p.48), “there are two major findings by
important products are initially thought of and even prototyped by users rather than
‘lead users’ - (groups or individuals) that are well ahead of market trends and have
needs that go far beyond those of the average user”. A literature review has shown,
that nowadays NPD protocols should allow for active participation of consumers
through “fan clubs”, communities of “lead users and opinion leaders” and “innovation
toolkits”, at early and maturity stages of life cycle respectively. (Bilgram et al, 2008,
Buur and Matthews, 2008, Hoffman, 2007). (See Figure 2.23b overleaf). As argued
by Steirand and Lynch (2008), this approach is highly relevant for ‘true’ innovations
satisfying even basic consumer needs, such as food and drinks. The works of Von
Hippel et al (1988, 1999, 2002, 2005) have shown that “lead user method” can be
particularly effective for “ill-defined” or “fuzzy” markets, where consumer needs are
40
Figure 2.23b Consumer integration in NPD may change from passive to active,
depending on business situation and company’s strategy
Actively Integrated
Customer toolkits
Innovation communities
In terms of new product types, this is mostly related to “new-to-the-world” and “new-
to-the country” products. However, “traditional” approaches are still recommended for
41
With that, implementation of “lead users” approach raises the issue of identifying
“lead users” and bringing them together. Hassan (2008, p.54) has summarized some
high level of involvement, value and fashion conscious. At the same time, some of
“lead users” should act as future “opinion leaders”, showing such qualities as
accessibility”, “influence opinion”. According to Hassan (2008), Kim and Bae (2008)
2.3.2 Best practices for new product launches: key success factors
Product launch is the last, but at the same time is the most important phase of NPD
at this stage. According to Schneider (2004, p. 226), “in Robert Cooper’s ‘stage-gate’
42
process production and launch are coupled as the final stage of new product
development. We believe launch should be its own stage because the elements that
make up launch are critical to a new product success”. As per Brody and Lord (2004,
p.462), these elements include “sourcing, production, distribution, sales force activity
and marketing”, which should be executed in proper time according to the launch
plan. Brody and Lord (2004, p.462) point out, that “the manufacturer must make sure
that product is in the store in the intended time frame and that advertising and
promotional events are scheduled accordingly. This means that retail sell-in and
ensure product availability in the store”. The study conducted by Schneider (2004,
p.226-229) had revealed 10 “success factors” for new product launches, which are as
follows: (1) “Treat launch as a separate phase”, (2) “Have a plan” (“timing is
everything with launch”), (3) “Don’t carve your plan in stone”, (4) “Learn to live with
inevitable delays”, (5) “Spend money on products that are ‘new’”, (6) “Assemble an
expert launch crew”, (7) “Brand / Product managers are the best team leaders”, (8)
objectives, strategies and engines used are quite different for each type of new
product. Although the topic of marketing and media planning goes beyond the scope
of the present study, it is necessary to consider “best practices” in this area in view of
their particular importance for sales forecasting. Rossiter and Percy (1987) suggest
that the amount of advertising, promotional, PR activities may vary depending on the
life stage of the product, product type and category, marketing objectives, strategy,
43
etc. In the later work, Rossiter and Danaher (1998) identified several typical “media
weight” patterns used to effectively support sales at various life stages. A set of
patterns applicable for new product launches includes (1) “blitz” pattern, (2) “wedge”
pattern, (3) “reversed wedge” pattern, (4) “awareness” and (5) “short fad” patterns.
The shape of “blitz” pattern is flat, meaning continuous activity for a certain period of
time. This type “will maximize the first-mover advantage if your brand is first in the
category” and “tend to suppress the effects of any competitors advertising by use of
sustained dominance” (Rossiter and Danaher, 1998, p.11). The “wedge” pattern is
“probably the most common for new product launches”, and implies heavy initial
“burst” of advertising “to create brand awareness for the new product and enable
prospective triers to learn new product benefits or acquire its intended image”
(Rossiter and Danaher, 1998, p.13). With the “reversed wedge” pattern, the audience
receives consistently increasing media “weight” with each “burst”. “In the most
effective application of this pattern the target audience consists of innovators and
then is broadened to the mass market”. (Rossiter and Danaher, 1998, p.14). The
“short fad” pattern is like a short “blitz” pattern. As for “awareness”, here “the
1998, p.18). This pattern consists of a series of “bursts” and exploits memory effects
1998), Pickton and Broderick (2005), McDonald (2009) some general conclusions
can be drawn concerning the “best media and distribution build patterns” for different
types of new product launches (see Figure 2.23 overleaf). As it follows from the
chart: (1) “new-to-the-world” and “new-to-the-country” cases are quite similar and are
based on the “reversed wedge” pattern, with a heavy PR campaign preceding sales,
opposite - “wedge”, “blitz” and “short fad” approaches, (3) “product or price changes”
44
Figure 2.23 New product launches: typical marketing “push” patterns
2.4 Major challenges for new product launches in the Russian market
Despite emerging globalization it has become obvious that international markets are
“culture and languages are only part of marketing environment. A set of economic,
political, legal, social and cultural characteristics has a great influence on the
concerns the strategy of new product introductions a lot more than it concerns other
one fundamental factor affecting marketer’s decision “about which global market to
45
habits between economies. Both Usunier (2000) and Armstrong et al (2009) argue
that ignorance of such differences can lead to some very expensive and
markets, Kotler (1998) recommends to draw attention to the following factors: (1)
demographic characteristics (population size and growth, age profile, education), (2)
social norms, languages), (3) geographic scope (country size, climate, population
density, transportation structure), (4) Political and legal factors (national priorities,
political stability, bureaucracy, monetary and trade regulations), (5) economics (GPD
financial resources). From marketing perspective this list of factors perfectly fits the
‘markets characteristics’ framework developed in Section 2.2 (see Figure 2.4). The
framework is therefore suitable for examination of the Russian FMCG market against
Concerning “western” FMCG markets, almost all of them are extremely saturated. In
70-ies these markets were less penetrated and less saturated then they are today
(Clancy,1992). Nowadays “whatever real growth there is, comes from population
increases, which never exceed 1 to 2 percent a year. To survive at all, a new product
must wrench market share from other, established brands”. (Clancy, 1994, p.7). As
for the Russian FMCG markets, before going into details, let us have a look at Russia
from a global economic perspective. Being the largest country in the world, Russia
holds a significant place in the very beginning of the global production chain,
exporting raw materials and natural resources (oil, gas, metals, woods) to more
developed economies (such as European Union, the United States etc) and being a
46
(Economist Intelligence Unit, 2010). The structure of import/export operations allows
for classifying Russian economy as “raw material exporting” - “these economies are
rich in one or more natural resources but poor in other ways, these markets are good
markets for large equipment, tools, supplies as well as for consumer goods. If there
are many foreign residents or a wealthy upper class, they are also a market for luxury
economies Russia has to reach more than 10-20% share of manufactured products
in the total export value (Armstrong et al, 2009), however, currently that accounts
only for 6% of national export (Rosstat, 2010, Economist Intelligence Unit, 2010).
Investments into new product development remain at a very low level in comparison
Figure 2.24 Russia’s the one of the biggest suppliers of natural resources and an
importer of ready-made products. NPD investments are marginal
Metals
13%
67% Oil, fuel
& gas
18%
Food
Source: Based on Rosstat (2010) , Economist Intelligence Unit (2010), Ruvinsky J. (2007)
According to Usinier (2000, p.179), the region of Eastern Europe and the former
and negotiable”. These changes fuel rapid economic growth, which is more than
double than that for developed countries. (see Figure 2.25 overleaf). A detailed
comparison between the Russian market and the biggest markets of Northern
47
America, Europe and Asia clearly shows that they are at different stages of their
evolution. Considering FMCG sector, the needs of Russian consumers are rapidly
emerging (unlike that in the developed countries), shifting from the very basic to more
sophisticated desires (EIU,2010). Their disposable income grows at very high rates,
distribution networks.
Figure 2.25 Despite its size, emerging Russian economy exhibits growth rate which
is more than double than that for developed countries
0% 0%
2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F
-10% -10%
-18%
-20% -26% -20%
-30% -30%
Russia US Japan Germany UK Russia US Japan Germany UK
Although product awareness across FMCG categories seems quite high, at the
Economist Intelligence Unit (2010), Russian market, as a whole, is very far from
markets, the upper limit of their growth potential is expected to be nearly reached,
particularly in terms of sales volume. (See Figure 2.26a overleaf). Although Russian
retail market is considerably smaller than that in the US, its size is comparable to UK
by 2013, while major “western” FMCG markets will grow at a very low rate or
48
Russian FMCG market is far from saturation, while “western”
Figure 2.26a
markets have almost reached the upper limit of their growth potential
US,UK,
US,UK,
Germany,
Germany,
Japan
Japan
Russia Russia
Size of market in 2009 - $457 bln, in in 2009 - $3442 bln, in in 2009 - $467 bln, in in 2009 - $389 bln, in in 2009 - $1424 bln, in
(value, total retail) 2013F -$782 bln 2013F -$3969 bln 2013F -$516 bln 2013F -$492 bln 2013F -$1627 bln
Growth (although
Life cycle stage saturation is observed in Highly saturated Highly saturated Highly saturated Highly saturated
some FMCG categories)
Moderate (still unstable Very high (very stable Very high (very stable Very high (very stable Very high (very stable
Predictability of market
market structure and market structure and market structure and market structure and market structure and
reactions and factors
demand) demand) demand) demand) demand)
Moderate (still
unexpected fluctuations Low / Very small Low / Very small Low / Very small Low / Very small
Variability / Variation
caused by internal unexplained variations unexplained variations unexplained variations unexplained variations
market factors)
To succeed in the Russian and “developed” markets firms pursue different marketing
strategies. In the Russian FMCG market, the most popular set of business strategies
while defensive price-focused strategies are dominant in the US, UK, Germany and
49
Figure 2.26c A comparison of the Russian market versus developed
markets: Dominant Marketing Strategies
Russia Developed markets (US, UK, Germany, Japan)
Market Development and Market Penetration (Strategic Market consolidation and Product Development Strategies
Directions), Focus (Product), Proactive ATTACK: Bypass, (Strategic Directions), Overall cost leadership (Product)
Dominant strategies
Promotional Flank, Alliance or Acquisition (Business), Sequential (Strategy DEFENSE: Position Defense (Business). Responsive (New
Marketing types) product strategies).
Product characteristics / Technologies are sometimes new for the local market but
Technological content is known in a majority of cases
Technology ordinary for the markets of developed countries
Potential for substitution / Moderate. Despite highly differentiated brand image of new Moderate. Despite existing brand loyalty, price has become
Products Differentiation products there's a significant threat from "me-too" products more important than brand in terms of purchase decision
Variable (from very low to very high). For new products
Quality imported from developed countries is initially perceived as Stable good quality
VERY HIGH
High variation. Perceived prices are very high especially for
Price levels and variation new imported products. Very cheap local alternatives are Low variation. A tendency for prices to fall
Pricing generally available.
Price elasticity / sensitivity Visible price elasticity. Price skimming is observed. High price elasticity
Regulations Possible difficulties with product certification Regulatory pressures play considerable role
very risky both in the Russian and “developed” markets, because of various reasons,
though (See Figure 2.26d). In the case of “developed” market the risk is mainly due
to the aggressive competitive environment and the lack of market niches. While in
the case of the Russian market the risk is associated with consumer acceptance and
50
market infrastructure. New product launches in both markets require substantial
An analysis of trends in the particular FMCG markets has revealed that a large
majority of FMCG markets in Russia are not yet saturated as compared to the US,
UK, Germany and Japan (Datamonotor, 2010). In terms of volume, the only
saturated FMCG markets in Russia are beer and spirits, while the expected growth
by 2013 for some other categories varies from +5% (traditional milk) to 37%
(snacks). Just for comparison, the largest increase expected on the “developed”
market is 14% for soft drinks in the UK. Concerning Russian food market growth in
value terms, it is expected to reach +67% by 2013%, which is more than threefold
higher than that in Europe and more than tenfold higher than that in the US and
Figure 2.27 Unlike developed markets of US, UK, Germany and Japan, a large majority of
Russian FMCG markets are at the growth stage and are expected to deliver a
strong double-digit growth by 2013, both in volume and value terms
Russia US Germany UK Japan
Sales in Growth Sales in Growth Sales in Growth Sales in Growth Sales in Growth
2009 by 2013 2009 by 2013 2009 by 2013 2009 by 2013 2009 by 2013
VOLUME PER CAPITA:
Savory Snacks kg p/c 1.7 +36% 5.9 +7% 3.2 +9% 7.2 +11% 6.8 +10%
Soft Drinks litres p/c 108.9 +29% 403.1 +10% 312.8 +9% 203.6 +14% 140.0 +9%
Hair care units p/c 4.3 +23% 5.6 -10% 6.2 -0% 8.2 -1% 7.1 +3%
Make up units p/c 1.5 +21% 2.5 -1% 1.9 +5% 2.9 +11% 2.5 +4%
Confectionery kg p/c 9.3 +17% 12.1 +4% 13.9 +6% 14.9 -0% 3.9 +4%
Meat kg p/c 46.8 +12% 91.4 +0% 84.0 +2% 72.9 +0% 34.4 +3%
Fish kg p/c 19.5 +7% 23.4 +2% 14.4 +1% 19.2 -2% 65.7 +2%
Fruit kg p/c 75.3 +6% 124.2 +3% 136.2 +1% 145.3 +5% 59.1 +2%
Hot Drinks (Tea, Coffee) kg p/c 2.0 +6% 2.5 -3% 4.3 +7% 2.6 -2% 2.1 +5%
Vegetables kg p/c 114.5 +5% 125.4 +2% 134.0 +1% 135.2 +5% 130.0 +2%
Milk litres p/c 170.0 +5% 268.9 +3% 260.3 +3% 236.7 -2% 68.1 +3%
Alcoholic Drinks litres p/c 90.2 +0% 99.5 -1% 144.4 -3% 128.3 -11% 70.1 +1%
Beer litres p/c 70.0 -3% 83.5 -2% 109.0 -4% 84.0 -18% 51.4 +1%
VALUE PER CAPITA:
All food US$ p/c 1 400.3 +57% 2 974.6 +7% 3 297.1 +16% 2 785.1 +23% 4 327.3 +4%
Savory Snacks US$ p/c 8.7 +38% 59.7 +14% 27.8 +13% 84.0 +18% 87.3 +12%
Make up US$ p/c 11.1 +38% 20.1 +2% 22.3 +12% 28.9 +17% 34.1 +6%
OTC Pharma US$ p/c 38.9 +36% 79.9 +8% 109.5 -1% 92.1 +1% 74.7 +7%
Dairy (all products) US$ p/c 95.5 +33% 154.3 +14% 285.0 +6% 279.5 +14% 133.8 +14%
Soft Drinks US$ p/c 91.9 +25% 391.1 +6% 413.0 +10% 415.2 +18% 288.7 +6%
Hair care US$ p/c 9.2 +25% 24.0 -7% 31.3 +2% 29.2 +0% 38.6 +5%
Household products US$ p/c 24.8 +24% 56.8 +0% 60.4 +5% 101.8 +5% 51.1 +9%
Confectionery US$ p/c 73.6 +22% 110.6 +7% 155.8 +7% 219.7 +5% 61.4 +5%
Alcoholic Drinks US$ p/c 445.5 +14% 502.0 +2% 1 402.1 +0% 1 126.1 -5% 412.0 -2%
Hot Drinks (Tea, Coffee) US$ p/c 30.4 +11% 30.3 +3% 84.5 +9% 54.9 +3% 27.4 +6%
Tobacco US$ p/c 118.8 +10% 324.5 +6% 306.8 +8% 368.3 +5% 305.3 +17%
Beer US$ p/c 200.1 +6% 259.6 -0% 742.8 -0% 664.0 -15% 221.9 -2%
The analysis above has confirmed that Russian FMCG market is dramatically
different in comparison to “developed” markets, such as the US, the UK, Germany
and Japan. While the latter markets are at the stage of “saturation or decline”,
51
employed in these markets and the types of new product launches are dramatically
arena for expansion of the biggest multinationals that pursue “market development”
2.2. The analysis performed above allows to hypothesize about: (1) considerable
FMCG market (2) differences in the process of launching new products (3)
marketing, and Simulated Test Marketing in particular. This will be considered in the
next chapters.
As discussed earlier, the concept of “stage gate” is widely used in the “developed”
competitive barriers. The Russian market is very specific due to its size, booming
demand, low saturation and underdeveloped infrastructure, therefore, the key issue
here is not the competition, but uncertainty about sales mechanics, infrastructure,
general economic environment and consumer acceptance. Although there are not
many academic sources available on that topic, the analysis of available information
has given some vital clues about new product launching in Russia, such as: (1)
absence or a very short R&D stage, (2) time-consuming efforts around sales
infrastructure, (3) short turnover cycles and short-term horizon of planning, (4)
importance of “branding” and its adaptation (see Figure 2.28a overleaf). Also, it is
worthy to note the following specifics of the Russian market: (1) lower conservatism
of consumers than that in the developed markets, (2) high importance of social
networking, (3) lack of reliable market information, that undermines general trust in
52
marketing research, (4) rising need for trustworthy research techniques applicable to
the local market, (5) considerable regulation barriers, (6) issues with confidentiality
Figure 2.28a Specifics of new product development and launches in Russia (1)
Figure 2.28b Specifics of new product development and launches in Russia (2)
53
Although there is a visible lack of academic research on NPD in Russia and no
reliable statistics, the topic is being extensively discussed in the local periodical
Figure 2.29 The standard flow of “Stage-Gate” activities is heavily influenced by the
business urgency, i.e. “market penetration” and gaining short-term profit
Very often: Very often: Very often: Very often: Very often:
1. R&D is omitted 1. Arbitrary 1. Lack of market 1. Skipped or 1. Rough short-
2. Preliminary need 2. Not systematic information half-done term
assessment is 3. Consumer 2. Operational and due to plans, clashes
very rough and opinion is infrastructure urgency 2. Difficulties with
market analysis ignored or complexities and rapidly establishing
is poor overemphasized changing sales
3. No systematic 4. Inadequate market infrastructure
approach to research tools environme 3. Lack of
generating new used nt investment
product ideas 4. Stopped if no
4. Ideas are simply immediate
transferred from profit
the developed
markets Source: Based on Agaeva M. (2008), Burdey K. et al (1999), Belotserkovskaya, O (2005),
For example, at the current stage of market development in Russia, the need for
2008). Still, the culture of its use is not widely established (Burdey et al, 2010).
54
research agency, the specifics in developing and launching new products in Russia
are the following: (1) tight time schedules, sometimes lasting for only 2-3 months
from the moment of project idea, (2) arbitrary decisions, i.e. authoritative style of
decision making about what product is to be launched, when and how, (3) prioritizing
“product” over “consumer”, i.e. building promotional strategy around the product, and
not around consumer needs, “inventing” and developing consumer needs that may
suit product features, (4) focus on “western” products, i.e. imported products as well
as “imported” lifestyles, (5) “pseudo-new” products, i.e. changing the original product
formula in order to cut the cost, but selling it as a novelty, (6) volatile economic
shown (Burdey et al, 2010), the major reasons of failures in the Russian FMCG
market are: (1) “inadequate” product idea supported and pushed by the top-
management, (2) loss of focus on consumer needs, too much emphasis on product,
(3) ignorance of marketing research or its very poor quality or its improper use or
profits expected immediately, (6) chaotic process of new product development and
company but a definite failure in the marketplace, (8) inappropriate pricing , too high
or too low (9) poor quality control, i.e. inability to maintain consistent quality, (10)
wrong time for product launch, i.e. market is not ready or not established, (11) issues
with retailers, distribution or supply chain, i.e. high entrance fees, poor coverage, out-
55
2.5 Key findings
A thorough analysis performed in Chapter 2 above has resulted in the following key
terms of its global role (import of ready-made FMCG products vs. export), life
characterized by a very short R&D stage, transferring product ideas (or products)
from other markets, inadequate use of marketing research tools, high emphasis
56
CHAPTER 3
reporting this information” (Clemente, 2002, p.246). This is “one of the most
important and fascinating facets of marketing” and one of the vital functions within all
Malhotra (2007, p.13), “the task of marketing research is to assess the information
needs and provide management with relevant, accurate, reliable, valid, current and
provide sound information. Sound decisions are not based on gut feeling, intuition or
even pure judgement”. Tull and Hawkins (1993) argue that a single purpose of
better decisions”. The information required can be obtained from various primary and
The past few decades saw an enormous popularity of marketing research as well as
its dramatic influence on decision making in the FMCG sector. The negative side of
57
leading multinational companies (Christensen, 1997). As pointed out by von Hippel
and Thomke (2002, p.74), the marketing mantra that has dominated the market so
far, i.e. “listen carefully to what your customers want and then respond with new
products that meet or exceed their needs" does not always work in case of new
differ depending upon the type of new product. Following that logic, Hart et al (1999)
and Trott (2001, 2008) suggested that standardized approach to marketing research
is not equally effective in all cases of new products. Although the great majority of
authors (Trott, 2008, von Hippel et al, 2002, 2005, Christensen, 1997, Malhotra,
2007, Tull and Hawkins, 1993 etc) recognize the fundamental role of marketing
research in the process of NPD, they point out its twofold effect: marketing research
may be either destructive in the case of improper use or extremely helpful in the case
of thoughtful application.
3.2 Aligning marketing research with NPD process: key tools and approaches
The key information needs addressed by marketing research in the traditional “stage-
Customers; Surveys
Testing and validation: small- Profile of new product performance in light of
(Tests and Test Final go/no go for launch;
and large-scale tests with competition, promotion and marketing mix
Marketing); Production; Final marketing plan
customers variables
Sales
Full-scale launch: Sales
Test market results and report; Monitoring
Launch Customers;Sales performance; Customer
launch performance
acceptance
58
As it seen from the figure, marketing research is crucial to success of a new FMCG
product. The industry of marketing research has developed numerous tools and
development (Belliveau et al, 2002, Malhotra, 2007, Tull and Hawkins, 1993, Davis,
1997, Duboff and Spaeth, 2000, Wind and Green, 2004, Bagozzi, 1997, Burton et al,
1986, Shim, 2000, Hanke et al, 2001, Webb , 1992, Franses and Paap, 2007, Urban
and Hauser, 1993, Lilien et al, 1992, 2007, Clancy et al, 1994, 2006, Farris, 2006,
Davis, 2007, Thomas, 1993 etc.). Regardless of general methodology and data
collection principles, these tools can be divided into several groups and sub-groups,
according to their functional role in the business process: (1) “problem identification
(Malhotra, 2007, Hart et al, 1999). One of the most rigorous classifications is offered
“confirmatory” techniques “go hand in hand, and a given marketing research project
may combine both types of research”. (Malhotra, 2007, p. 9). For example, complex
59
studies such as market segmentation can be classified as both “problem
often used at the “strategic planning” phase of NPD due to their strategic nature,
while “problem solving” techniques are employed at later stages. The major task of
“exploratory” studies is to clearly identify the issue and address it with the launch of
Figure 3.3 The types of new product developed by the company must be strictly
determined by the strategy
“Line Extensions”
“Brand re-launch”
“New-To-The-
Source: Malhotra (2009), Tull et al (1993), Groucutt (2005), Shim(2000), Webb et al (1992),Trott (2008)
A very detailed review of marketing research tool is beyond the scope of the present
work, however, as literature review has shown (Belliveau et al, 2002, Malhotra, 2007,
Peng and Finn, 2008, Tull and Hawkins, 1993, Davis, 1997, Duboff and Spaeth,
2000, Wind and Green, 2004, Bagozzi, 1997, Burton et al, 1986, Shim, 2000, Hanke
et al, 2001, Webb , 1992, Franses and Paap, 2007, Urban and Hauser, 1993, Lilien
et al, 1992, 2007, Clancy et al, 1994, 2006, Farris, 2006, Davis, 2007, Trott, 2008,
Groucutt, 2005, Rossiter and Percy, 1987 etc.)., there are several broad groups of
launching. These are: (1) Qualitative tools - providing insights, helping to generate
ideas and understand the nature of the problem; these tools include focus‐groups,
60
brainstorming and ideation sessions, in-depth interviews etc., (2) Quantitative
advertising tests, product tests, price tests, pack tests, (3) Quantitative tests for
particular marketing mix elements comprising both diagnostic research and sales
assessment, such as conjoint – the “joint” analysis of various attributes, e.g. price
and product characteristics and their impact on preferences and market share, (4)
Simulated Test Marketing (STM) or Volumetric Bundle Tests – a quantitative test for
a full set of marketing mix components that simulates the launch of a new product
upon a representative sample of potential buyers and provides sales forecast with an
estimate of actual sales volume for a new product or line extension” (Baldinger, 1988,
p.3), (5) Traditional test market – controlled sales of new product in a sample of real
stores during a period of several months, (6) Econometric sales forecasting based
(retail audit, consumer tracking, household panel, industry statistics, media etc), (7)
discussed above, the set of marketing research tools employed may be different for
The analysis of available literature sources listed above has helped to crystallize and
the-world” products, for each particular stage of new product development process.
61
Discovery Stage – Assembling Knowledge.
emerging social and technological trends in the areas of company’s strategic interest
are available (i.e. the areas of business where a firm is planning to develop their new
and suppliers. The most important piece of useful information should come from
revealed trends, it is vital to identify “lead users” or “opinion leaders” within each
trend (i.e. find individuals that are on top of the trend) and study in advance their
Output: a set of materials for ideation sessions, prepared in a concise and clear form.
62
Specifics: Although researchers usually seek for ideas, which score very high in
terms of Purchase Intention (PI), in the case of “new-to-the-world” product there will
consumers. Instead, it is recommended to focus on ideas received low PI, but very
“lead users”, using the same screening technique. In case of positive feedback from
“lead users” community, as suggested by von Hippel (2002, 2005). At this stage it is
worthy to save “less promising” ideas for further use in the next rounds of idea
generation.
Specifics: The best results may be achieved with an active participation of “lead
draft product picture, product statement (insight, reason-to-believe, benefit, end line),
Specifics: Same recommendations as for idea screening. In this particular case the
63
Output: up to 5 concepts
time, required to create the need for a completely new product in consumers’ minds,
(2) high financial risks associated with investments in infrastructure, production and
promotion, (3) unstable sales in the beginning of introduction, (4) high rate of product
modifications, (5) niche or focus product positioning in a majority of cases, (6) limited
number of actual consumers at early stage of market (i.e. innovators, early adopters,
communication, the inputs from “lead users” should be significant to ensure rapid
actually be considered as product launch (or vice versa) due to a very narrow target
market. If using quantitative tests, researchers have to be ready for a number of re-
techniques designed to test the whole marketing mix in a single “bundle” (e.g.
Simulated Test Marketing) makes little practical sense. Instead, it is advised to run a
few simple separate studies in order get basic consumers’ response (including
feedback from “lead users’”) on product, pricing, positioning, possible barriers for
64
adoption. While sales forecasting, it is advised to focus on short-term projections
need to try to identify the moment of “crossing the chasm” (Moore, 2002), i.e. the
Specifics: According to Trott (2008), it takes much longer time to launch a “new-to-
the-world” product as compared to the other types of new products. The focus in
promotional plan needs to be made on the community of “lead users” and “opinion
retail audit etc). However, considerable attention should be paid to gathering direct
Output: sales, feedback from key agents of product launch (consumer, retailer etc).
65
Specifics: The central role at this stage is played by the information about recent
suppliers. It is desirable, but not obligatory to collect information about “lead users”
and “opinion leaders”, i.e. lifestyle, product preferences etc. However, it is worthwhile
making an estimate of their incidence, which should normally exceed 20% of total
Output: a set of materials for ideation sessions, prepared in a concise and clear form.
not obligatory in case information about their lifestyle and preferences is available
(PI) on total audience, however, paying attention to those with high level of
of this group. When necessary, consider additional qualitative sessions with “lead
users”.
66
Specifics: It is possible not to involve “lead users” in the concept generation, if
should exhibit high sales potential on total audience, however, “lead users” opinion
Specifics: In case of sustainable and rapid growth of the market, it is advised to start
analysis etc. The next step is usually a mid-term planning of product launch (i.e.
Output: 1-2 product offers, along with 2-3 marketing plans per offer
Marketing
structure, number of players - over a relatively short period of time. However, at this
stage the market is nearly shaped (i.e. consumer needs are generally identified) and,
therefore, market potential can be roughly estimated. With that, market testing needs
to be quick, delays with the launch may result in missing opportunities and losing
market share to competitors. Therefore, at this stage the system of testing should
67
produce accurate assessment of marketing mix components and assist in revealing
barriers for further sales growth. The process should be flexible, fast and confidential.
At the same time, it should not be costly or demanding in terms of study materials
(i.e. ready commercials, packs, quantity of products to test). The option of precise
sales forecasting is not mandatory as normally projections does not exceed 30%
sales. Traditional Test Marketing is not always the best solution at this stage due to
diagnostics and unclear accuracy of sales forecast (e.g. difficulties in making national
projection etc.). The horizon of business planning at this stage is either short or mid-
term, however, developing a view on the future market tendencies is essential. This
Tools: Advertising / Brand tracking or post-tests, Retail audit, Media tracking (TV,
identification” studies.
Specifics: It is desirable to continuously monitor the launch with the range of special
techniques, such as advertising effectiveness tracking, retail audit etc. It is vital for
success at this stage to gauge and understand consumer response (as well as
competitors’, retailers’ etc) and make adjustments accordingly. To move the business
Output: sales, feedback from key agents of product launch (consumer, retailer etc).
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3.2.3 Specifics of marketing research in case of “Brand Stretching”.
The review below is based on the literature sources listed in Section 3.2.
the stage of rapid growth. The choice of the market is often made with “BCG matrix”
imperative to conduct segmentation studies for the target market (i.e. U&A, Market
landscaping) in order to reveal “white spaces” and quantify the size of unexploited
suitable for extension in terms of brand image. Within these studies, it is important to
assess “substitutability” of products from the original category by the products from
the target category - to avoid excessive cannibalization. The risks concerned with
brand image “dilution” due to the presence in several markets should be measured
Output: a set of materials for ideation sessions, prepared in a concise and clear form.
quantitative test of marketing mix components, simple and flexible Simulated Test
69
Marketing techniques. One of the key requirements is rich diagnostics of consumer
and target markets. Traditional Test Marketing is seen as not ideal tool in case of
brand positioning.
(customer, retail, media etc), covering both original and target markets. Also, in order
to provide support in further development of the target market (e.g. possible range
extensions), it is desirable to repeat the segmentation study within 2-3 years after
Section 3.2.
Specifics: Product line extension is typical for late stages of market development.
sophisticated needs of consumers and capture empty space on the market. At the
70
initial stage it is important to gather information on the emerging needs of consumer
It is desirable to monitor new product launches in the local and global markets (e.g.
Datamonitor Market Watch) and track competitor activities. Finally, it is vital to obtain
recent data on market size, its dynamics and structure (e.g. expert forecasts,
Output: a set of materials for ideation sessions, prepared in a concise and clear form.
Specifics: Promising ideas should show capabilities for defending and growing
market share for the total product range, i.e. exhibit high purchase intent on the basis
of total audience.
draft product picture, product statement (insight, reason-to-believe, benefit, end line),
71
Gate 2: Second Screen / Concept Screening
techniques as TURF (to optimize the number of SKUs in the range) and Conjoint (to
(2-3 years), focusing on the product launch and promotional tactics. The plan should
Output: 1-3 product prototypes along with 2-3 marketing plans per each
Tools: Quantitative tests, Conjoint, TURF, Simulated Test Marketing, Test Marketing
price tests. It is advisable to consider using Conjoint and TURF, if this is not done on
the previous stages. Traditional Test Marketing may help in sales forecasting and
72
3.2.5 Specifics of marketing research for “Brand re-launch / repositioning”.
sales decline and defend market share. This is usually achieved through renovation
allowing for in-depth study of consumer lifestyles and needs. It is important to have
infrastructure.
Output: a set of materials for ideation sessions, prepared in a concise and clear form.
Specifics: Ideation sessions are most productive when run in diverse groups of
agencies.
73
Gate 1: Idea screening
Specifics: The typical reason for idea selection is high purchase intent, exceeding
that for the current idea of positioning. This should be measured on the basis of total
Output: up to 3 concepts
Specifics: In this case it is required to carry out short- and long-term business
incremental sales potential. The stages of business planning may overlap with the
Output: 1-3 positioning options with 2-3 business plans per each
74
as well as delivering rich diagnostics of positioning in competitive environment.
Carrying out Traditional Test Marketing is not recommended due to its limited
The following set of insights is based on the literature sources listed in Section 3.2.
Specifics: Changing product characteristics or price is quite common for late stages
of the market lifecycle. This is usually done in response to competitive actions with
the purpose to defend market share. At this stage, the central role is played by
technical ideas from R&D department as well as market data delivered by various
tracking studies, which monitor competitive activities in media and retail (e.g.
consumer tracking, media monitoring, retail audit etc). Gathering news on product
Output: a set of materials for scoping, prepared in a concise and clear form.
75
Specifics: Typically treated as one-stage due easiness of idea generation and high
time pressure.
Specifics: In this case it is often required to develop a short-term business plan (up to
1 year), which includes projection of market share and sources of volume. The latter
Marketing, while in other cases using Conjoint and quantitative tests of marketing mix
Tools, Specifics, Output: Same as for “New-to-the-firm”. Information from retail audit
is particularly important.
76
3.2.7 Specifics of marketing research for “New-to-the-Country” products.
determine the stage of development for the market of such products in the target
country. Researchers must make sure that they have collected all available
information about the target market: its structure, dynamics, competitive and
and lifestyles (see Section 2.2, Figure 2.4) . It is important to obtain historical data
and background information on the recent product launches and do the same for the
economies, where markets are either embryonic or entering the stage of growth (see
consumers in the country of product origin, and acting as trend setters in the local
culture. As discussed above, the role of “lead users” is central to market development
at early stages, therefore it is important to gather all available information about them
Output: a set of materials for ideation sessions, prepared in a concise and clear form.
77
Discovery Stage – Ideation.
of qualitative studies aiming at getting current consumer perception about the original
Output: Ideas of the “localized” product in the textual and graphic forms, 5-10 items.
(Technical, Business).
Specifics: Typically the most promising ideas selected at this stage have high
purchase intent (PI) on the basis of total audience or among “lead users”. During the
promotion, especially in the case of low PI. This issue may require additional in-depth
Specifics: It is desirable to finalize the concept using feedback from “lead users”
Concepts: 2-3 concepts in the standard format, i.e. product name/headline, draft
78
Specifics: In the case of a completely new market the stringency of concept selection
may be decreased. If the concept is perceived positively only by “lead users” and not
growing market.
advanced markets that are similar in terms of consumer profile and culture).
Output: 1-2 products (in case of growing market) and up to 4 product options (in
case of new market) along with 2-3 marketing plans for each.
the-firm” products, depending on the state of the market. In the first case, large-scale
Simulated Test Marketing (STM) study have little effectiveness in terms of sales
forecasting and may easily lead to wrong conclusions about new product
perspectives in the market. However, it may provide some powerful diagnostics, but
at a very high price. Concerning the second case, the only STMs that can be
79
recommended, should meet requirements outlined in respective section for “new-the-
firm” products.
Output: 1-2 products (in case of growing market) and up to 4 product options (in case
market.
Output: sales, feedback from key agents of product launch (consumer, retailer etc).
The table exhibited in Figure 3.4 summarizes the discussion above. Thus, it is
evident that research programs differ significantly depending upon the type of new
product. The more developed is the market, the greater is the role of quantitative
Figure 3.4 The role of large-scale quantitative tests increases with market
development
Re-
Product /
New-To-The- New-To- New-To-The Brand Line Positionings
Price
World The-Firm Country Stretching Extensions /
changes
Relaunches
Source: Based on Malhotra (2009), Tull et al (1993), Groucutt (2005), Shim(2000), Webb et al (1992)
80
3.3 Methods to forecast sales for a new FMCG product
The true function of marketing research is not just gathering consumer and business
insights, but shaping a future vision of the market and the company’s place in that
reliable forecast creates the foundation of a business plan and, consequently, the
future success of the company - “if you cannot foresee the company’s future, don't
invest in it” (Dorsey, 2004, p.11). In particular, according to Shim (2000, p.3) “sales
forecasts give the expected level of sales for the company’s goods… throughout
some future period; they are instrumental in the company’s planning and budgeting
functions, and are key to other forecasts and plans”. As defined by the “Marketing
specific marketing program”. Dibb and Simkin (2008), and MacDonald (2008) point
out that sales forecasting and marketing research are tightly integrated into each
other. Thus, a number of forecasting tools (or instruments) are an essential part of
product sales, market share levels and other marketing variables. An example of
effects of variations in marketing mix variables (e.g. the size of advertising budgets,
besides such well-known approaches as econometrics, there are many other sales
fundamental literature on the topic (Burton et al, 1986, Berenson and Levine, 1986,
Lilien et al, 1992, Aivazian and Mkhitarian, 1998, Draper and Smith, 1998, Baker,
81
1999, Hanke et al, 2001, Shim, 2000, Franses and Paap, 2001, Wind and Green,
2004, Mentzer and Moon, 2006, Slutskin, 2006, Koop, 2008, Gujarati and Porter,
2009, Rossi et al, 2009, Byrne, 2010 etc) allows to suggest that forecasting
instruments can be divided into two main groups, according to the use of historical
data. Instruments comprising the first group do not directly utilize historical
Figure 3.5a Sales forecasting instruments which does not utilize historical data
directly
Description Typical Application Data collection
1) Primary information (Judgemental / Qualitative)
Based on the assumption that several experts can arrive at a better Forecasts of long-range Information from a panel of experts is openly
forecast than can one person. There is no secrecy, and communication and new product sales; in group meetings to arrive at a consensus
Expert opinions
is encouraged. Forecasts are sometimes influenced by social factors and technological forecast. Minimum is two sets of reports
may not reflect a true consensus. forecasting over time
Stochastic modeling
(e.g. Markov approach Models based on learned behavior: consumers tend to repeat their Forecasts of sales and
Data required for transaction probabilities
/ Bayesian approach / behaviour cash collections
Game theory etc )
3) Indirect information
Typically a B2B survey that captures information from various market Inputs to quantitative
Industry (Market)
agents (such as partners, retailers, manufacturers, distributors, analysis of secondary Personal interviews, questionnaires
surveys
regulators etc).about their actual performance and future plans information
Input - Output
Concerned with the interindustry or intermarket flow of goods or services. Forecasts of company Considerable amounts of cross-category
(Structural flows)
It shows what flow of inputs must occur to obtain outputs sales by sectors sales data
analysis
Leading indicators / Leading indicators, analogies or normatives tends to predict future trend Forecast of sales by An observation (e.g. consumer survey) plus
Analogy / Normative in sales product class a databese of similar cases
Sources: Based on Chambers et al (1971), Shim (2000) and the following review of Burton et al (1986), Berenson et al (1986), Lilien et al (1992), Aivazian et al
(1998), Draper et al (1998), Hanke et al (2001), Franses et al (2001), Wind et al (2004), Slutskin (2006), Koop (2008), Gujarati et al (2009), Rossi et al
(2009), Byrne (2010)
According to Shim (2000, p.5), these models are indispensable “when patterns or
relationships do change” and the advantage of such methods is that they are “able to
identify systemic change more quickly and better interpret its effects on the future”.
These instruments are useful for both long- and short- terms forecasting in case of
that for the methods which handle historical data. The latter methods work superbly
accumulated and there is little or no systemic change in the environment (See Figure
3.5b overleaf).
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Figure 3.5b Sales forecasting instruments which utilize historical information
(b) Causal
Forecasts of sales by product
Simple / Multiple Functionally relates sales to other variables and estimates an At least 30 observations are recommended
classes, forecasts of earnings
Regression equation using the least-squares technique for acceptable results
and other financial data
A system of independent regression equations that describe some
Econometric modeling sector of sales or profit activity. The parameters of the regression The same as for regression The same as for regression
equations are usually estimated simultaneously
Sources: Based on Chambers et al (1971), Shim (2000) and the following review of Burton et al (1986), Berenson et al (1986), Lilien et al (1992), Aivazian et al
(1998), Draper et al (1998), Hanke et al (2001), Franses et al (2001), Wind et al (2004), Slutskin (2006), Koop (2008), Gujarati et al (2009), Rossi et al (2009),
Byrne (2010)
stage of market lifecycle. As pointed out by Shim (2000, p.141), “the proper choice of
“introduction” stage no historical data is available and, therefore, the researcher has
to rely on primary sources and “judgemental” methods. At the “growth” stage some
data is already available for analysis, and the focus shifts to quantitative methods
projections (e.g. regressions, time series, life cycle analysis). On the “maturity” stage
the amount of data accumulated is significant. However, still, there is a need for
short- and long-term projections, although trends may change only slightly. Here,
quantitative techniques are extremely useful (e.g. classic decomposition, other time
series methods, causal techniques). At the late stages of the lifecycle, “judgemental”
research studies (and vice versa, market research may provide inputs to forecasting
83
incorporate a broad range of forecasting techniques (Clancy et al, 2003, 2006). The
context of market development is analyzed on Figure 3.6. Thus, it clearly shows that
“judgemental”, “learned behavior” and “indirect” instruments are often used at the
early stages within qualitative studies and expert analyses (i.e. for “new-to-the-world”,
modeling (i.e. “brand relaunches”, “line extensions”, “product / price changes” etc).
Quantitative diagnostic
forecasting / Statistical
Strategic “exploratory”
Traditional test market
Econometric sales
elements of sales
- Not applicable
Marketing (STM)
Qualitative tools
Expert analysis
Simulated Test
assessment
Rarely incorporated - Low contribution
modeling
studies
Frequently incorporated - Medium contribution
Always incorporated - Critical contribution tests
Learned behaviour
Sources: Based on Chambers et al (1971), Shim (2000), Malhotra (2009), Tull et al (1993), Webb et al (1992), Wind et al (2004)
Although the stage of market development is critical for the choice of forecasting
instrument, the final selection is also determined by several other factors, such as
accuracy (i.e. “how the forecast will be used?”), cost (i.e. “how much money is
involved?”), timing (i.e. “when will the forecast be used?”), users of forecast (i.e. “who
will use the forecast?”), available data (i.e. “what data are available?”). In addition,
Shim (2000, p.8) recommends considering the following six questions, while
choosing the forecasting instrument: “(1) How much will it cost to develop the
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forecasting model compared with the potential gains resulting from its use? The
choice is one of benefit-cost trade-off, (2) How complicated are relationships that
must be forecast ?, (3) Is the forecast for short-run or long-run purposes?, (4) How
much accuracy is desired?, (5) Is there a minimum tolerance level of error?, (6) What
data are available? Techniques vary in the amount of data they require?”. Chambers
updated and refined version of that summary is presented on Figure 3.7 below.
Figure 3.7 A choice of sales forecasting instruments in terms of cost, time and
observed accuracy
Observed Accuracy
(1="Very poor" to 6 ="Excellent")
Instrument Cost Time “Very Poor” to “Poor” “Fair” “Good” to “Excellent”
is on the errors that are inherent part of any forecasting procedure. Predictions as to
future outcomes rarely are precisely on the mark; the forecaster can only endeavor to
make the inevitable errors as small as possible”. Choosing the right instrument in
terms of market environment significantly reduces the error, however, following the
sales forecasting involve testing and validation of the model, controlling accuracy of
sources and inputs (e.g. “market growth” etc). While forecasting, it is worth using a
85
variety of approaches and sources to deliver the final prediction as a result of
that accuracy of the final forecast is heavily dependent on the accuracy of its
components, i.e. data sources and models (i.e. predictions about macro-
As mentioned above, the methods of test marketing are central to NPD and utilize a
Important aspects of their design as well as benefits and drawbacks of their practical
By the end of 60-ies an examination of a new product in a “test market” prior to the
launch had been formally implemented in NPD protocols of the largest FMCG
companies in the US and Europe (Urban et al, 1987, Clancy et al, 1994). According
stage at which the product and marketing program are introduced into more realistic
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marketing settings… it lets the company test the product and its entire marketing
packaging and budget levels”. It is advisable to conduct test marketing “when stakes
are high...This could be when a large company is introducing a new product that
requires a big investment or when management is not sure about the product or
marketing program”.
There are two basic approaches to test marketing studies at the moment: (1)
traditional test marketing (2) simulated test marketing (Clancy et al., 2006). In the first
case, a new product is simply put on shelves of a limited number of stores located
usually in a distant area. Next, sales performance is usually tracked for a period of
two or three months. The second approach implies conducting an ad hoc quantitative
product test) for a representative sample of potential purchasers. The key outcome
of the study is a mid-term sales forecast (Clancy et al, 2006) (See Figure 3.9).
87
The major advantage of traditional test markets is that they allow to examine trade
acceptance and to reveal issues related to distribution mechanics prior to the launch.
Clancy et al (2006) point out that tradition approach is extremely useful for testing: (1)
test marketing offers a real-life opportunity to monitor sales performance of the new
product and measure such business indicators as sales incremental to parent brand,
marketing mix during the process at a relatively low cost (as compared to the national
launch). However, the key limitation of this approach is that it visibly fails: (1) to
simulate the entire environment of a new product launch (i.e. advertising campaigns
therefore, to explain the observed sales effect. According to Urban and Hauser
(1993) and Clancy et al (1994) there are seven major drawbacks of traditional test
marketing: (1) limited capabilities to capture consumer feedback, i.e. reasons for
purchase, (2) expensiveness, (3) long time period for results (often a year), (4) lack
of confidentiality, (5) competitors can sabotage the results, (6) allows for testing only
range of marketing mix components in the order of their interaction with the
(memorability, content recall, message evaluation, enjoyment, key likes and dislikes
about tested commercials), image positioning (brand offer against consumer needs
across various attributes, visibility on shelf) and price elasticity coefficients. The
test (CLT). At the first stage data collection is usually conducted in-hall face-to-face,
88
while the typical method at the second stage is telephone interview (Clancy et al,
Trial purchase
(before product use,
after concept /
ad exposure)
Repeat purchase
(after product use)
An STM study provides a mid-term sales forecast that is typically based on Fourt -
Woodlock model (Fourt and Woodlock, 1960), which involves separate assessment
of trial and repeat components contributing to the total sales. (See Figure 3.11)
Figure 3.11
1.9 Sales volume decomposition suggested by Fourt and Woodlock
The market
Market size
Target audience #
x
Marketing plan effect: Awareness %
Awareness projection
x
Availability Weighted Distribution%
x
At 100% awareness & 100% distribution:
( Trial rate
Consumer x
survey Trial + Repeat volumes )
per trialist
89
A similar approach was suggested by Parfitt and Collins in 1968 for decomposing
sales data obtained from household panel studies (Parfitt and Collins, 1968).
Marketing over traditional approach. In particular, STMs: (1) are less expensive , (2)
deliver results in a shorter period of time (often two months), (3) are confidential, (4)
are capable to test multiple marketing plans and scenarios (advertising, brand
positioning, product, pack, price etc), (5) results may be projected nationally, (6)
provide accurate estimates of cannibalization and source of volume, (7) allow for
The history of STM techniques development is very closely linked to the evolution of
FMCG market, retail infrastructure, media and marketing in the US (Kratt, 2009,
Figure
Figure 3.12
1.9
Rise of retail chains in U.S.A. triggered development
of STMs in early 70-ties
Rise of retail sales Saturation
Test markets Test markets + Early developments Rise of advanced High demand for fast,accurate and
flexible STMs (in terms of shopping
Only (rare) advanced analysis of STMs STMs: Bases, Assessor process, targets, media-modeling)
advertising opportunities (i.e. national TV, radio, press, outdoor etc.), sophistication
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cutover from using classic traditional test markets. From here on the concept of “trial”
and “repeat” purchases was used as a foundation for every STM model, starting from
the model called DEMON, the pioneer in the industry. DEMON was a “transitional”
model that utilized traditional test market outcome to make a national sales projection
Figure
Figure 1.9
3.13a Evolution of Simulated Test Markets. Key milestones:
Juster, who suggested to use 11-points purchase intent scale for estimation of
purchase probability (Juster, 1966) (See Figure 3.13a). As it was shown by Juster,
the scale provides the means for highly predictive measurement of purchase
some adjustments are required as consumers tend to over-claim their behavior. The
adjustment for “over-claim” is usually made with the use of a normative database that
is unique for each particular country and market (Juster, 1966). In the beginning of
70-ies the two advanced models, LTM (Laboratory Test Market) and ESP (Estimating
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respectively), were introduced to the market (Clancy et al., 1994, Souder and
Sherman, 1994, Eskin and Malec, 1976). ESP was designed to estimate purchase
probability for a new brand using purchase intent scale without taking into account
competitive environment (Morwitz, 2007). It was used later by Lynn Y.S. Lin for the
development of BASES, the most popular STM model nowadays - due to its “relative
simplicity” (Clancy et al, 2006, p.62). Indeed, some simple illustrations of BASES
calculation principle can be found even in popular literature for marketing and brand
managers (Farris et al., 2006). As it was mentioned earlier, the main requirement for
extensive normative database for making an “over-claim” adjustment (Lin, 1986). All
STM models that are built on “purchase intent” platform firstly forecast sales volume,
and then derive volume share from this initial projection (Clancy et al, 2006). In the
mid 70-ies the first academic articles on relationship between preference and market
share were published. The most remarkable success in this area was achieved by
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Perceptor was designed to derive purchase probabilities from purchaser’s brand
preferences, measured in a competitive context. Despite the fact that Perceptor was
built on a totally different principle than “purchase intent” models, similarly to them, it
reliability. In 1979, on the basis of Perceptor a new model called Assessor was
Later the model was significantly improved by Jacques Blanchard and his colleagues
introducing special designs for brand re-launches, line extensions, and by developing
modifications for early pre-testing. Currently, this version of Assessor is owned and
marketed by Ipsos under the brand of Designor (Clancy et al, 2006). Despite
Simulated Test Marketing have been achieved since early 90-ies. Still the models are
based on a few fairly simple principles (Willke, 2002, Wherry, 2006), which are
considered below.
According to Clancy et al (1994, p.49), “all major STM research models are similar
enough that they exhibit some common strengths and weaknesses” due to the use of
present work (see Section 1.5 “Limitations”). As discussed above, the first principle
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Woodlock approach, i.e. “trial” and “repeat” components are estimated separately
The Fourt-Woodlock equation is a market research tool to describe the total volume of consumer product
purchases per year based on households which initially make trial purchases of the product and those
households which make a repeat purchase within the first year.
In other words, the precision of the forecast generated by each particular model is
According to Farris at al (2006, p.93), modern “system of trial and repeat calculations
… works on the principle that everyone buying the product will either be a new
customer (a ‘trier’) or a repeat customer”. Therefore, the key challenge for each STM
The second principle is concerned with the fundamental way of estimating the
(Wherry, 2006, Lilien et al, 1992, Mahajan and Wind, 1988, Shocker and Hall, 1986),
all currently existing models are based on the two approaches described above – (1)
“purchase intent” and (2) “preference share”. In the first case, the probability of
Juster’s scale), while in the second case the probability is always measured against
94
models initially generate sales volume projection, while “preference share” firstly
estimate market share (Clancy et al, 2003). However, nowadays there is a trend
among STM vendors for incorporating aspects of both approaches in their proprietary
95
An illustration of calculations for “Purchase Intent “-based
*
Figure 3.16b
model. “Repeat” component
Premium
Baby Estimated on the previous stage (5.9% trialists * 105
Food 000)
In the case of “preference share”, the trial rate observed during the realistic shelf
experiment is adjusted using the outcome from the preference model, as described
on Figure 3.15. The repeat component is calculated in a very similar way. The flow
* IMPORTANT NOTE !
This illustrates only the basic principle of
calculation. In fact, the structure of leading
Step 2. Calibration . Adjustment with the preference
model
Source: Based on Urban and Silk (1978), Urban and Hauser (1993), Lilien et al (1994, 2007),
96
An illustration of calculations for “Preference share“-based
*
Figure 3.17b
model. “Repeat” component
Premium
Baby Estimated on the previous stage
Food
Trial Rate 5.9% After product use:
Repeat x Projected volume share 40%
(Volume among trialists Step 1. Raw data – Declared Purchase Basket in the
category in the next month (3 months etc.) ,
share) ("share of requirement")
= Volume share 2.4%
AGGREGATED
ACROSS SAMPLE
x Total Market Size 1 384 322
Total = Total Volume 32 670
45% Raw Share of
Requiement
(Volume share)
*
Step 2. Calibration . Convergence with the preference
model
IMPORTANT NOTE !
This illustrates only the basic principle of
calculation. In fact, the structure of leading
traditional “preference share” models , such as 45%
Assessor or Designor is FAR more complex Estimated
and comprise a variety of models (“convergence 40% SOR %
principle”)
Source: Based on Urban and Silk (1978), Urban and Hauser (1993), Lilien et al (1994, 2007),
“western” markets (Lin, 1986, Bemmaor, 1995), it is often criticized for its inability to
(2007) point out the following disadvantages: (1) Purchase intent advances line
(3) Purchase intent does not reflect the competitive context…and databases cannot
fails to provide understanding how to rework concepts. At the same time, the leading
drawbacks and try to improve their models (Adrien and Mooth, 2009). “Relying on the
performance standards from the past without adjusting for current market conditions
is likely to result in blind spots that can get in the way of success… The current key
97
and are key to accurate estimations of volume potential. But there are a host of new
models (Urban and Hauser, 1993, Bell et al, 2004, Lilien et al, 1992, 2007, Clancy et
al, 1994). However, they are often considered as far too complex (information which
is not understood has no value and is not transferrable within an organization), time-
shelf schemes, competitive packs etc) (Clancy et al, 1994, Fader and Hardie, 2005).
Simulated Test Marketing is achieved only with the use of advanced modeling
“simulated test marketing is the single best validated tool in all of marketing research.
For new packaged goods, the better STMs can forecast what will happen in the real
the next section, with the special attention given to their potential capabilities to
According to the recent study by Wherry (2006, p.6), “today the industry is highly
consolidated. Most of the STM techniques are similar with validation rates that they
highly effective. The major vendors are able to differentiate their services through
the latest research trends”. The leading STM models that were originally based on
98
purchase intent are VNU BASES and RI Microtest (marketed as TNS eValuate since
the merge of TNS and RI). The major provider of “share of preference”-based models
Figure 3.18
In terms of market share, BASES is considered the
leader, with about 50% of the global STM market, with a
higher estimate within the U.S.
Other
30% VNU (BASES)
50%
Ipsos (Designor)
20%
The two leading models are considered below, according to the information obtained
from the independent academic sources (Wherry, 2006, Clancy et al, 1992, 2006,
Lilien et al, 1992, Mahajan and Wind, 1988, Shocker and Hall, 1986, Lin, 1986, 1997,
Urban et al , 1978,1970,1975,1993).
BASES is an STM service offered by VNU holding, which acquired ACNielsen, the
owner of the model at that moment, in early 2000-ies. BASES has separate
forecasting solutions for every NPD stage from concept evaluation to in-market
testing and tracking, in particular – Snap Shot, Pre-BASES, BASES I and BASES II.
A number of additional tools are available, such as Restager, Decision Point, Price
Advisor, Launch Advisor, Find Time, Franchise Growth Analysis etc. Commercial
originally BASES is built around the use of attitudinal scales (such as purchase
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intent) and normative data (in particular, extensive databases provided by IRI and
about BASES design, the model has not been well documented in the academic and
business literature. So far it has been a “black box” for the academic community and
packaging (including brand name and logo). The test product must be
400 respondents, with callback data collected from about 200 triers.
The initial interview. An initial brief interview is conducted as part of the “mall-
intercept” procedure. Few questions are asked about category and brand
competitive context.
intent are given with a test product for home use. Then, within the two or four
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weeks, BASES survey these respondents by phone regarding their future
Sales forecasts. Typically BASES output includes: Sales volume in the first
and the second year (optionally), trial rate (for the first year), repeat rate (for
the first repeat purchase), repeats per repeater, average time between
purchases, average number of units per trial and repeat purchase occasions,
awareness.
ratings
10 weeks from the field start. An approximate price for a full BASES test is
Validity. ”It is the large number of product launches in the database (over
60,000) that contribute to the BASES edge in the market place, with an
accuracy level within 9%” (Wherry, 2006, p.9). According to the company
brochures, validation statistics are not split by the stage of the studied market,
French research company, which bought Novaction from its founder Jacques
Blanchard in 2001. Similar to BASES, Ipsos offers a wide range of tools developed to
assist the NPD process, from the stage of idea generation to the launch tracking. In
101
conducted by Ipsos. However, traditional Designor STM remains the flagship
forecasting product in the Ipsos’ range due to its superiority as compared to Designor
supplementary to the Designor model. According to Wherry (2006, p.13), this allows
Ipsos claiming that Designor is suitable for any countries and categories “where has
been no previous testing”. However, according to Urban and Hauser (1993) and
market (or category), therefore a very detailed market data for Designor is a must. In
fact, Assessor is definitely the best documented STM model (Urban et al,
offsets its structural complexity. Besides that, there are the following points to
consider:
shopping experiment with the real shelf and “a voucher” (substitute for
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Sampling. Typically, the sample consists of category users. However, non-
users are often recruited to gauge category incremental volume. Sample size
ranges from 250 to 600 respondents, with callback data collected from 70%
of sample.
as sampling, i.e. all respondents are given with a test product for home use.
Sales forecasts. Typically the output includes: Year 1 and Year 2 volume
sales build – up, volume and value market shares, price elasticity,
(above 85% of 600+ cases) were made in the developed markets of Northern
The other popular STM approaches on the market are TNS eValuate (former
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longer marketed, but still used by some loyal clients), GfK MarketingLab / Volumetric
TESI (which holds considerable share in Germany) and In-Vivo MarketMind (which is
a significant vendor in France). A comparison table for the leading STM models is
Originally a convergent
Brand recall, shelf
model based on
visibility and Comprehensive diagnostics,
Yr1, Yr2 competitive set (enhanced
Ipsos Novaction competitive realistic shelf experiment,
Centralized locations, sales, share, ASSESSOR). Depending http://www.ipsos.
(Designor, Designor FMCG, OTC comparison. +/- 9% perceptor sensitivity analyses,
mall, phone (Yr1 with on the option, utilizes com
Next Gen) Sensitivity analysis. self-calibration, modular
Next Gen) attitudinal, preference,
Forecasing module approach (Next Gen)
normative, observational
(Next Gen)
data
Apart from the leading international STM products, some locally developed solutions
are offered in the Russian market, in particular by A/R/M/I Marketing (see www.armi-
study how companies chose and apply them. This is discussed in the next section.
remember that there is no such thing as “magic crystal ball”, and the quality of
earlier, the quality of Simulated Test Marketing project is a function of that of its
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components - market model, marketing planning system, awareness model, trial
Therefore, while deciding on “go/no go” with STM or selecting the most effective
Awareness Generation What makes sure that this model is adequate in terms of country specifics
(Function of Multiple Awareness States - W-O- (cultural, educational, economic differences, media infrastructure) as well as
Awareness model
M, Advertising (TV, Outdoor, Internet), market specifics (stage of development, consumer experience and
Couponing, Sampling, Distribution) qualifications, purchase cycles, sales infrastructure ?)
variety of forecasting instruments (See Figure 3.6). However, in fact, very few of
them can be applied at “early” stage of market development due to the lack of
(See Figure 3.21 overleaf). The analysis of accuracy for particular forecasting
instruments (see Figure 3.7), leads to a conclusion that the accuracy of Simulated
Test Marketing at “early” stage of market development is “poor” in the mid-term (1-2
years). Taking into account the amount of time required to conduct the study, this
makes the forecast practically negligible, although, the study may have some value in
105
terms of diagnostics (i.e. revealing barriers for adoption, dislikes etc). As discussed
earlier, poor quality forecasting at this stage may produce misleading conclusions
about long-term market success of the new product. The analysis has shown that
Simulated Test Marketing is only effective at the later stages of market development.
Judgemental
Judgemental
Judgemental
Time Series
Time Series
Time Series
Primary or
Primary or
Primary or
behavior
behavior
behavior
Learned
Learned
Learned
Indirect
Indirect
Indirect
Causal
Causal
Causal
Component of Simulated Test Marketing Model
Awareness Generation
(Function of Multiple Awareness States - W-O-
Awareness model
M, Advertising (TV, Outdoor, Internet),
Couponing, Sampling, Distribution)
TOTAL ACCURACY 3.6 2.5 2.3 4.2 4.0 2.6 4.7 4.9 2.7
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This has been practically confirmed over the past decades in the Western markets.
Thus, Gundee (1982, p.3) points out that “increased use of the technique has created
a pressing need to avoid potential problems. Starting with the premise that the
simulated systems are only as good as the data they receive, great care must be
taken with the use of the techniques – greater care, in fact, than with many other
conventional types of studies. The reason is that the inputs eventually result in ‘The
Number’, a market share or a sales volume projection. Herein lies the danger”.
Gundee (1982) advises the following when planning a Simulated Test Marketing
study: 1) don’t use models too early - in the market or product development cycle, 2)
correctly define the target audience, 3) don’t load the attitudinal measure to favor the
new product, avoid having attributes which read like the test products copy points, 4)
don’t ask the models to measure sales beyond their accuracy range, 6) define goals
before the test begins, 7) don’t rely solely on observed purchases in the test center.
realities of market history and, if possible, should be modeled, 2) the test product
must fit into an existing product category,3) the accuracy of projections is heavily
dependent on assumptions about market variables. Prince (1992) has identified that
the following factors are particularly important for STM services selection: 1) external
validity, i.e. ability to predict accurately, 2) cost and timing, 3) quality of diagnostics,
by consultants. Wilson (1990, p.20) draws particular attention to the quality of market
Fader (2005) argues that the model should be simple and clear enough to be
effectively used in client’s organization. Mahajan and Wind (1988) argue that use of
107
Simulated Test Marketing is inappropriate when the product class is new or the
Figure 3.23 STMs are generally not recommended at early stage of the market (“new-to-the-
world”). A simpler diagnostics test should be considered instead
There are few independent studies on effective use of Simulated Test Marketing in
the “western” markets. The most recent study conducted by Advertising Research
manufacturers in the U.S. (Baldinger, 1988, 1991). The study produced the following
findings:
Companies are “largely using STMs to reduce the test market failure rate by
eliminating poorer performing ideas before the high costs of test market are
incurred” (Baldinger, 1988, p.5). 94% of respondents use STM for new
The key benefits of using STM are: 1) Risk reduction (55% of responses), 2)
responses)
108
The predominant negatives include: 1) Validity, “with a typical complaint that
reality, 41% of respondents claimed that actual sales were lower than
The 20/80 rule definitely applies to STM market. A few large manufacturers
81% of respondents participated in at least one STM project during one year,
62% participated in 1-4 such projects, 20% participated in more than 5 STMs,
select an external vendor of this service. Thus, Malhotra (2007) advises that a firm
schedule? Are they known for maintaining ethical standards? Are they flexible? Are
their research projects of high quality? What kind and how much experience does the
supplier have? Has the firm had experience with the projects similar to this one? Do
the suppliers personnel have both technical and non-technical expertise? … Are the
personnel assigned to the task sensitive to the client’s needs, and do they share the
client’s ideology? Can they communicate well with the client?” (Malhotra, 2007, p.21).
Also, Malhotra (2007) points out that this decision should be well-informed and not
109
only price-based. In addition to that, the studies on client satisfaction in B-2-B sector
supplier (Boughton, 1996, Wetzels et al, 1998, Wuyts et al, 1998, Woodruff and Flint,
2003).
STM is fully determined by the following factors: (1) General quality of services
approach for every project’), (5) Price (‘affordable price’, ‘transparent and flexible
According to one of the most influential opinion leaders in Simulated Test Marketing,
Joseph Willke, The President of ACNielsen BASES worldwide, “current STM models
are not well suited for the future marketing world of one-to-one consumer targeting
nor are they well suited for the changing retail environment. They are not well
adapted to the increasing granularity with which businesses are managed – at the
SKU level, at individual store level, week by week. As the world changes, all the
current forecasting models will begin to break”. (Willke, 2002, p.1). Willke identified
the following challenges to address in the future STM models: 1) adaptation to ‘one-
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(n=300-400) are far too small for reliable forecasting in modern markets, 3) STMs will
inventory control, 4) STMs will have to produce projections at SKU level 5) STMs will
trends: 1) STMs are being frequently applied to new dynamic industries and markets,
2) The Internet has become the main channel for data collection, 3) Recent decades
hierarchical Bayes and other methods beyond standard regression. Wherry (2006)
shares a Willke’s point of view with respect to challenges that lie ahead of STM: 1)
developing forecasting capabilities on niche and new markets, at the respondent and
Figure 3.24
Developing solutions for the new dynamic emerging
markets is among key areas for improvement
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3.4 Key findings
The analysis performed in Chapter 3 leads to the following key conclusions about
market development
company’s strategy.
marketing program, particularly for those new products that are launched at
The accuracy of forecast increases with the development of the market: the
Test Marketing evolved with the “western” markets. Simulated Test Marketing
was originally developed for saturated FMCG markets in 70-ies and 80-ies.
“Purchase intent” and “preference share” are two key principles of modeling
the two respective models, ACNielsen BASES (50 % global STM market
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The accuracy of STM is heavily dependent on the quality of market data
The analysis undertaken has proven “poor” accuracy of STM forecast at the
“early stage” of market lifecycle, while that at the later stages is estimated to
be “fair to excellent”.
Developing solutions for emerging markets is among key challenges for the
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CHAPTER 4
SALES FORECASTING IN THE RUSSIAN FMCG MARKET
As discussed in the previous chapters, Russian consumer goods market has shown
tremendous progress over the past decade and is expected to deliver solid double-
digit growth in the next few years (see Figure 2.26b). A majority of FMCG markets
are at the “growth” stage and only few of them can be considered “saturated” (see
Figure 2.27). Although Russian FMCG market offers great sales opportunity in the
business insights. Uncovering these insights with relevant marketing research and
forecasting tools may decrease the level of uncertainty and bring a sustained profit in
the long-run. The need in such tools has been widely recognized in the Russian
(on average), while that for North America and World are +5% and +9% respectively.
“Russia continues its dynamic expansion” and is ranked among most promising
research markets in the world, being classified to group ‘A’ as growing at double-digit
rate (ESOMAR, 2008, pp.7, 34-35). All major players of the global marketing
research industry (such as Nielsen, Ipsos, GfK, TNS / Kantar Group, Synovate) are
already in the Russian market (ESOMAR, 2010). The Pricing Study by ESOMAR
(2010) shows that a majority of marketing research tools discussed in the Section
3.2 (such as qualitative studies, quantitative tests, strategic exploratory stidies etc.)
are also available in Russia. Moreover, there are several strong local players, such
Baldinger (1988) suggests that the size of STM market in Russia can be estimated of
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In Russia, strong demand for reliable information resulted in a rapid
Figure 4.1
development of local marketing research industry
Canada,
80
4000 60
2000 40
20
CAGR +5% 0 0
2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008
Source: Based on ESOMAR (2008, 2009) *) based on estimates by www.oirom.ru **) Based on Baldinger (1988,1991), 1.7% of MR TO
Noteworthy, that despite its visibly small size as compared to the mature “western”
review, a very limited number of quality publications is available concerning the local
Belotserkovskaya et al, 2005, Agaeva, 2008). However, the work of Kachalov (2008)
FMCG market. The key points, highlighted by Kachalov (2008) are: (1) the typical
problems that Russian marketers face are “lack of reliable information about market
and competitors” and “high uncertainty about future” (Kachalov, 2008, p.16), (2)
widespread opinion that luck is a key factor of business success, (3) Russian market
is ruled by the same laws as “western” markets, (4) high accuracy of forecasting is
principally achievable (10% error margin vs. reality), (5) forecasting process in the
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sources, (b) market size projection, (c) sales forecasting and planning, (d) detailing
sales plan by periods, regions and SKUs. Kachalov (2008, p.32-36) distinguishes
short-term, one year and 3) mid-term (up to three years), which “has no individual
value” and makes “no sense”. This indirectly confirms a significant skew to short-term
quality of information available in the Russian market, Kachalov (2008) argue that the
various judjemental and indirect instruments to address this issue, such as expert
indicators (CEE markets, “per capita” analysis), quantitative techniques (mostly time-
series, such as “moving average” and “trend” analysis – causal models are not
particular, the role of marketing (in general) and promotional techniques (in
recommendations: (a) the market is not saturated (i.e. there’s no need in stimulating
demand as it is already there) and (b) the dominant business strategy is “market
contribute not more than “10-20% to company’s knowledge about the market”, which
is obviously far from the rate recommended in “western” markets (McDonald, 2008).
The methods of quantitative tests, traditional test marketing, simulated test marketing
and causal (econometric) modeling are not mentioned. This indicates relatively minor
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developed markets. However, the use of sales forecasting techniques (in general)
and Simulated Test marketing (in particular) in the Russian FMCG market requires
Thus, Sections 2.4.1 and 2.4.2 revealed important insights about Russian FMCG
marketing research, sales forecasting and simulated test marketing. In view of these
findings, further analysis can be carried out. Thus, the key conclusion about STM in
the Russian FMCG market is that there are no fundamental barriers to using it,
early stage of development and the need for local customization (see Figure 4.2a).
Reality of the Russian FMCG market and its implications for sales
Figure 4.2a
forecasting and STM. (Consumers)
Implications
Market specifics
Forecasting, in general Simulated Test Marketing, in particular
Skewed towards basic needs
(FMCG): (+) A variety of ready-to-use forecasting solutions (available in (+) No fundamental barriers to using STM, which were originaly
Needs (Maslow's 2009 - Food FMCG 29.2%, Non-
structure represented by
Food FMCG - 12.5%, Other the Western FMCG markets); (-) These solutions need to be developed for FMCG markets; (-) With that, some drawbacks of
"Composition of average
household expenditures%") (residence, transport, clothing, validated in the Russian FMCG market, which is different in STM need to be considered - in paticular, limitations to effectively
services etc) - 58.3%, 2013F - 27.4 terms of needs and drivers of product choice. deal with very dynamic markets at early stage of development
%, 11.7%, 60.9%
(+) Focusing on current consumer preferences and behavior
(+) Can be revealed by using "Judgemental" instruments may improve foracasting accuracy; (-) Relying solely on
(Expert opinions, consumer surveys), it is essential to get regular
historical data and local benchmarks may decrease accuracy;
Emerging FMCG consumption and updates on consumer needs and shopping behavior; (-) The
Occasions
shopping patterns need in frequent updates, rapid aging of information and models; (-) Applying STM at a very early stage of market development
(-) The accuracy of mid-term and log-term forecasts is lower may result in misleading conclusions about long term success of
than that in developed markets the tested product; (-) Generally, frequent changes in
consumption patterns may deteriorate the accuracy of STM
(+) Considerable market growth in the long-run, at least in
"Majority", rapid income growth: value terms; (-) Structural changes in consumer demand must
(+) Possiblitiy to integrate price elasticity models developed in
Consumer
No. of households with annual be considered (e.g. price, brand factor etc); (-) Trading up,
Profile earnings the Western FMCG markets; (-) In general, this factor has a
above US$10,000 in 2009 - 54%, in probable stagnation of "low-price" markets and mass segments;
2013F - 81% (-) Unpredictable fluctuations are possible; (-) Considerable negative impact on STM accuracy
inequality in terms of income distribution must be taken into
account
(+) Significant number of actual consumers allows for using
quantitative forecasting techniques; (+) Well known instruments
Number of (+) Principal possibility to use STM in case of significant
Up to 80% of 53,707,000 to assess incidence are consumer surveys and official statistics;
consumers
households in 2009 number of consumers; (-) Inaccurate estimation of incidence
involved (-) Probable lack of information, unreliable sources, outdated
may seriously undermine forecast accuracy
information, low coverage of surveys, the need to apply
adjustment coefficients or expert estimations ("judgemental"
instruments)
High awareness and fairly good (±) Slower adoption as compared to developed countries; (+)
experience in the main centres of No technical barriers to applying "western" approaches of
Products
distribution, limited awareness and awareness modeling in Russia (the development of media in (+) Developed approaches to awareness and repeat purchasing
awareness /
experience /
availability in rural area. Weak Russia lags behind developed countries); (-) the need for modeling are applicable to Russia; (-) Local adjustments are
loyalty, high level of switching.
Learning extensive use of consumer research to tailor awareness models required
Further learning is required about
niche categories to the Russian market (i.e. country-individual response rates to
various marketing activities etc)
In terms of “market size” and “product characteristics” the main implications are: (1)
significantly narrows the use of STM, (2) higher chance of forecasting for “new-to-
digit growth , (4) using norms and historical data from similar markets may improve
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forecast accuracy, (5) overall STM accuracy is lower as compared to developed
markets, (6) the need for a fast and flexible STM, which is able to simulate a variety
Reality of the Russian FMCG market and its implications for sales
Figure 4.2b
forecasting and STM. (Market size and Product)
Implications
Market specifics
Forecasting, in general Simulated Test Marketing, in particular
(+) Sustainable growth in a majority of FMCG markets, many of
(+) STM is recommended to use if market is well-defined and
Size of market in 2009 - $457 bln, in 2013F -$782 them are well-defined and quantified; (-) The accuracy of market
(value, total retail) bln size estimation is often low, therefore adjustments are often quantified; (-) High number of undeveloped markets and lack of
made ("judgemental" techniques); See "Number of consumers market data are barriers for STM
involved"
Growth rate of
2009-2013 CAGR 14% (above GDP) See "Size of the Market"
(-) Inaccuracy in estimation of this factor leads to lower forecast
sales accuracy
Granularity Moderate granularity, visible (+) In terms product segments - a simpler forecasting model (+) A simpler market model as compared to developed markets
(structural development of sub-categories and
as compared to developed markets; (-) The need for separate - fewer sub-segments; (-) Difficulties with selection of cities
complexity) segments, wide territory
modeling for regional markets representing national market
Variability /
Moderate (still unexpected
(-) Uncertainty related to possible seasonal variations,
(-) The need for a fast and flexible STM, which is able to
fluctuations caused by internal simulate a variety of scenarios; See "Forecasting" for
Variation unpredictable impact of external factors; See "Predictability"
market factors) "Granularity"
(+) The need to use consumer research to guage consumer (+) The use of benchmarks and historical data from the similar
Product Technologies are sometimes new for
characteristics / the local market but ordinary for the reactions to the product; (+) It is advisible to apply "analogue" markets may help forecasting; (+) integrated product in-use test
Technology markets of developed countries (similarity) principle in forecasting (Eastern European markets,
module is highly recommended
some Western markets etc)
Products
Potential for
Moderate. Despite highly (+) Importance of testing in competitive context; (-) In case of
substitution /
differentiated brand image of new (+) Competitors and substitute products must always be taken no competitors or product substitutes (i.e. when the market is at
products there's a significant threat into account (Consumer Research. Indirect methods) early stage) monadic evaluation is possible. However, this leads
Differentiation
from "me-too" products to lower accuracy
Variable (from very low to very high).
For new products imported from
(+) The need for examining quality perception, measuring price
(+) Integrated "quality vs price" positioning analysis, price
Quality elasticity, performing "quality vs price" trade off analysis or
developed countries is initially elasticity analysis
perceived as VERY HIGH conjoint
shown the following: (1) lower accuracy due to high speed of forecasting is generally
materials are often not finished, (3) validated local media model is a plus, (4) in case
test marketing (as an initial phase of national roll out), (5) high importance of pricing
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infrastructure in a well-defined market. Generally, the price of STM is supposed to be
lower than that in Western markets due to the limited marketing budgets, lower STM
accuracy, lower expenditures on R&D and higher probability of profits (see Figure
4.2d).
Reality of the Russian FMCG market and its implications for sales
Figure 4.2c
forecasting and STM. (Marketing and Pricing)
Implications
Market specifics
Forecasting, in general Simulated Test Marketing, in particular
(+) Lower requirements to forecast accuracy as compared to
1) Create and capture the market as (+) Lower forecast accuracy is acceptable; (-) high speed;
Western markets; (-) Higher requirements to the speed of
soon as possible 2) Maximize share
Dominant (+) lower cost as compared to the West; (+) essential delivery
Marketing
and secure future profit 3) Create forecasting; (+) No barriers to use Western techniques of
product awareness and encourage of rich diagnostic information (barriers, consumer perception and
Objectives Consumer Research and Indirect methods for data collection
(market size estimation, barriers for entry, consumer response) response to advertising, product, packaging, positioning etc); (-)
trial, educate potential consumers
while introducing the product
as well as quantitative forecasting instruments (typically, time- test materials are not always finished (commercial, pack etc)
series). Some saturated markets allow the use of causal models
Market Development and Market (+) It is advisable to employ methods of market monitoring
Penetration (Strategic Directions),
(Consumer Surveys, Indirect - Industry Surveys); (-) higher (-) highly flexible model is required; (-) capabilities to
Dominant Focus (Product), Proactive ATTACK:
Promo & Marketing
strategies Bypass, Flank, Alliance or requirements to the flexibility of the model (reviews and updates simulate various scenarios of market development and
Acquisition (Business), Sequential in the course of strategy implementation); (-) low quality of initial compatitive reposnse
(Strategy types)
information, low predictability of competitive response
High variation. Perceived prices are (+) There are retail audit suppliers on the market (Industrial
Price levels and very high especially for new surveys) - prices are measuread at SKU, segment, channel, city, (+) High importance of pricing information in STM (Industrial
Pricing
variation imported products. Very cheap local region levels; (-) Many markets are not audited, or coverage is studies)
alternatives are generally available.
limitied or accuracy is very low
Price elasticity / Visible price elasticity. Price (+) Analysis of price elasticity is imperative (Consumer (+) Modeling various price scenarios in STM is a highly
sensitivity skimming is observed. Research), by consumer and product segments advisable
Reality of the Russian FMCG market and its implications for sales
Figure 4.2d
forecasting and STM. (Competitors and Finance)
Implications
Market specifics
Forecasting, in general Simulated Test Marketing, in particular
Many foreign multinational
Domination
companies are now market leaders
(shares of players)
or (+) Competitive Intelligence information is available for the
Fragmentation important players in non-alcoholic largest markets, such as soft drinks etc (i.e. Industrial surveys, (+) Importance of testing in competitive context; (-) In case of
(number of drinks, bottled water, alcoholic drinks Expert optinions, Consumer Research); (-) Generally this no competitors or product substitutes (i.e. when the market is at
players) (excluding vodka), confectionery,
knowledge is often very limited; (+) In a majority of markets early stage) monadic evaluation is possible. However, this leads
to lower accuracy
Quality of Varies across categories, however, there's lower competitive pressure as compared to Western
competition still very easy to enter markets
Competitors
Likelihood of new
Very high See "Dominant Strategies" See "Dominant Strategies"
entrants
Depends on the nature of the
Time to be product, branding, cultural and
established economic barriers (typically from 1 to
5 years)
(+) short-term horizon of forecasting as conmpared to western
Varies across categories. Early entry markets; (+) strong probability to capture significant share in
Order of entry See "Forecasting" for "Time to be Established"…"Maximum
is still possible the market using first entree advantage (with 1 competitor - 59% share"
Maximum Ranges from 100% at initial stage to share, 2 - 44%, 3- 36%, 4 -31%, 5 - 28% etc.); (-) tight
share/sales 20% at maturity stage (with 1 forecasting schedules
potential for a new competitor - 59% share, 2 - 44%, 3-
entrant 36%, 4 -31%, 5 - 28% etc.)
Reward - accuracy;
High margins. Reward may be
Profitability, ROI, accuracy of forecasting may be offset by high probability of (-) the cost of STM is lower than that in Western markets due to
significant due to price skimming
margin
profits; (±) In case of entirely new product category, a phased limited marketing budgets, lower STM accuracy, lower
expenditures on R&D and higher probability of profits
High risk associated with local launch is often recommended (by regions, by channels). This
cultural barriers in case of significant allows the risks to be managed as market development goes
Risk - Probability through the stages and becomes more predictable. Traditional
ad investment. Low risk in case of
of Loss test markets are useful in this regard (as part of the product
limited investment and diversity of
offered products launch).
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The analysis from the macro-environmental point-of-view shows that: (1) the quality
of information about retail is variable depending upon the market and data supplier,
(2) very high risks are typically related to underdeveloped sales infrastructure, (3) the
need to forecast for at least 1 year ahead to plan orders from suppliers or/and
production, (4) it is required that STM model has enough flexibility to review
Reality of the Russian FMCG market and its implications for sales
Figure 4.2e
forecasting and STM. (Infrastructure and Environment)
Implications
Market specifics
Forecasting, in general Simulated Test Marketing, in particular
(+) Existing suppliers of retail audit information (Industrial
surveys); (-) High risks related to underdeveloped sales
The country's vast territory and
Distribution underdeveloped distribution infrastructure; (-) Considerable regional and channel (-) Imprecise estamates of distribution build up for the new
channels limit sales opportunities product (very often)
differences must be taken into account; (-) Inaccurate
estimation of distribution level, i.e. adjustment coefficiants are
often applied ("Judgemental" instruments)
Infrastructure / Environment
4.2 Traditional STM approaches in the context of the Russian FMCG market
examination of traditional STM approaches in the context of the Russian market. The
from the table, both STM approaches are not recommended at early stages of
market development due to the lack of market data, competitive products, normative
databases etc. With that, their performance in the Russian market is not clear, given
the low number of validations in both cases (as to that in developed countries).
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However, in the case of “purchase intent”-based models the clear advantages are:
quick and simple “setup” stage, “easy-to-understand” approach. While that in the
case of “preference share” models - rich diagnostics for the tested proposition and
“self-calibrated” approach .
The findings from theoretical analysis presented above in Sections 4.1 and 4.2 do
raise many questions that require further investigation. A majority of findings needs to
cases, if any?
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What are critical success factors of sales forecasting in the Russian FMCG
market?
What is the experienced accuracy of sales forecasts for the new products in
What is the share of successful product launches (i.e. reached the target, set
What are the levels of awareness and usage for the most popular “western”
What is the trend in usage of Simulated Test Marketing? Will it become more
popular?
What are the key drivers of choice in the Russian STM market (in terms of
What are perceived qualities of particular STM services (in terms of factors
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CHAPTER 5
RESEARCH METHODOLOGY
concerning the use of Simulated Test Marketing in the Russian FMCG market,
raising a number of questions outlined above in Section 4.3. At the same time, the
literature review have revealed increasing business interest in new product sales
forecasting models specifically tailored for the Russian FMCG market (see Section
4.1). Taking into account the need for information that is described above, an
As an outcome of the research, a set of clear findings and actionable insights should
be made available to the participants of the survey, who are NPD, business and
consumer insights experts working for the biggest FMCG manufacturers in Russia.
As revealed in Section 3.3.4, the 20/80 rule is definitely applicable for STM market,
representative sample of n~30 experts from at least 10 biggest companies will make
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Figure 5.1 Research topic and methodological approach
Research findings will be shared with the participants of the study (i.e. Russian
Contribution FMCG manufacturers) and will support their decision making and business
planning processes. It is supposed that the study results will drive further
development and customization of STM models in emerging markets,
particularly, in Russia.
According to Sekaran (2003), the proposed methodological approach falls under the
steps, as ‘should the organization consider changing its practices?’” (Sekaran, 2003,
pp. 121-122). As noted by Malhotra (2007, p.83), “the major objective of descriptive
seen, this type of investigation is appropriate for the study objectives stated above in
124
Simulated Test Marketing?’. Sekaran (2003, p.122) suggests that descriptive studies
situation, 3) “offer ideas for further probe and research, and / or (4) help make certain
simple decisions”.
The scope of research objectives justifies the use of quantitative approach to data
collection. Gill and Johnson (1991, 2010) suggest that this approach is the more
suitable than qualitative methods in the case of descriptive business study. Burton et
al. (1986) strongly advise to employ quantitative methods for descriptive studies to
Malhotra (2007, p.144), quantitative approach seeks to “quantify the data and
generalize the results from the sample to the population of interest”, the sample
should be large enough to allow statistical analysis, the form of data collection is
action.
marketing experts, therefore, the research does not go outside of the business world.
According to McNeil (2005, p. 3), “B2B research includes all research where the
The type of questions that the study is seeking to answer suggests that it is a Usage
and Attitude survey (U&A). According to Parameswaran (2005), such studies cover
consideration set, 3) attitude towards the category, attributes looked for in the
The discussion above suggests that the type of investigation can be defined as
125
5.2.2 Sample design and data collection method
As it follows from research objectives, the target population can be defined as NPD
managers, business and consumer insight managers, category and brand managers,
strategic planning managers, i.e. in-house experts engaged in sales forecasting for
new products in the FMCG market. With that, according to 20/80 rule (discussed
2007, p.340), i.e. 80% of interviews should be conducted with employees of FMCG
experts is estimated to be about 300 people, a sample size of n~30 respondents can
margin of error varies from ±5% to ±14% (for 5% and 50% respectively), assuming
finite universe population N=300 and confidence level 90% (Malhotra, 2007). With
126
that, it is worthy to note that it is difficult to achieve large sample size in such studies.
Thus, a similar study by the U.S. Advertising Research Foundation was able to
survey only n=42 experts (Baldinger, 1988). The method of sampling employed can
Section 5.2.2. However, the use of random sampling techniques is not quite
appropriate in this case due to the small size of the target population.
that this is the only possible way to reach the target group and get sufficient number
smooth execution of the fieldwork, the best-in-class software was used to facilitate
data collection (Sawtooth CiW, grant ID is 1302678, see Appendix). The summary
Figure
Figure 1.9
5.3 Sample design and methodology:
5.2.3 Questionnaire
incorporates the following main sections: (1) screener, (2) the frequency of occasions
127
when sales forecasting in required, (3) most popular research techniques and
information sources used while forecasting (by type of marketing occasion), (4)
awareness and usage of STM techniques, (5) key factors driving the choice of STM
customer satisfaction with various types of Simulated Test Marketing, (8) perceived
and is estimated to take 25-30 minutes (according to the results of two pilot tests).
The method of data collection is Web - interview, therefore the questionnaire is self-
below shows preliminary analysis plan consisting of 16 research items, starting from
profiling of the audience and finishing with sophisticated positioning analysis (see
Figure
Figure 1.9
5.4 Analysis plan
Analysis Observations
Research question Key Variables Analysis approach
unit required
Who are the experts we are talking to? Is the sample Q0-Q4. Profile of the people involved in business
Frequency Respondent 30+
representative enough? forecasting for NPD (Nominal)
What is the proportion of “new-to-the-country”, “new- Q5. Number of occasions per year when sales
Frequency, Descriptive:
to-the-world”, “new-to-the-firm” products, “brand forecasting is required, by type of marketing task (new
Weighted to represent the Occasion 100+
stretching”, “repositionings” and “product-price brand launch, line extension, brand stretching, brand
market
changes” in the Russian FMCG market? re-launch etc.) (Scales)
Q7. Research tools employed to accomplish each Frequency, Descriptive:
What kind of marketing research studies are typically
marketing task (new brand etc). Popularity and share Weighted to represent the Occasion 100+
conducted in such cases, if any?
of STM techniques market
What are critical success factors of sales forecasting Q7a. Critical success factors for sales forecasting for
Frequency Respondent 30+
in the Russian FMCG market? NPD (open-ended)
What makes it difficult to forecast sales in the Russian Q7b. Difficulties in sales forecasting for NPD (open-
Frequency Respondent 30+
FMCG market? ended)
What is the experienced accuracy of sales forecasts Q7c. Perceived accuracy of sales forecasting for NPD
Frequency, Descriptive Respondent 30+
for the new products in the Russian FMCG market? (scale)
What is the share of successful product launches (i.e.
reached the target set in the business plan, i.e. met Q7d. Perceived success rate for NPD (scale) Frequency, Descriptive Respondent 30+
the forecast)?
What are the reasons of not using Simulated Test
Q8, Q16. Key barriers for using STM (open-ended) Frequency Respondent 30+
Marketing?
What are the levels of awareness and usage for the
most popular Western models of Simulated Test Q9-Q12. Awareness, usage of various STM Frequency Respondent 30+
Marketing? techniques (nominal)
What is the average price per study? Q14. Average STM price per study (scale) Frequency, Descriptive Respondent 30+
What is the trend in usage of Simulated Test
Frequency, Descriptive Respondent 30+
Marketing? Will it become more popular? Q15. Future usage of STM (scale)
What are the key drivers of choice in the Russian STM Q17-21, Q22 Consumer preferences and choice
market (in terms of factors discussed in Section drivers for STM services (Ranking), Likes, Dislikes Frequency Respondent 30+
3.3.5)? (open-ended)
Correspondence analysis (
Q23. STMs brand image (5-point scale, 16 Analsysis of residuals, Assessment
100+
statements) Perceptual mapping) (statement)
(Malhotra, 2007,p.673)
What are perceived qualities of particular STM
services (in terms of factors discussed in Section Q24. Customer satisfaction by STM brand (Scale) Frequency, Descriptive Respondent 30+
3.3.5)?
Q25. Perceived STM accuracy (Scale) Frequency, Descriptive Respondent 30+
Assessment
Frequency, Regression
Q22, 23, 24 SWOT analysis for major STM models (statement, 100+
(Malhotra, 2007,p.666)
brand)
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5.2.5 Limitations in terms of precision and confidence
Sekaran (2003, p.24) suggests that precision and confidence are key parameters
that measure ‘closeness’ of research findings to the ‘reality’. While precision “refers
that estimations are correct”. As mentioned earlier, the size of the sample (n=30) can
margin may go up to ±14%, assuming finite universe N=300 and confidence level
90% (Malhotra, 2007). With that, the use of advanced significance testing techniques
(based on the assumption of a finite small target population) may help to improve the
quality of findings.
According to Sekaran (2003) there are two common understandings of the term
‘generalization’. The first one is related to the representativeness of sample and the
ability to project the findings to the total target population – “the researcher should be
(Sekaran, 2003, p.266). In view of this definition, it is important to note, that the
chosen sampling approach falls within the group of “non probability” techniques due
(Malhotra, 2007, p.340). The above factor can be recognized as a serious drawback
emphasize that findings of the study are not transferrable to any market, other than
Russian FMCG.
129
CHAPTER 6
KEY FINDINGS:
THE USE OF SIMULATED TEST MARKETING IN RUSSIA
In course of the study 48 quantitative interviews were taken with experts working at
largest FMCG companies in Russia (see Figure 6.1 overleaf). From these
stage due to various reasons) – 14. One interview was dropped from the analysis by
respondent’s request. As seen from the data, a very large majority of research
participants (above 70%) have over six years of experience in the FMCG market,
while 30% of the sample have above ten years of experience. More than a half of
departments of their firms. In particular, 36% are senior managers and 29% are team
such as food (52% of companies), beverages (non alcoholic and alcoholic, 20% and
interviews per company is 1.77. In the case of one particular company the “weight”
assigned to each respondent was reduced in order to ensure fair and equal
are listed among the top 100 television advertisers (see Figure 5.2).Their
contribution into total amount of television advertising expenditure made by all FMCG
companies, accounts for over 50%. Therefore, respondents’ profile as well as the
Section 5.2.2. Also, this supports the conclusion that the quality of collected data is
130
Figure
Figure 1.9
6.1 Respondents’ profile
6-10 years………………………………………...……….45%
35%
More than 10 years…………………………………...….29% NON‐PARTICIPANTS:
PROCTER & GAMBLE
53%
Department / Position :
NON‐PARTICIPANTS:
Q2. In which department do you currently work? OTHER FMCG
12%
COMPANIES
Marketing research / Insights…..…...............................60%
Marketing (Category or Brand management) …………20%
Strategic planning and forecasting …………………….12% Category profile of surveyed companies (% of total) :
Marketing (NPD / Innovations )……………………...….4%
Trade marketing / Sales……………………….……...….4% Food 52%
Q3. What is your role (position) in the department? Non‐food (inc. tobacco) 21%
Department director / Senior manager .........................36% Non alcoholic beverages 20%
Team/Working group manager …………………….……29%
Specialist / Expert ………………………..……………….35% Alcoholic beverages 13%
6.2 New product types and marketing research methods employed in Russia
As discussed in previous chapters, it was revealed that there are seven major types
of new products in the developed markets. As it was shown in Chapter 2 (see Figure
2.2), as per estimates of western researchers in late 90-ies, the share of ”new-to-the-
world” and “new-to-the-country” products in the total number of new product launches
in the U.S. FMCG markets accounts for 10%, “new-to-the-firm” - 20%, “line
“western” markets. However, the analysis of data collected reveals the opposite
conclusion (see Figure 6.2 overleaf). Thus, as per study results, the share of “new-
to-the-country” and “new-to-the-firm” totaled only 10% in the Russian FMCG market
in the year 2009, while contribution of “product/price change” exceeded 60% (the
respective numbers for “western” markets are 30% and 43%, as measured in 90-ies).
131
The shares for “line extensions / brand stretching” and “brand re-launches” are
hypothesized, that this situation is unusual and is largely caused by the world’s
economic downturn (which peaked in the middle of 2009). Due to that reason, the
number of true product innovations had dramatically decreased both in the Russian
and global FMCG markets as companies shifted their focus to cost reduction for
existing products (e.g. price-offs, formula revision, savings, applying “lean” principle
expected market growth between 2011 and 2013 years in order to finally determine
Figure 6.2 Extremely high share of “product/price changes” registered for Russia in 2009
Figure 1.9
as compared to that in Western markets in the end of 90-ies
Q5. Concerning these categories (or brands), how Types of new product launches according to results
often did the task of sales forecasting arise in the of the similar studies in the U.S. market
following situations in your department in 2009 ?
New‐to‐the‐ New‐to‐the‐
Country or New‐to‐the‐ Country or
World; Firm; Product / World;
4% 6% Price change;
10%
Line 43%
Extensions, New‐to‐the‐
Brand Firm;
Stretching;
20%
23%
Brand
Product / Brand Line
relaunch /
Price change; relaunch / Extensions,
Re‐
Re‐ Brand
62% positioning;
positioning;
Stretching;
4% 23%
4%
N=870 occasions Source: Griffin (1997)
(estimated from responses on Q5)
The study results indicate that respondents are quite familiar with the fundamental
Chapters 3 and 4. The most popular method of marketing research in 2009 was
expert analysis (both internal and external) based on accumulated historical market
data and newly obtained statistics - 79% of respondents report that they used this
method in 2009 (see Figure 6.3 overleaf). Also, qualitative techniques were
132
extensively employed by 72% of respondents. A majority of respondents participated
in a Simulated Test Marketing project at least once during the year 2009 (62% of
surveyed experts). This confirms theoretical prediction that STMs can potentially be
exploited in the Russian FMCG market (see Figure 4.2a). The data analysis
performed indicates that STM is more often used in the case of true product
The use of marketing research tools for sales forecasting during new
Figure
Figure 1.9
6.3
product development process
MARKET RESEARCH METHODS EMPLOYED IN THE RUSSIAN FMCG MARKET FOR NPD:
Q7.Which research techniques or information sources did you or your colleagues use while forecasting in each of
the following business situations in 2009?
(% of Total Answering*) Deviation **
Any expert analysis (time series based on
79% +0.1 ‐0.5 +0.4
available statistics, internal, external)
Quantitative diagnostic tests ‐ w/o sales
64% ‐2.5 +0.4 +2.2
forecasting
Quantitative tests with elements sales
55% +0.1 +0.3 ‐0.5
forecasting
According to study results, the key factor that must be taken into account when
forecasting sales in the Russian FMCG market is quality and the amount of available
market data – 39% of experts mentioned that answering question Q7a. Thus, for
example, according to respondent #4, ”it is critically important to get reliable market
data, such as household panel and retail audit”, while respondent #29 emphasizes
that ”the forecast is built on retail audit data, which is of variable quality in Russia”.
This is consistent with the hypothesis about high importance of market data, its
133
limited availability and variable quality in the emerging Russian FMCG market (see
Chapters 3 and 4, in particular Figure 4.2b). Also, experts stress the importance of
intelligence (19%); accurate targeting, i.e. clear and concise definition of the market
and target group (17%); gathering and using historical data (17%); choice of
Figure
Figure 1.9
6.4 Reliable information is key to forecasting success in Russia
Respondents point out the following actual problems in sales forecasting, that need
the local market reality - in terms of design, accuracy, flexibility, cost (36%),
(29%), improvement of business- and media- planning processes (25% and 21%
end users (e.g. brand teams, sales teams etc.). The complete list of answers is
134
Reliable market data, customized models, extensive local normative databases
Figure
Figure 1.9
6.5 and effective methods of marketing planning are key areas for improvement in
the Russian FMCG market
DIFFICULTIES AND ISSUES THAT NEED TO BE ADDRESSED
7b. What are the difficulties that you usually face when forecasting sales for a new product? What issues require
further exploration? /OPEN-ENDED/
Q7b (% from answering)
Reliable, accurate and up‐to‐date information about the market (size, structure, trends and
43%
factors of development, macro environment and sales infrastructure, e.g. sales channels)
Tailoring western models to local market conditions ‐ improving forecast accuracy (especially
36%
short‐term), speed of delivery, cost, simplification , developing alternative approaches
Normative database / Developed evaluation criteria / Historical information / Validations
29%
database / Knowledge base for comparative analysis
Effective methods of business and marketing planning in the local market (setting realistic goals,
25%
effective marketing approaches)
Local media‐model (relationship between ad investments and consumer response, detailing by
21%
channel)
Methods of forecasting in highly volatile markets 18%
Education of internal clients (to overcome senior managers' lack of trust and avoid difficulties
18%
with brand teams)
Competitors ‐ competitive environment, competitors response 14%
Targeting ‐ defining the market and target group 14%
Consumer and Shopper insights in the local market 14%
High cost and duration of forecasting, especially STM 14%
Approaches to cannibalization and source of volume assessment 11%
Manegerial and infrastructure aspects of NPD and launch in the local market (best practices of
11%
NPD, infrastructure setup: distribution, media, retail etc)
No problems if marketing research tools are used correctly 7%
Methods of forecasting for absolutely new products, non existing markets 4%
Accurate and clear description of modeling approaches ,their limitations and terms of application 4%
Flexibility of the model (quick reruns of revised scenarios, adaptability etc ) 4%
Methods of forecasting for incomplete of not final marketing mix at early stage of NPD 4%
BASE: N=36, Weighted to ensure equal representation of companies
that, in their experience, more than 25% of launches can be considered successful
(i.e. actual sales were in line or above business plan). This is significantly above that
in “western” markets – 5%. Also, as per experience of 70% of experts, the accuracy
of forecasts does not exceed 20% on average (See Figure 6.6 below).
Median
BASE: N=27 (N=37 excluding DK/NA), BASE: N=29 (N=37 excluding DK/NA),
Weighted to ensure equal representation of companies Weighted to ensure equal representation of companies
*See Figure 1.3 Significant differences between Russian and Western Markets – Hypotheses tested with Z-Test with correction for finite
population , assuming same sample for Western markets – ( 70% vs. 50% ,Significant at 10% error level (p<0.01) 2-tailed Z-Score =1.66)
135
Generally, research findings above confirm theoretical expectations discussed in
The research undertaken has shown that respondents are very much aware of the
practical experience with particular STM models. More than a half of experts
indicated that they had previous experience with the most popular “western”
Generally high awareness of various STM models. ACNielsen BASES and Ipsos
Figure
Figure 1.9
6.7 Designor lead the market.
About 75% of respondents stated that average budget of STM studies they had
recently participated in was above $30 000. This indicates that general price level for
However, despite this considerable price barrier (see also theoretical analysis in
Section 4.2, Figure 4.3), more than 60% of respondents believe that the market of
STM in Russia will grow in the mid-term perspective - i.e. in the next 3-5 years (see
136
STM pricing is in line with that in Western markets*. With that, STM market is
Figure
Figure 1.9
6.8 expected to grow within the next 3-5 years * see p.109, $45000 for Western markets
Above $ 30 000 75%
BASE: N=30 (N=36
excluding
Above $ 40 000 64% DK/NA), Weighted
Study results suggest that Simulated Test Marketing provides acceptable level of
accuracy in key Russian FMCG markets. However, the number of precise forecasts
Figure 6.9 Many respondents have confirmed that STM results are within claimed global
Figure 1.9
accuracy . This is slightly below than that in Western Markets
PERCEIVED ACCURACY OF STM (RUSSIA, 2009): PERCEIVED ACCURACY OF STM (U.S., early 90-ies):
Q25 . From your personal experience, would you
please evaluate relative accuracy of <STM >forecasts STM Perceived Validity in the U.S. market (1988-1991)
observed in the Russian market?
(% OF ALL STM ASSESSMENTS)
Sales are
higher or Sales results Sales results
lower then Sales are
are in line confirmed
predicted with claimed higher or
the STM;
(below lower then
global
claimed accuracy; predicted; 52%
global
46% 48%
accuracy) ;
54%
To certain extent, this suggests that the hypothesis about lower accuracy of STM in
the Russian market is likely true (see Figure 4.2a and 4.2b). However, the
137
significance of that difference cannot be technically tested within the current study
Answering the question on why particular STM model can (or cannot) be
recommended, respondents mentioned such factors as: (1) reliable and accurate
forecast, proven accuracy in the local market, (2) professional performance, quality
service and consulting, individual approach (3) simplicity (or complexity) of modeling
approach, (4) positive previous experience, (5) number of validations and learnings
price, (7) breadth of diagnostic capabilities, (8) duration (see Figure 6.10).
Accuracy in the local market a and level of expertise are key factors of
Figure
Figure 6.10
1.9
STM choice
FACTORS OF CHOICE FOR SIMULATED TEST MARKETING IN THE RUSSIAN FMCG MARKET
Q19-21. Why some STM models can (or cannot) be recommended ? /OPEN-ENDED/
Q19‐21 (% from
answering)
Reliable forecast, accurate in the Russian market 36%
Level of expertise, quality service, professional consulting, individual approach 32%
Simplicity of model 21%
Previous experience 21%
Number of Validations / Benchmarks / Cases / Learnings ‐ particularly, in the
18%
specific FMCG category
Cost 14%
Rich diagnostics, a lot of parameters 11%
Duration 11%
Project importance, business risks 7%
International recognition 7%
Types of market and new product (i.e. saturated market, absolutely new product) 4%
Ability to control the process 4%
At the same time, ranking key factors in order of their importance had helped to
reveal some other drivers, which determine selection of Simulated Test Marketing
model, in particular: (1) suitability for the Russian market, (2) recommendations from
overleaf).
138
Forecast accuracy, suitability for the local market, professionalism and positive
Figure 6.11
1.9 previous experience as well as recommendations from management are key
determinants in choice of Simulated Test Marketing approach
KEY DRIVERS OF CHOICE – TOP 5 KEY DRIVERS OF CHOICE – TOP 1
Q22 . You have mentioned that you are going to conduct Q22. Which single factor out of these five is of a top
STM in the next 3-5 years. Which of the following 5 (five) importance? (% OF TOTAL)
factors are more important for you, when you are making
your decision about technique or agency? (% OF TOTAL)
information. Locally developed STMs are suitable for the Russian market and offer
Figure
Figure 6.12a
1.9 Perception of various Simulated Test Marketing approaches
0.4
Simple and easy‐to‐understand
Other Western STMs
Recommended by Affordable price
0.2 management or company
Publications in professional
protocols Highly accurate forecast literature Transparent and flexible
‐‐ axis F2 (28.91 %) ‐‐>
A lot of diagnostic information
‐0.4
‐‐ axis F1 (60.95 %) ‐‐>
‐0.6
‐0.8 ‐0.6 ‐0.4 ‐0.2 0 0.2 0.4 0.6 0.8
* Correspondence analysis measures the distance between nominal variables on a map, where each variable is
associated with each other. BASE: N=570 cases, Significant at 10% error level (p<0.1, p=0.064 ,Chi-Square 56.77)
139
Figure
Figure6.12b
1.9 Perception of various Simulated Test Marketing approaches
Shaded boxes indicate differences exceeding Other
ACNielsen BASES Ipsos DESIGNOR Local STMs
1 Std.Dev. Western STMs
Highly accurate forecast +0.5 ‐0.8 ‐0.6 ‐0.1
Professional presentation of findings and recommendations +0.7 +0.8 ‐0.8 ‐1.1
Recommended by management or company protocols +3.2 ‐1.3 ‐2.2 +0.9
Positive previous experience +0.8 +0.4 ‐1.0 ‐0.2
Well‐known agency +1.4 +0.4 ‐1.4 ‐0.5
Simple and easy‐to‐understand ‐0.3 ‐1.8 +0.8 +2.0
Suitable for Russian market ‐1.1 ‐0.2 +1.3 ‐0.1
A lot of diagnostic information ‐1.3 +1.7 ‐0.1 ‐0.9
Publications in professional literature +0.1 ‐0.5 +0.2 +0.4
High quality service and project management +0.0 +0.4 ‐0.6 +0.1
Individual approach for every project +0.3 ‐0.1 +1.1 ‐1.6
Affordable price ‐1.8 ‐1.4 +3.1 +0.3
Transparent and flexible pricing ‐0.6 ‐0.7 +1.6 ‐0.4
High speed of research ‐2.1 +0.6 +1.4 ‐0.2
High quality of data collection ‐1.5 +0.4 +0.5 ‐0.2
Use of modern technologies ‐0.0 +0.9 ‐0.7 ‐0.4
BASE: N=570 cases, Significant at 10% error level (p<0.1, p=0.064 ,Chi-Square 56.77)
* RESIDUALS ANALYSIS, is a descriptive technique designed to analyze two-way and multi-way tables measuring
correspondence between the rows and columns. Shows deviation between observed and expected (average) values
measured in Standard Deviations
satisfaction revealed significant correlation between satisfaction and such factors as:
(1) individual approach for every project, (2) high quality service and project
management, (3) positive previous experience and (4) professionalism (see Figure
6.13)
Figure 1.9
6.13 Customer satisfaction and factors that influence it
Correlation
Individual approach for every project 0.333 **
High quality service and project management 0.319 **
Positive previous experience 0.301 **
Professional presentation of findings and
0.297 **
recommendations
Well‐known agency 0.275 *
Customer
A lot of diagnostic information 0.222 *
* Satisfaction
Recommended by management or company protocols 0.187
(Mean 6.17,
Highly accurate forecast 0.175 Std.Dev. 1.40)
Simple and easy‐to‐understand 0.169
Publications in professional literature 0.143
Use of modern technologies 0.119
Transparent and flexible pricing 0.103
High speed of research 0.055
High quality of data collection 0.053
Suitable for Russian market 0.028
Affordable price ‐0.059
BASE: N=73 cases,
** Correlation is significant at the 0.01 level (2-tailed)
* Correlation is significant at the 0.05 level (2-tailed).
140
The following analysis explores main strengths and weaknesses of each particular
STM model. As it seen from the maps depicted on Figures 6.14-6.17 below, image
the power of association between particular attribute and a given STM model, while
vertical axis shows attribute’s importance in terms of customer satisfaction. Тhus, the
Figure 1.9
6.14 ACNielsen BASES: Perceived strengths and weaknesses
0.40
Principal Principal
weaknesses Individual approach for every strengths
0.35
project
High quality service and
project management
0.30 Positive previous experience
Professional presentation of
Correlation with Satisfaction**
findings and Well‐known agency
0.25 recommendations
Recommended by
A lot of diagnostic information management or company
** See Figure 6.14
0.20 protocols
Simple and easy‐to‐ Highly accurate forecast
understand
‐3.00 ‐2.00 ‐1.00 0.15 0.00 Publications in professional
1.00 2.00 3.00 4.00
literature
Transparent and flexible Use of modern technologies
pricing 0.10
High speed of research
High quality of data collection
0.05
Suitable for Russian market
‐0.05
Affordable price
According to experts’ opinion, derived from the data, the key strengths of Ipsos
“high quality data collection”. However, the following perceived weaknesses were
141
company protocols, lower accuracy of forecast, less ”transparent and flexible pricing”,
less ”affordable price” and questionable “suitability for Russian market” (See Figure
6.15).
Figure 1.9
6.15 Ipsos DESIGNOR: Perceived strengths and weaknesses
0.40
Principal Principal
weaknesses High quality service and
strengths
0.35
Individual approach for every project management
project
Professional presentation of
0.30 findings and
Positive previous experience recommendations
Correlation with Satisfaction**
Well‐known agency
0.25
Recommended by A lot of diagnostic information
management or company
Simple and easy‐to‐ protocols
understand 0.20
Highly accurate forecast
‐2.00 ‐1.50 ‐1.00 ‐0.50 0.15 0.00 0.50 1.00 1.50 2.00
** See Figure 6.14
Publications in professional
literature Use of modern technologies
0.10
Transparent and flexible
pricing High quality of data collection
0.05 High speed of research
Suitable for Russian market
‐
‐0.05
Affordable price
Secondary
Secondary Level of Associations*
weaknesses ‐0.10 strengths
* Residuals, see Figure 6.13b
Similar analysis undertaken for locally developed STMs had shown that their major
strengths are: “individual approach for every project”, “simple and easy to
understand”, “flexible pricing”, “high speed”, “high quality of data collection”, “suitable
for the Russian market”. However, there are some drawbacks such as ”well-known
As for other “western” STM models, in the eyes of surveyed experts their perceived
protocols”, while weaknesses lay in the area of ”individual approach for every
quality of data collection and suitability for the Russian market (see Figure 6.17
overleaf).
142
Figure 1.9
6.16 Local STMs: Perceived strengths and weaknesses
0.40
Principal Principal
weaknesses Professional presentation of 0.35 strengths
findings and Individual approach for every
High quality service and
recommendations project
project management
Correlation with Satisfaction** Positive previous experience 0.30
Well‐known agency
0.25
Recommended by
A lot of diagnostic information
management or company
protocols Highly accurate forecast 0.20 Simple and easy‐to‐
understand
Use of modern technologies
Transparent and flexible
0.10 pricing
High quality of data collection
0.05 High speed of research
Suitable for Russian market
‐0.05
Affordable price
Secondary Level
‐0.10
of Associations* Secondary
weaknesses strengths
* Residuals, see Figure 6.13b
Figure 1.9
6.17 Other Western STMs: Perceived strengths and weaknesses
0.40
Principal Principal
weaknesses strengths
0.35
High quality service and
Individual Positive previous experience
project management
approach for 0.30
every project Professional Well‐known agency
Correlation with Satisfaction**
presentation of
findings and
0.25
recommendations
A lot of diagnostic information
0.20 Recommended by
Highly accurate forecast management or company Simple and easy‐to
protocols understand
‐2.00 ‐1.50 ‐1.00 ‐0.50 0.15 0.00 0.50 1.00 1.50 2.00 2.50
** See Figure 6.14
Use of modern technologies Publications in professional
literature
Transparent and flexible 0.10
pricing
High quality of data collection
High speed of research 0.05
Suitable for Russian market
‐
‐0.05
Affordable price
According to surveyed experts, the key areas for improvement and further
143
business; 2) local R&D, i.e. gathering local historical information, benchmarks,
Q17 (% from answering)
More agency involvement into particular business issue / market analysis 33%
Gathering local benchmarks / evalution criteria / validations / learnings / historical
33%
information
Individual approach ‐ customization to particular markets and particular projects 27%
Model simplicity ‐ more clear reports,concise and accurate set of terms 17%
Media and marketing mix model. Local assessment of marketing impact on sales 17%
Timing (should be reduced) 13%
Description of model, terms of application and limitations to use, requirements to
13%
model inputs, formats and use of results
Flexibility ‐ forecasting multiple scenarios, making adjustments 13%
Success stories and cases obtained from the local market 13%
Cost 13%
Thoughtful application of global practices / guidelines 10%
Qualification of agency specialists 10%
Accuracy of forecast (including components such as inctremental sales, 7%
Software (simulators) 3%
Fieldwork quality 3%
Approaches to targeting, i.e. market definition, source of volume 3%
The research undertaken leads to the following main conclusions about current
practices of sales forecasting for new products and the use of Simulated Test
world” products in the Russian market (as compared to Western markets) has
144
registered due to the economic downturn in 2009. The question is still open
and requires additional study in the period of 2011-2013. For other types of
new products, their shares are line with that in “western” markets.
the market. Methods of Simulated Test Marketing are relatively popular and
market.
The key issues researchers face when forecasting are: lack of market data,
research approach is not adapted to the local market (or not proven), lack of
High awareness of the leading STM models. Relatively equal experience with
The market of STM is expected to grow despite such limiting factor as high
competitors.
As indicated by experts, the key areas for STM improvement in the Russian
145
The majority of hypotheses about practical application of Simulated Test
The study undertaken and the amount of information collected allows to make
Test Marketing in the Russian FMCG market (see point 6, Secrion 6.5
146
CHAPTER 7
RECOMMENDATIONS
The research undertaken has led to a principal conclusion about feasibility of using
Simulated Test Marketing in the Russian FMCG market (see Chapters 4,6). With
that, the study has shown that making decision about STM in Russia requires more
in mind, that the quality of STM outputs is entirely determined by the quality and the
amount inputs, i.e. market data and tested materials (see Chapter 3). Indeed, as
quality market data. In such cases, any attempt of modeling employing traditional
“western” STM techniques may not only lead to inaccurate forecast, but wrong
business decisions due to misleading outputs (see Chapter 3). Unlike predictable
growth stage, and only few of them can be considered mature or saturated (see
Chapter 2). Therefore, only few are ready for quality modeling with standardized
“western” STM approaches (see Chapter 3). This leads to recommend employing
traditional STM methods only if the following general criteria are satisfied:
147
Decision-makers: Senior management (country, region, global), key users –
support (”go national”); (b) additional testing with traditional test markets (”test
market”); (c) postponing the launch due to temporary market barriers or due
(“discontinue”);
Decision making criteria: These should involve not only sales business
metrics like in the case of traditional test market (e.g. sales volume and value,
perception, trial, repeat etc) (see Chapters 3,4). Action standards are usually
in similar markets);
Time to market / Timing: Product launch is typically within a year after making
decision about STM, which usually takes about 2-3 months to conduct (see
Chapter 3)
±10%, while that for a rapidly growing market is considerably lower ±20%
Price to expect – In case of true STM it is above $30 000 (See Chapters 4,6)
148
Number of forecasts – up to 10 (2-3 marketing mix options, times 2-3
effective when the following requirements to the tested product offer are met:
already existing “core need”. Strategic focus should be placed on product and
procedures);
Stage of NPD: It is expected for STM that the phase is “Test Marketing and
usually required that marketing mix come in final form. (see Chapters 2, 3, 4);
media are employed (e.g. television, outdoor, press etc) as well as standard
149
retail channels (hyper and supermarkets, c-stores, traditional trade etc). It is
The use of traditional STM approaches requires precise targeting (i.e. accurate target
market definition). As suggested earlier, the market can be defined using 8 distinctive
market landscaping (see Chapter 3), to clearly define the following: (1) what
is exactly the core need ?; (2) in what occasions it might arise? how is it
satisfied by consumers? how often does this occasion occur? - the frequency
must be high; (3) who will experience such a need during the horizon of the
at least in ten thousands of people, (5) the level of experience with the
methods to identify: (1) actual size of “core” and “neighbor” markets; (2)
150
market in Russia is almost “saturated”) ; (3) Growth rate, predictability ,
sample is often divided into several cells, reflecting the reality of each case.
advertising and promotion vehicles are used, i.e. their performance must be
possible price changes in the market. Before going with STM, it is helpful to
obtain price sensitivity scores from the pricing study (see Chapter 3). Based
STM.
the Russian market can be very quick and aggressive. Therefore, if possible,
policy, law, issues with certification, customs control, local authorities etc.)
Market characteristics listed above are usually requested by STM vendors to build
the model of the market. Therefore, it is necessary to ensure high quality and
151
Also, when selecting a vendor for Simulated Test Marketing, it is important to keep in
mind business objectives as well as other criteria outlined above. Thus, according to
research findings, the following strengths of STM vendors operating in Russia can be
highlighted:
Local providers - “individual approach for every project”, “simple and easy to
The research undertaken has helped to develop a standardized form of request for
As it follows from the analysis of the Russian research market (see Chapters 4,6), it
is expected that the number of STM projects carried out with classic techniques will
rise in the future due to increasing number of well-defined saturated FMCG markets.
However, as shown in Chapters 1 and 2, this process might take long time, while at
the moment there is a considerable demand for high quality forecasting service - as
noted in Chapter 1, nearly a half of earnings for the world’s leading FMCG
manufacturers come from emerging markets like Russia. In that respect, it is highly
recommended that STM vendors operating in Russia (as well as in some other
emerging markets) pay greater attention to local market insights and improve their
152
More “client-oriented”, individual approach, greater focus on client’s business
Reasonable pricing;
better cooperation between clients and agencies, but more importantly, it would
accumulate sufficient experience and to customize existing models for the needs of
the local market. Moreover, this would provide great opportunity to bring high quality
service to more clients today, not years later, i.e. when the markets are ready for
“western” models. Emerging markets offer considerable potential for growth not only
153
for FMCG manufacturers, but for their business partners as well. Therefore, it is
highly advisable for STM vendors to pay particular attention to developing business
154
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APPENDICES
169
SIMULATED TEST MARKETING RESEARCH BRIEF
This document outlines key information that might be needed for Simulated Test Marketing. However, please always check
with your STM vendor if they have appropriate brief template as well as market data and marketing plan input forms
1. CONTACT INFORMATION / REQUESTED BY:
Specify the following:
• Company: • Name: •Position: • Brand: • Date: • Contact details:
2. BUSINESS BACKGROUND
This section should present an overview of the current business situation. Contents of this section should provide enough
information to ensure a consistent and cooperative effort between Agency and Client. In particular, consider to include
some of the following:
• Business need (Strategic situation review):
1) Historical background on business development
2) Corporate market positioning: Market leader, challenger, follower, niche player
3) Strategic direction: Market penetration, New products for existing market, Expansion; Diversification;
4) Actual market strategy: Attack or defense etc, Differentiation, Price leadership etc
• Target market definition:
1) Consumer / Shopper: • Core need; • Occasions; • Profile; • Projected number; • Product experience
2) Products : • Key features, pack sizes etc; • Differentiation; Substitute categories; • Average quality level
3) Market size and dynamics: • Size; • Life stage; • Trends / Growth rate; • Structure; • Predictability; • Seasonality
4) Competitors: • Shares / Domination / Fragmentation • Quality of competition • Order of entry
5) Promotion: • Dominant strategies, tools and channels (TV etc) • Branding policies often used
6) Pricing: • Price levels and variation • Price sensitivity
7) Infrastructure / Environment: • Distribution (levels, channels, geography etc) • Retailers • Suppliers • Regulators
8) Finance: • Investments • Rewards – profitability • Risks
Share with the agency relevant info from all sources ‐ retail audit, consumer qualitative and quantitative research,
industry reports. Excessive information must be moved to appendix. Try to keep it short and concise.
3. DESCRIPTION OF NEW INITIATIVE
This section should give sufficient details about new product offer, in particular:
1) Product newness: • product formula and characteristics • brand positioning / concept / USP • pack • price
2) Differences as compared to market definition: • Specific target (e.g. category non‐buyers) • Unique features
3) New product type: • New‐to‐the‐Country/Firm • Line Extensions • Brand Stretching • Re‐positioning
• Product/Price change
4) Marketing support: • Advertising / Promotional activities (ATL / BTL) • Distribution (channels etc) • Retail
(merchandizing standards etc)
5) Stage of NPD / Readiness of initiative: • Final test marketing or Development • What exactly is final
6) Time‐to‐market • Launch date
4. BUSINESS OBJECTIVE / ACTION STANDARDS
This section should state the marketing problem, outline decision options, and suggest action standards upon research
results. For example,
1) Marketing problem: “achieve $X mln incremental sales with the new product”, “gain X% share from competitor
Y” , “capture X positioning niche”, “prevent competitive attack with X new product” etc
2) Actions/Action Standard: if X criteria is met then • Go national • Re‐work / Recycle • Postpone until some
market conditions are met • Proceed with traditional test market • Discontinue / Drop … etc
3) Decision makers: • C‐level, Regional management etc • Functional area (marketing, sales, finance etc)
5. RESEARCH OBJECTIVES / INFORMATION NEEDS
This section should outline key questions that need to be addressed in the study. Specify your main information needs,
for example: • Estimate potential sales volume; • Measure cannibalization; • Assess price sensitivity; • Define optimum
range of SKUs; • Evaluate new product advertising • identify strengths and weaknesses of positioning, packaging and
product against key competitors; • project awareness, trial and repeat given the certain marketing support etc
6. SCENARIOS TO SIMULATE
This section should summarize marketing scenarios to simulate. In particular:
Marketing mix options: • Number of concepts / commercials; • Number of packaging designs; • Price levels;
• Range composition; • Number of product formulas etc
Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5
Concept / TVC <Specify> <Specify> <Specify> <Specify> <Specify>
Pack format <Specify> <Specify> <Specify> <Specify> <Specify>
Price <Specify> <Specify> <Specify> <Specify> <Specify>
Product formula <Specify> <Specify> <Specify> <Specify> <Specify>
Marketing support options: • Optimistic • Pessimistic • Realistic
Weighted Samplings /
TV (30" GRP) Press Outdoor Other
Distribution% Promotion
Optimistic <Specify> <Specify> <Specify> <Specify> <Specify> <Specify>
Realistic <Specify> <Specify> <Specify> <Specify> <Specify> <Specify>
Pessimistic <Specify> <Specify> <Specify> <Specify> <Specify> <Specify>
As research has shown that it is important to consider competitive response, please indicate what might be likely
competitors’ actions to your new product launch (time, format etc)
7. METHODOLOGY
If you are familiar with STM technique please indicate modeling options that you would like to include (e.g. BASES Price
Advisor, Ipsos Perceptor etc). However, it is up to the agency to recommend the most effective approach.
8. SAMPLE DESIGN
You might want to specify exact requirements to sample composition, i.e. description of the target group.
Sample and screening criteria: •Age; • Gender; • City/Region; •Income; •Category consumption etc
9. DELIVERABLES / TIMING
Outline in this section, what would you like to be reported (i.e. live presentation, report, tables, simulator etc.) and when
do you want it. For example:
Forecast options: • Horizon (1, 2, 3 years) • Acceptable accuracy • Interval (year, quarter, month) • Detail (Brand, SKU)
Marketing mix diagnostics: • Top‐line key performance indicators • Tables • Report etc
10. BUDGETARY CONSTRAINTS
Indicate if any.
11. MATERIALS / STIMULI
Which materials and what quantity of them are available for the study? When they will be made available to the agency
and where? Anticipated availability of materials: • Advertising (concepts / animatics / tvcs); • Packaging (finished,
mock‐ups, images); • Product samples • Market data and marketing plans
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 1
Dear colleagues,
We are pleased to invite you to participate in a survey on sales forecasting services for the new FMCG products on the Russian market. The research is being
conducted by Oxford Brookes University Business School within the MSc Business Management program.
The main objectives of the research are to : (1) examine the current state of Russian business‐forecasting services market (2) evaluate market perspectives
(3) develop a set of actionable recommendations on performing sales forecasting for a new product launches in the Russian market. This unique study is aimed to
deliver highly relevant findings based on vast experience of its participants, who are the major business and consumer insights experts in Russia. The research is
conducted in accordance with the ethical principles of ESOMAR (ICC/ESOMAR international code on market and social research, 2008) and Oxford Brookes University
Business School. By doing so, we guarantee accuracy and independence of assessments, confidentiality of personal information, publication of results only in a
“depersonalized” summary form.
The final report will be available for you in September, 2010. We really do hope that you will find it very useful in your daily job, during the process of sales
forecasting for new products, business planning and agency selection. Thank you very much in advance for your participation in the study!
Nikolay Korotkov,
Research Executive, MSc BM student
0. Dear colleagues, we are looking for specialists who have certain professional competences and responsibilities for performing particular professional tasks in
FMCG companies. Are you in charge of any of the following? / SINGLE ANSWER /
1. Business forecasting
2. Marketing research
3. Strategic planning
4. Innovations / New Product Development
5. Marketing (Category or Brand management) / CODES 1‐5 = CONTINUE/
6. Financial planning / CODES 6‐12 = CLOSE THE INTERVIEW/
7. Logistics
8. Public relations
9. Technology / Production management
10. Relationships with suppliers
11. Sales / Relationships with clients / Account management
12. None of the above
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 2
1. Would you please tell us the name of your company: ______________________________________
2. In which department do you currently work? / SINGLE ANSWER /
1. Marketing ( Category of brand management )
2. Marketing ( NPD / Innovations)
3. Marketing research
4. Strategic planning and forecasting
5. Trade marketing
6. Finance
7. Other (Please specify) __________________________________
3. What is your role (position) in the department? / SINGLE ANSWER /
1. Department director
2. Team/ Working group manager
3. Specialist / Expert
4. Другое (УТОЧНИТЕ) __________________________________
3a. How long do you work in the FMCG industry? 1. Less than 2 years 2. 2‐5 years 3. 6‐10 years 4. More than 10 years
4. What categories (or brands) are you responsible for? /OPEN‐ENDED/
__________________________________________________________________________________
5. Concerning these categories (or brands), how often did the task of sales forecasting arise in the following situations in your department in 2009 ?
/PLEASE SPECIFY IN THE TABLE BELOW/ /SINGLE ANSWER PER SITUATION/
Once a month or
Didn’t arise Once a year 2‐3 times per year 4‐6 times per year 7‐10 times per year DK/NA
more often
Launch of a new brand in a new category (“New‐to‐the
1 2 3 4 5 6 7
country” or “New‐to‐the world”)
Launch of a new brand in a existing category (“New‐to‐
1 2 3 4 5 6 7
the firm”)
Line extention in the existing category 1 2 3 4 5 6 7
Brand Stretching, i.e. extending existing brand into a
1 2 3 4 5 6 7
another category
Brand re‐launch, re‐positioning 1 2 3 4 5 6 7
Brand/Product Improvements and Cost Reductions, i.e.
Changes in one or several components of marketing mix ‐
1 2 3 4 5 6 7
i.e. new pack, new product formula, new communication,
new pricing)
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 3
7. Which research techniques or information sources did you or your colleagues use while forecasting in each of the following business situations in 2009?
/PLEASE SPECIFY IN THE TABLE BELOW/
New‐To‐
Brand Brand/Product Improvements
The‐ New‐To‐ Line
Brand Stretching re‐launch / and Cost Reductions
Country or The‐Firm Extention
Repositioning Changes in marketing mix / 4Ps
World
Qualitative studies (focus‐groups, brainstorming, ideation sessions etc.) 1 1 1 1 1 1
Quantitative diagnostic tests of certain components of marketing mix without sales
2 2 2 2 2 2
forecasting option (concept tests, advertising tests, product tests, price tests, pack tests)
Quantitative tests of certain components of marketing mix with elements of sales forecasting
3 3 3 3 3 3
(for example CONJOINT, STEP etc.)
Simulated Test Marketing, Volumetric Bundle Test – quantitative test of ALL components of
marketing mix that simulates realistic market situation for a representative sample of 4 4 4 4 4 4
potential buyers and provides sales forecast with declared accuracy of 20% or more
Traditional test market – new product placement in a sample of real stores, followed by
5 5 5 5 5 5
monitoring of sales during 3‐4 months
Economentric sales forecasting based on historical market data, trends and accumulated
periodical business statistics (retail audit, consumer tracking, household panel, industry 6 6 6 6 6 6
statistics, media etc)
Consumer & Shopper Segmentations (Ad hoc or syndicated TGI, MMI etc.) 7 7 7 7 7 7
External expert analysis and assessments/ analytical works (PLEASE SPECIFY):
8 8 8 8 8 8
_____________________________________________________________________________
Internal in‐house expert analysis and assessments/ analytical works (PLEASE SPECIFY):
9 9 9 9 9 9
_____________________________________________________________________________
Other (PLEASE SPECIFY)
_____________________________________________________________________________
10 10 10 10 10 10
_____________________________________________________________________________
_____________________________________________________________________________
DK / NA /Didn’t face this situation 11 11 11 11 11 11
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 4
7a. From your personal experience, what are the key factors affecting accuracy of the forecast for a new product and making this process a success?
/OPEN‐ENDED/
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
7b. What are the difficulties that you usually face when forecasting sales for a new product? What issues require further exploration? /OPEN‐ENDED/
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
7c. From your personal experience, what is the average forecasting error, in a majority of cases of sales forecasting for innovations? /SINGLE ANSWER/
1. below 5%
2. 5%‐10%
3. 10%‐20%
4. 20%‐30%
5. 40%‐50%
6. Above 50%
7. DK/NA
7d. Speaking about all new product launches, that you have participated, would you be able to estimate how many of them were successful (i.e. reached targets
set in the business plan)? /SINGLE ANSWER/
1. Less than 10%
2. 10‐25%
3. 25‐50%
4. 50‐75%
5. More than 75%
6. DK/NA
/ASK Q8 IF NO CODES 4 CIRCLED IN Q7/
8. You’ve mentioned that you didn’t conduct or participated in “simulated test marketing” studies in 2009. What are the main reasons of that? /OPEN‐ENDED/
_________________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________________
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 5
9. Which of the following “simulated test marketing” techniques have you ever heard of, at least by the name? /MULTIPLE ANSWERS/
10. Which of the following “simulated test marketing” techniques have you or your colleagues have ever used? /MULTIPLE ANSWERS/
11. Which of the following “simulated test marketing” studies did you participate in 2009? / FOR EACH TECHNIQUE MENTIONED IN Q10/
12. How many of these studies did you participate in 2009? / FOR EACH TECHNIQUE MENTIONED IN Q11/
12. Quantity of
9. Aware 10. Used / Have
11. Conducted in 2009 STM studies in
experience
2009
ACNielsen BASES ‐ BASES I или BASES II 1 1 1 _____
ACNielsen BASES ‐ Snapshot или Pre‐BASES 2 2 2 _____
A/R/M/I Marketing ‐ Simulated Test Market 3 3 3 _____
Aegis Copernicus ‐ Discovery 4 4 4 _____
Comcon Sales Vision 5 5 5 _____
GfK ‐ MarketingLab / Volumteric TESI 6 6 6 _____
InVivo ‐ MarketMind 7 7 7 _____
Ipsos Novaction ‐ Designor Shelf, Desighor D'Light, Designor Concept 8 8 8 _____
Ipsos Novaction ‐ NextGen, Innoscreen Forecast 9 9 9 _____
M/A/R/C ‐ Assessor 10 10 10 _____
MASMI ‐ Simulated Test Market 11 11 11 _____
Synovate ‐ MarketQuest MVP 12 12 12 _____
TNS / RI ‐ Microtest 13 13 13 _____
TNS / RI ‐ eValuate 14 14 14 _____
TNS / RI ‐ FYI (Foresight, InSight, Repurchase) 15 15 15 _____
OTHER (PLEASE SPECIFY)________________________________________________________ 16 16 16 _____
OTHER (PLEASE SPECIFY)________________________________________________________ 17 17 17 _____
OTHER (PLEASE SPECIFY)________________________________________________________ 18 18 18 _____
OTHER (PLEASE SPECIFY)________________________________________________________ 19 19 19 _____
OTHER (PLEASE SPECIFY)________________________________________________________ 20 20 20 _____
DK/NA/None 21 21 21 21
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 6
/ASK Q14 IF CODE 20 IS NOT CIRCLED IN Q10/
14. Concerning the last few STM studies, that you have participated recently, would you please estimate the average budget per study ?
1. Below 300 thousand rubles / Below $10 thousand
2. 300 ‐ 600 thousand rubles / $10‐$20 thousand
3. 600 ‐ 900 thousand rubles / $20‐$30 thousand
4. 900 ‐ 1200 thousand rubles / $30‐$40 thousand
5. 1200 ‐ 1500 thousand rubles / $40‐$50 thousand
6. 1500 ‐ 1800 thousand rubles / $50‐$60 thousand
7. Above 1800 thousand rubles / Above $60 thousand
8. DK/NA
15. Speaking about mid‐term perspective (3‐5 years), can you please estimate the change in number of “simulated test marketing” studies conducted per year
with your participation?
1. The numbers of such studies will decline
2. The number of such studies will remain on the same level /GO TO Q17/
3. The numbers of such studies will increase
4. We’re not going to conduct STMs or participate in such studies /GO TO Q16/
5. DK/NA /GO TO Q17/
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 7
/ IF ANSWERS 2, 3, 4 IN Q15 GO TO Q17 /
16. Would you please list the main reasons why you are not going to conduct “simulated test marketing” studies in the next 3‐5 years? /OPEN‐ENDED/
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17. /IF NO EXPERIENCE WITH STMs, I.E. CODE 20 IS CIRCLED IN Q10 – CLOSE THE INTERVIEW/
How, in your opinion, the service provided by the local agencies in the area of “simulated test marketing” can be improved? /OPEN‐ENDED/
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18. Which “simulated test marketing” techniques or agencies providing that service would you recommend to your other colleagues? / OPEN‐ENDED/
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19. Why? Please list the key reasons.
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20. Which “simulated test marketing” techniques or agencies providing that service would you NOT recommend to your other colleagues? / OPEN‐ENDED/
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21. Why? Please list the key reasons.
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Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 8
/IF ANSWERS 1‐3 IN Q15 , GO TO Q23/
22. You have mentioned that you are going to conduct a “simulated test marketing” study in the next 3‐5 years. In the table below you will find the list of factors
which could, to a certain extent, affect your choice of technique or agency.
‐ Which 5 (five) factors are more important for you, when you are making your decision on technique or agency? /5 ANSWERS/
‐ Which single factor out of these 5 is of a top importance? /SINGLE ANSWER/
TOP 5 MOST
IMPORTANT IMPORTANT
Service quality:
1 Highly accurate forecast 1 1
2 Professional presentation of findings and recommendations 2 2
Service supplier:
3 Recommended by management or company protocols 3 3
4 Positive previous experience 4 4
5 Well‐known agency 5 5
Technique:
6 Simple and easy‐to‐understand 6 6
7 Suitable for Russian market 7 7
8 A lot of diagnostic information 8 8
9 Publications in professional literature 9 9
Communication quality:
10 High quality service and project management 10 10
11 Individual approach for every project 11 11
Price:
12 Affordable price 12 12
13 Transparent and flexible pricing 13 13
Technology:
14 High speed of research 14 14
15 High quality of data collection 15 15
16 Use of modern technologies 16 16
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p. 9
/ FOR EACH TECHNOQUE MENTIONED IN Q10/
23. You have mentioned that you or your colleagues have experience in conducting “simulated test marketing" studies. We would like to know your opinion
about practical use of these techniques and cooperation with the service providers. Would you please evaluate to what extend you agree or disagree with
each of the following statements regarding <NAME OF THE TECHNIQUE > . For your answers please use 5‐point scale below, where 1 means “COMPLETELY
DISAGREE” , 5 means “COMPLETELY AGREE”. There are no right or wrong answers, we are interested only in your personal opinion.
STM model 1 STM model 2 STM model 3
Service quality:
1 Highly accurate forecast 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
2 Professional presentation of findings and recommendations 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
Service supplier:
3 Recommended by management or company protocols 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
4 Positive previous experience 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
5 Well‐known agency 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
Technique:
6 Simple and easy‐to‐understand 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
7 Suitable for Russian market 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
8 A lot of diagnostic information 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
9 Publications in professional literature 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
Communication quality:
10 High quality service and project management 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
11 Individual approach for every project 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
Price:
12 Affordable price 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
13 Transparent and flexible pricing 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
Technology:
14 High speed of research 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
15 High quality of data collection 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
16 Use of modern technologies 1..2..3..4..5 1..2..3..4..5 1..2..3..4..5
Questionnaire Version 2.0 © 2010 Oxford Brookes University Business School, p.
10
24. For each “simulated test marketing" that you have ever used, would you please tell us, how satisfied were you with the quality of service provided by the
agency. For your answers, please use 10‐point scale, where 1 means “COMPLETELY DISSATISFIED” and 10 means “COMPLETELY SATISFIED”.
1 = ” COMPLETELY DISSATISFIED”, 10 = ” COMPLETELY SATISFIED”.
STM technique 1 1 2 3 4 5 6 7 8 9 10
STM technique 2 1 2 3 4 5 6 7 8 9 10
STM technique 3 1 2 3 4 5 6 7 8 9 10
STM technique 4 1 2 3 4 5 6 7 8 9 10
STM technique 5 1 2 3 4 5 6 7 8 9 10
25. From your personal experience, or from experience of your colleagues, would you please evaluate relative accuracy of the sales forecast observed in the
Russian market?
Accuracy
Above GLOBAL Far below GLOBAL DK/NA
Meets GLOBAL AVERAGE Below GLOBAL AVERAGE
AVERAGE declared by AVERAGE declared by
declared by the agency declared by the agency
the agency the agency
STM technique 1 1 2 3 4 0
STM technique 2 1 2 3 4 0
STM technique 3 1 2 3 4 0
STM technique 4 1 2 3 4 0
Thank you for participation in our study!
If you wish to receive a copy of the final report, please leave your contact information:
___________________________________________________________________________________________________________________
Appendix 3
Dear Sirs,
I am writing this letter to officially apply for a grant to use Sawtooth web-interviewing
software for my MSc dissertation project at Oxford Brookes University, UK. As requested,
this is to confirm the following information:
Hereby I confirm that the software will be utilized only for the purposes of academic
dissertation described above. Also, this is to confirm that no commercial organization will
y benefit from this p
directly project.
j
Yours sincerely,
Nikolay Korotkov,
MSc BM student,
Oxford Brookes Universityy Business School
Date: 24/05/2010