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Market testing on a budget

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A guide to researching your market before you start trading.

What is market testing?

Market testing is a way of learning about the marketplace that you operate in: your customers, your competitors, your suppliers and partners.

Instead of more traditional market research (such as gathering data and information about your customers) market testing involves a live trial in a real market of a prototype or test version of your product or service

Why do it?

Market testing can help you:

  • understand your customers
  • reduce financial risk and understand longer term risks
  • engage with potential customers and prime them for the product/service launch
  • understand what makes you stand out (or not) from your competitors
  • continuously improve your product or service.

If you’re thinking about trading, it’s vital that you understand how your customers will respond to your product or service. Will they pay for it? What will they like about it? What will make them come to you, rather than a competitor?

For voluntary organisations, market research can be time consuming and costly. But if you don’t do it, you could launch a product or service that no one wants.

Market testing is a low cost way of doing market research that gives you live feedback based on real experience. Rather than going out and asking potential customers about a hypothetical service, you get them to actually use the service, then ask for feedback to help you tweak and improve it on a continuous basis.

Market testing reduces the risk of a new trading venture as you can find out what works and what doesn’t work before full launch.

How can we do it?

Market testing lets you develop a product or service in stages.

Instead of building a whole new service then launching it as a product, you could start with the most basic version of your service, and launch it to a select group to get feedback before you take it to the next stage.

If it doesn’t work, you’ll find out quickly. But you won’t have lost much, as you haven’t yet invested in the full version of the service. It’s about failing fast, and failing small. You can test assumptions that you’ve made about how customers will react to your product or service.

Example of market testing

A charity wants to build a professional catering kitchen on its community farm in order to run educational cooking activities for schools, and sell food and drink to customers.

However, a new kitchen and high-quality equipment are expensive, and the regulations and health and safety checks are complicated and lengthy.

The board are wary about investing the charity’s reserves into the new kitchen, as it could be a costly failure.

The charity decides to run a test event. They rent a kitchen and catering space from a local restaurant, and recruit a group of friends, trusted partners and local contacts to come along to three test sessions. The participants are sent communications about the day in advance, then take part in a cooking activity on the day. They are then sent follow up material.

The charity watches participants as they take part, and asks for feedback before, during and after the session. They find out:

  • what the participants liked about the session
  • what they didn’t like
  • whether they had enough information in advance
  • how well the session was structured
  • whether the booking process worked
  • how much participants might expect to pay
  • if the participants wanted anything else from the day (eg that the session was at a different time, that they got to take their food home, that it was too long)
  • what would make them come back again

The charity then makes some immediate changes to the service before running a second trial, this time with a local school. Finally, they run a trial that is open to the paying public, to test how well they are communicating the service, and to get feedback from people who don’t already know about the charity.

If the service doesn’t work, the charity will have lost the costs and time taken to run their testing session. However, this will be a lot less than if they’d built a whole new kitchen, only to discover that no one wanted their service. They may also get some unexpected feedback, or new ideas about how to improve the service.

What will we learn?

You’ll learn how people react to your service in a real environment and, crucially, whether you’re meeting their expectations of the service. It’s very hard to learn this by asking people about a service that they’ve never used.

Imagine someone had asked you what features you’d like in an online social networking service before Facebook was invented – you wouldn’t have any point of reference. It’s very hard to answer questions about something that you can’t even imagine. Market testing allows you to get feedback based on experience.

Market testing can also help customers think about things they wouldn’t have thought if they hadn’t experienced the service, for example how easy it is to get to the venue or whether they need car parking.

What do we do next?

Use what you’ve learnt to improve your service.

A useful principle to think about is build, test, learn.

  1. Build the basic service
  2. Test it
  3. Learn from it
  4. Build a bit more

Repeat this cycle until you feel that you’ve got enough information about your product or service to make a case for investing more time and money in developing it – in other words, when you feel confident that there’s a market for your product or service, and that you can offer the quality of experience that customers expect.

You’ll never completely reduce the risk of starting a new trading venture, but you can understand the risks better. You can also continue to ask for feedback after the product or service has been launched, so that you can continue to improve it or add new features. This has the added benefit of making your customers feel a sense of involvement and ownership of the product or service.

Nine tips for market testing

  • Work out what the most basic version of your service or product is. This version should give the customer enough of the full experience to let them to give you feedback.
  • Bring together a group of trusted contacts for your first test – these could be friends and family, or people you’ve worked with for a long time.
  • Make your testers aware that this is a trial phase, and encourage them to give critical feedback.
  • Be prepared to get negative feedback – it’s better to get it at this stage than after you’ve launched the full product or service.
  • Come up with a list of assumptions that you’ve made about your product or service before you start, for example what people will pay, what people will like and how long people will stay. Use your observations and feedback to test these assumptions.
  • Implement what you’ve learned quickly and tell your customers how you’ve improved the service.
  • Tell your testers that they are part of a development process and get them excited about the launch – if they like it, they’ll tell other potential customers.
  • Invite testers to join a user feedback group for the longer term.
  • Be prepared to fail, then rebuild, retest and learn how to succeed.

Get more help

The Lean Startup – find out more about this process of testing and learning

Read more about market research in our marketing pages

Nesta offers some tools for testing new ideas

Read more about marketing for sustainable funding in The Art of Raising Money, by Professor Iain Bruce CBE from the Cass Centre for Charity Effectiveness

Page last edited Apr 23, 2019

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