Columbus, Ohio, population: 2 million, median household income: $58,000, average age: 32.5 and, also, the test marketing capital of America. Ohio’s capital city is a hub for many companies wishing to field test their new products and services before a broader product launch. This entire process is called test marketing.
“Launching a new product, or a new feature or a new pricing strategy, is really, really hard,” says Fisher marketing professor, Michael Smith. “You are doing your best to try and predict what’s going to happen.”
Numerous companies, including many quick-service restaurant chains, have test marketed products in Columbus, including Wendy’s, Tim Hortons and Panera.
A test market allows a company to test a new or modified product among a representative sample and then extrapolate what would happen to the product in the broader marketplace. Nowadays, all sorts of products can be test marketed, especially since there are more options as to how products are tested. However, test marketing can be extremely difficult, because consumers are unlikely to behave the same way they would in a national launch. Focus groups used to be a popular way to test products, however, because these groups can be unrepresentative or biased, the method has fallen out of favor. Companies today are more likely to combine test marketing with data analytics, because data tells companies more accurately what consumers do and think compared to a survey.
“People can test market just about anything these days,”Smith explains. “Not just consumer goods but industrial goods as well.”
There are a multitude of factors that companies look for in response to their consumer tests. Sometimes this could be as straightforward as putting a product out there and seeing how consumers react. Smith gave the hypothetical example of Wendy’s launching a sandwich. In a test market, Wendy’s might look at the overall sales of the sandwich, the time of day it sold and the customer demographics. They might also look at what menu items the new sandwich “cannibalizes” — since launching a new product that eats away at existing product sales could be problematic.
“If it robs Peter to pay Paul, there’s not as much utility as if it took business away from McDonald’s or Panera,” Smith states.
Smith also says customers often do not even know that the product they are using is only a prototype, at least initially. Firms generally leave customers blind to this, so they can get a more accurate idea of how customers react to a product. “How would customers treat that product if it was on my menu every day, like French fries or Frosties? Would they buy that item?” Smith says.
Additionally, companies might survey customers in a test market after they purchase an item to see what they think. This could be as simple as putting a survey link on the bottom of a receipt and incentivizing customers with a coupon for free food in the future. Companies will look at consumer reception of to specific product attributes as well as ask customers what they think of the price. Test marketing has also changed recently, as it has become more agile. Companies have begun to test ideas and products earlier and earlier in the product development cycle, because data has become much more robust, particularly in the last few years.
Marketing professor, Nino Hardt believes that sometimes a company might test market an idea for a product early on in the development cycle, when it’s still far away from any mass market launch. By testing the product earlier, the company can make changes to the design before proceeding to invest more heavily.
“People have to basically process all the words for how to describe an experience, but you don’t know how it works out in the real world. I think that’s why it’s important to use test markets, to see what [consumers see] as important,” Hardt says.
Columbus has been cited as a test market for several reasons. The area is the birthplace of Wendy’s headquarters and is home to the American headquarters of iconic Canadian chain, Tim Horton’s. It’s also home to one of the largest Panera Bread franchises in the country. However, the main reason Columbus is such a prominent test market is because of its demographics.
“I think generally, Ohio is a pretty average place — not mediocre — just average in terms of demographics,” Hardt says.
Smith says that if you break down the Columbus population by age, race and income, the area pretty accurately mirrors the rest of the country. Hardt adds that Ohio is close to many population centers and is geographically central.
Larger cities in the United States, such as New York or Miami, don’t often work as test markets, since they aren’t nearly as representative. He adds that numerous major fast food chains have tested products in Columbus in the past, including Wendy’s with the Baconator. In 2014, Starbucks famously tested the Dark Barrel Latte, an espresso drink that some customers reported tasted like a dark beer. In addition, McDonald’s used Ohio’s capital city as a test market for its Grand Mac and Mac Jr., two variants on the company’s classic Big Mac sandwich. More recently, this past February, Wendy’s announced the intent to add mobile-kiosk ordering to more than a thousand of its locations across the country. Similar kiosks have been present at some Wendy’s restaurants around Columbus, including the location on High St., for months before the announcement.
However, Ohio State’s presence in Columbus could present a potential challenge. If a product requires a sample that is representative of the entire population, and it is only tested at stores near Ohio State, the data could be wildly different. “The key word in all of this is being representative,” Smith says. “When you start to skew your sample you lose that representativeness,” Smith says. “It’s dangerous to let Ohio State influence your test market, since the world isn’t made up only of 18 to 22-year-olds.”
However, the product testing location can also depend on who the target audience is. Test marketing can also be a way for companies to better understand who their consumers are, and adapt if the product is popular with a different group from whom they initially anticipated, Smith adds. Companies often use a method called conjoint analysis, where customers are shown different configurations of the same product and then asked which aspects they prefer.
“When you want to see what really makes an experience great, you need enough variation of experiences,” he says. There are also some potential challenges with test marketing, outside of just being sure the sample is representative, as there are often outside factors that can influence the test’s results. Smith suggests sales of a hot coffee item could be hampered if the test market city experiences an unusually warm winter.
It’s not often that being called totally average is a good thing. However, in a world where a botched product launch can cost millions for even a well established firm, statistically average cities like Columbus can help companies determine if a product or idea is worth it. It also means that the next time you sit down to try that new sandwich on the menu, you could be deciding what’s on people’s fast-food trays all across the country.