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Understanding the ROI of Concept Testing

Published on Jun 19, 2024 by Kelly Manning

Concept testing is a crucial step for minimizing risks and maximizing returns for any marketing investment.

ROI of Concept Testing

The decision to launch a new product, or even update an existing product, starts a journey that is full of challenges and uncertainties. The importance of making informed decisions cannot be overstated in today’s competitive business landscape, especially when considering the financial investment needed to create a concept. Using funds to conduct concept testing along the development journey is prudent. While the expense and time of doing research might not always be part of the concept development plan, stakeholders certainly value the ability to mitigate risks of failure. By considering the ROI that a concept test delivers, an organization may find the use of concept testing ensures better alignment with the projected performance of the product, and better profitability.

Concept testing allows businesses to gauge consumer reactions prior to launching a new or improved product. By using concept testing, you can ideate the most favorable attributes to create stronger messaging, value proposition, and competitive differentiation. Testing at the beginning, before development, advertising, and marketing investments are made, your concept's attractiveness to buyers is better understood. It enables you to center your investments around the most important concept attributes.

What is Concept Testing?

Concept testing involves presenting a new product/service (or other ideas) to a target audience and collecting feedback on its appeal, functionality, and potential success. This includes initial qualitative research to develop and screen ideas that can be further refined for quantitative testing. The primary goal is to frame the leading attributes and reevaluate those that are not received as well. Those that pass the quantitative screening help to set the primary benefits and values of the concept before full-scale development and launch investments are made.

Calculating Concept Test ROI

To effectively measure the ROI from concept testing, businesses should consider these quantitative and qualitative metrics:

  • Cost-Benefit Analysis: Compare the costs of conducting concept tests (e.g., research expenses, prototype development) against the potential savings from avoiding a failed product launch (production, marketing, sales, distribution, unsold inventory).
    • For example, if the estimated cost of concept testing is $50,000 and the potential savings from avoiding a failed product launch are estimated to be $1,000,000, the cost-benefit ratio would be $1,000,000 / $50,000 = 20, meaning that for every $1 spent on concept testing, the company could potentially save $20 by avoiding a failed launch.
    • If you expect a tested launch to bring in $1,000,000 in revenue, the ROI from that same $50,000 test is $20 for every $1 spent on testing.
  • Time to Market: Assess how concept testing accelerates the development process by providing clear directions and reducing time spent on iterations.
    • Time Saved = Average Time to Launch without Concept Testing - Time to Launch with Concept Testing
    • If a company's average time to launch a new product without testing is 18 months, but with concept testing, the launch is streamlined to 12 months, then the time saved is dramatic at six months. This accelerated time to market can lead to significant competitive advantages and increased revenue opportunities.
  • Sales Performance: Track the performance of products that underwent concept testing versus those that didn't, analyzing metrics such as sales volume, market share, repeat purchase rates, and customer satisfaction.
    • Consider this example: A company that launched a new product after conducting concept testing saw a 25% higher sales volume and a 10% increase in market share compared to a similar product launched without concept testing in the previous year.

Conclusion

Investing in concept testing is an additional step in the product development process and a strategic move that can provide significant time and financial returns. By uncovering consumer insights early, refining product concepts, and making data-driven decisions, businesses can enhance their chances of success while avoiding risks. The ROI from concept testing extends beyond financial metrics, contributing to brand reputation, organizational learning, and long-term market leadership. In today's market environment, concept testing is invaluable for any company looking to innovate and thrive. Yes, you could skip it – but is it worth the risk?

Kelly Manning is Vice President, Business Development at Socratic Technologies. She has over 20 years of experience working with many Fortune 500 companies across the CPG, Consumer Health Care, Retail, Restaurant and AdTech industries. She has led client consulting teams in the market research and analytics space focused on the evaluation of sales, advertising, promotions, and new product launches. Kelly comes to Socratic with experience from Nielsen Media, Nielsen BASES, IRI, Catalina, and ad agencies. She has also worked with big AdTech and media partners. At Socratic, Kelly works with our expert research team to develop and deliver research that drives brands forward and increases return on investments.

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