New England Consulting Group Reveals Its Five Rules for Product Due Diligence

(PRWeb) February 5, 2007 -- Product testing during Marketing Due Diligence is probably one of the least understood and most frequently ignored avenues for conducting deep due diligence when buying a going business. Usually, there is a lack of awareness that it can and should be done, and when it is considered there is always some concern that it can be done in time to make a difference and whether it is cost effective.

Here are the New England Consulting Group's (www.necg.net) five basic rules for doing product testing to understand what advantages and disadvantages a product may have and how that should be taken into account in the overall bid.

Rule #1: Know how a product performs in the hands of its users because the product is the foundation of everything you are buying. Without a clear understanding of the product's performance characteristics and its benefits relative to its competition, you are rolling the dice. If you would not pay for the product at retail because it doesn't perform, you certainly don't want to pay for it in a private sale.

Rule #2: Test products that deliver either consumer perceivable, functional end-benefits or have perceivable cosmetic attributes which could positively or negatively impact a consumer's assessment of the product's functional benefits. The purpose of the test is to determine if there are any serious product negatives vs. leading competition and to understand from the technical people whether or not such negatives can be eliminated or at least minimized. The test should also determine if there are any significant advantages vs. competition that would plausibly allow the acquirer to believe that consumers would be willing to purchase your product in preference to the competition if these differences were brought to their attention.

Admittedly, there are consumer products that do not lend themselves to consumer comparisons (gasoline comes to mind), but there are many ingenious ways to have consumers test products that are far from self-evident.

Rule #3: Always conduct at least a short-term in-home product test, or at least a central location consumer use test; always try to insure that the test is blinded so that only the single-variable of the product itself affects the outcome; lastly, always use a crossover study design to insure that "between consumer" error is eliminated. Said differently, try not to conduct "parallel" study designs where one group of consumers uses one product and the other group uses the control product. You just never know how different or "unmatched" the two groups might be in terms of psychographic and attitudinal characteristics which, unlike demographic characteristics, cannot be easily measured. If the two groups are unmatched it could be those variables that are driving differences in product perceptions more so than the product itself. Crossover designs don't have this issue.

If you have time and if the product category is one associated with frequent usage occasions, conduct a longer-term consumer use test to make sure that some negatives that are considered minor on a short-term basis, do not become major negatives on a long-term basis when consumers start to become more aware of them. This approach helps to deal with the "within consumer" error in product testing that is a function of a consumer feeling a certain way on one day and another way on a later day.

While it may be self-evident, always try to conduct the test among consumers who are the ones considered the heaviest users. Light users often times could care less about certain product characteristics.

Rule #4: Once you have the facts, use them in the bidding process. If the results are equivocal or weak relative to competition, then you may want to bid less or withdraw your bid. If the results are spectacular, the seller may not know what they have, and you can afford to put in an aggressive bid and lock out the competitive bidders.

The results can also be used on a post-acquisition basis. If you get weak results, use the information to guide your product development efforts. If you get great results, use the data to support advertising claims and try to catch your competition by surprise.    

Rule #5: Institutionalize product testing into your due diligence process and into running your businesses. Consciously don't do it if you don't think it is necessary, but have the discussion. Don't do it simply because you forgot about it or someone said there was not enough time or you did not want to spend the money.

When you are operating a business, your operations people need to know what the problem is. Nothing is more frustrating when the marketing people say the product does not perform well and the R&D people say the marketing plans and execution aren't effective. How, as a Board member, do you know who is right? You start with the product. The New England Consulting Group has successfully harnessed these five basic approaches for numerous Marketing Due Diligence assignments across an array of products, brands, and companies.

The New England Consulting Group www.NECG.net has been the premier management consulting firm specializing in strategic & tactical marketing management for over 25 years. They are a partners-only firm that practices the 'Principal Principle': All partners have been successful line management executives with industry leaders such as P&G, GE, and PepsiCo; All have 25+ years of management and consulting experience, and the partners do the consulting. Although they think of themselves as Marketing Management Consultants, others often refer to them as the Marketing Marine Corps.

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