Test Market City Evaluation

a goal programming approach

Group 5
Alok Pratap Singh (23NMP05)
Amit Sukhija (23NMP08)
Chandan Kumar (23NMP12)
Manoj Kumar (23NMP18)
Rahul Niranwal (23NMP23)
Siddhartha Bhargava (23NMP30)
Why is Test Market Important ?
• Success of a new product can not be guaranteed.
• Products are prone to changing customer needs, shorter
product life cycles, new technologies and increased
competition.
• Test Market gives marketers the indications of reasons of
possible failure, namely – Faulty Product Idea, Distribution
Related Problem, Poor Timing of Launch, Improper
Positioning.
• Some Examples in Indian Context
Tanishq 18 Carat Jewellery, Godrej-GE Washing Machine,
Polar fans, Nestle chocolates, Kinetic Merlin Televisions, Puma
Shoes.
Test Market City:
critical market characteristics(CMC)
• Demographic Characteristics

Population, age, income, education, Household Size

• Purchasing & Buying Patterns

As revealed by retail stores

• Distribution Elements

Retail and wholesale outlets

• Advertising Media Availability

Internet, broadcast and print media coverage

Goal Programming Model
Strategic Evaluation and Decision
inputs transformation outputs

Optimal city
Determination of selection decision
City’s CMC

Goal Goal
Programming accomplishment
information

Priority structure of Trade-off

city’s CMC relationship
information
 Model Application: launch of VeloMini Bicycle
(A Marketing Project)
• The Company is planning to launch VeloMini
in Indian Market.

• It is a light-weight folding electric bicycle

featuring a 180 watt brushless hub motor that
will transport a person from eight to ten miles
at a speed of up to 12 mph (19 km/h).

• High-ticket Item - $995 for Electric Version,

$445 for Non-Electric Version

• To be Targeted at Higher Income Group Households, Fitness Enthusiasts,

Businessmen & Professionals, and Kids.

• To be Positioned as a great medium for commuting to work, Environment

Friendly, Fun to Ride and Convenient to carry.

• Company to use a combination of Marketing Channels - Dealers &

Personal Selling.
 Goal Programming Model Formulation

Xj: decision variables, such that { Xj=1: locate in city j, (from J=1 to n cities)
Xj=0: do not in city j

dj–, dj+: vectors of under achievements and overachievements of targeted location factor objectives i (i=1 to m);

Pk vector of k, (k = l to K) ordinal ranks where P 1 > P2 >>>>PK;

aij: matrix of the critical success factor weighting’s for the i targeted location factor objectives when the j city
is selected;
βi: vectors of i (i = 1 to m targeted location factor objectives).
Identification of Criteria, Goal & Priority
Selection Criteria Unit of Desired Ranked Alternative City Contribution
Objectives Measure Goal Priority toward Goal (aij)
Delhi Mumbai Chennai Bangalore
(βi) (Pk)
(x1) (x2) (x3) (x4)
Thousand Per
Per Capita Income
Month
50 or more 1 65 128 44 50

Household Size Number x 100 450 or more 2 478 473 414 413

Bicycle Dealers Number 200 or more 3 827 153 510 175

Fitness Clubs No. per million 25 or more 4 44 38 21 17

Air Pollution PM10 100 or more 5 243 109 70 122

Internet Users Ten Thousand Nos. 250 or more 6 324 266 100 140
 Formulation of Test Market City Selection
for Priority P1
Min d1-

s. t.

X1 + X2 + X3 + X4 =1 (Goal 1)

65X1 + 128X2 + 44X3 + 50X4 - d1+ + d1- = 50 (Goal 2)

478X1 + 473X2 + 414X3 + 413X4 - d2+ + d2- = 450 (Goal 3)

827X1 + 153X2 + 510X3 + 175X4 - d3+ + d3- = 200 (Goal 4)

44X1 + 38X2 + 21X3 + 17X4 - d4+ + d4- = 25 (Goal 5)

243X1 + 109X2 + 70X3 + 122X4 - d5+ + d5- = 100 (Goal 6)

324X1 + 266X2 + 100X3 + 140X4 - d6+ + d6- = 250 (Goal 7)

Output – Iteration 1
OPTIMAL SOLUTION
Objective Function Value = 0.000

Variable Value Mumbai

-------------- --------------- takes lead
X1 0.000
X2 1.000
X3 0.000
X4 0.000
D1PLUS 78.000
D2PLUS 23.000
D3PLUS 0.000
D4PLUS 13.000
D5PLUS 9.000
D6PLUS 16.000
Goal 1 Achieved
D1MINUS 0.000
D2MINUS 0.000 Goal 2 Achieved
D3MINUS 47.000
D4MINUS 0.000
D5MINUS 0.000
D6MINUS 0.000

Constraint Slack/Surplus
-------------- ---------------
1 0.000
2 0.000
3 0.000
4 0.000
5 0.000
6 0.000
7 0.000
 Formulation of Test Market City Selection
for Priority P3
Min d3-

s. t.

X1 + X2 + X3 + X4 =1 (Goal 1)

65X1 + 128X2 + 44X3 + 50X4 - d1+ + d1- = 50 (Goal 2)

478X1 + 473X2 + 414X3 + 413X4 - d2+ + d2- = 450 (Goal 3)

827X1 + 153X2 + 510X3 + 175X4 - d3+ + d3- = 200 (Goal 4)

44X1 + 38X2 + 21X3 + 17X4 - d4+ + d4- = 25 (Goal 5)

243X1 + 109X2 + 70X3 + 122X4 - d5+ + d5- = 100 (Goal 6)

324X1 + 266X2 + 100X3 + 140X4 - d6+ + d6- = 250 (Goal 7)

Priority Level 1 &
Priority Level 2 d1- =0
constraints added

d2- =0
Output – Iteration 2
OPTIMAL SOLUTION
Objective Function Value = 0.000
Variable Value Delhi
-------------- --------------- Overtakes
X1 1.000
X2 0.000
X3 0.000
X4 0.000
D1PLUS 15.000
D2PLUS 28.000
D3PLUS 627.000
D4PLUS 19.000
D5PLUS 143.000
D6PLUS 74.000
D1MINUS 0.000
All Goals
D2MINUS 0.000
Achieved
D3MINUS 0.000
D4MINUS 0.000
D5MINUS 0.000
D6MINUS 0.000
Constraint Slack/Surplus
-------------- ---------------
1 0.000
2 0.000
3 0.000
4 0.000
5 0.000
6 0.000
7 0.000
8 0.000
9 0.000
Observations on Output
• After Iteration 1, Mumbai was ahead on Goal 1 (Priority
1)
• After Iteration 2, Delhi overtook Mumbai as Goal 2 (2nd
Level Priority) was not achieved by Mumbai.
• All Subsequent Goals were achieved by Delhi.
• We look back to the objective criteria of Delhi & Mumbai
more closely.
Selection Criteria Objectives Unit of Measure Desired Goal Delhi Mumbai

Per Capita Income Thousand Per Month 50 or more (P1) 65 128

Household Size Number x 100 450 or more (P2) 478 473

Bicycle Dealers Number 200 or more (P3) 827 153

Fitness Clubs No. per million 25 or more (P4) 44 38

Air Pollution PM10 100 or more (P5) 243 109

Internet Users Ten Thousand Nos. 250 or more (P6) 324 266
Sensitivity Analysis
• Management can also decide on Mumbai as the test
market as it leads in the Goal 1 priority.
• It can then analyze whether the positive variance of Per
Capita income (63,000 per month) compensate for the
loss in other constraints.

Difference from Goal

Difference
Selection Criteria Minimum
Unit of Measure (Mumbai-
Objectives required Goal Delhi Mumbai Delhi)

Per Capita Income Thousand Per Month 50 15 78 63

Household Size Number x 100 450 38 33 (5)

Bicycle Dealers Number 200 627 (47) (674)

Fitness Clubs No. per million 25 19 13 (6)

Air Pollution PM10 100 143 9 (134)

Internet Users Ten Thousand Nos. 250 324 16 (308)

Conclusion
• The case presented a strategic goal programming model
for test market evaluation that offers several benefits to
marketing managers.
• It provides trade-off information among criteria.
• It Considers simultaneous decision-making criteria to
derive an optimal selection.
• It permits Ordinary ranked prioritization of decision-
making criteria.
• When using the model it is easy to change critical
market characteristics and objective factor estimates
(i.e. model parameters) and solve for a new solution
with little or no effort from management.
Thank You !