Food Marketing:

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Food Marketing:

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Title: Food Marketing:


1
Food Marketing
  • Consumers, Development, Manufacturing, and
    Distribution

2
Food Marketing
  • Test marketing, segmentation, positioning,
    branding, etc.
  • Dealing with perishable products.
  • The value chain
  • Processing and Distribution
  • Services and Processing

3
Demographics and Food Marketing
  • Understanding statistical characteristics of a
    population.
  • Helps understand the current marketplace
  • Aids predicting future trends
  • Upward pull marketing

4
Food Marketing and Consumption Patterns
  • Certain foods have experienced significant growth
    in recent years.
  • Pork per capital consumption has increased from
    immigration from Asia.
  • Beef and egg decreasing, but may be on the rise
    again because of high protein diets gaining favor.

5
International Comparisons
  • Americans spend significantly smaller portion of
    income on food than other countries.
  • India and Philippines spend 51 and 56
    respectively.
  • Americans spend 7-11 and Japan spends 18.
  • Food prices in U.S. are less than most
    industrialized countries.

6
Food Outlets
  • Supermarkets, convenience stores, and food
    markets sell food products at higher prices
  • Food is being brought closer to people for more
    convenient purposes which increases the cost due
    to travel.
  • Food being consumed away from home
  • People who eat out pay more money for food due to
    preparation cost

7
Government Food Programs
  • While helping low income households, government
    programs increase the demand for food.
  • U.S. food stamp program
  • 1 dollar in food stamps increases the demand for
    food by 20 cents.

8
Food Marketing Issues
  • Branding
  • Allows increase in price for a product due to
    promotion and innovation of a brand.
  • Leveraging the brand
  • Can use their brand name on new product lines.
    Ex. Heinz pickles branched into ketchup
  • Brand loyalty
  • Consumers will keep buying a brand they prefer

9
The Four Ps of Marketing
  • Product
  • Investing in the product
  • Price
  • Price strategies
  • Distribution
  • Putting items on the shelf
  • Promotion
  • Getting the word out

10
The Value Chain
  • Value of a product increases as the food passes
    through more parties.
  • Allows people to specialize in what they do
    best.
  • Farmers are able to focus on farming, and agents
    able to focus on making deals with processors or
    manufacturers.

11
Food Market
  • Food Marketing Efficiency
  • Characteristics of Food Products and Production
  • Problems in Agricultural Marketing
  • Decisions on Marketing Efforts
  • Trends in Agricultural Marketing

12
Food Marketing Efficiency
  • Desired levels of service at lowest cost
    possible.
  • Does not meant to minimize costs after materials
    leave the farm.
  • Some services added later may be extremely
    valuable to the consumer.
  • The objective is to add the needed value as
    efficiently as possible.

13
Characteristics of Food Products and Production
  • Problems are introduced by the characteristics of
    agricultural production
  • Large Crop variations
  • Crop size for the year affects price
  • Seasonal Effects
  • Thanksgiving, Christmas, etc.
  • Increasing Production Levels
  • Innovations in science
  • Geographic Concentration
  • Derived Demand

14
Problems in Agricultural Marketing
  • Farming output takes time to adjust to current
    supply and demand
  • Farmers have low bargaining power with buyers

15
Decisions on Marketing Efforts
  • Producers promoting their own products
  • Most participation is voluntary, and some
    producers will put in more effort than others.
  • Brand building

16
Trends in Agricultural Marketing
  • Science Innovations lead to more productivity
  • Firmer Fruits for example
  • More growers, processors, and manufacturers are
    needed to meet the demands for consumers
  • Food industry needs to produce nutritional and
    safe products while being environmentally savvy

17
Distribution Food Wholesaling and Retailing
  • Getting the product from the manufacturer to
    ultimate consumer
  • Middleman adds efficiency
  • Breaking bulk
  • Carrying inventory
  • Financing
  • Channel structures will vary depending on the
    nature of the product

18
Distribution cont.
  • Manufacturers will distribute differently
    depending on the product
  • Parallel Distribution structures
  • Distribution must be realistic toward the firm

19
Retailing
  • Retail store can position themselves in many ways
  • Example low-cost-low-service or
    high-cost-high-service
  • Clear retail strategy is more effective
  • Average strategy faces larger range of
    competition
  • Sears competes with both stores like Macys and
    Wal-Mart
  • Wal-Mart with a more refined strategy competes
    with K-Mart and Target

20
Margins
  • What the store pays the retailer and what it
    charges the customer
  • Net Margins take into account allocated costs in
    running the store.

21
Slotting Fees
  • Additional fees payed by a supplier to get access
    to retailers shelves.
  • Usually done by newer products to get shelf space
    against branded products
  • Some of the fees are passed to the consumer

22
Increasing Power of Retailers
  • The increase of products have allowed retailers
    to be more selective of sale items.
  • Retailers are able to hold out for better prices
  • Retailers also make their own private label
    brands to compete with manufacturers

23
Wheel of Retailing
  • Retailers tend to progressively add services to
    their stores.
  • Other retail stores open up that has a narrow
    approach to fill the void of the expanding
    retailers.

24
Retailing Polarity
  • Retailers tend to go from one extreme of service
  • Low prices or high service
  • Economic growth has made high service retailers
    more desirable to higher income consumers, and
    lower costs to low income consumers.

25
Scanner Data
  • Strategic decisions are made from information
    gathered from items that are purchased by
    consumers.
  • Patterns are recorded on how many people by a
    specific product, or which products are purchased
    together.
  • Retailers give membership cards to track
    individuals buying habits
  • Demographic buying patterns can be tracked from
    chains in different areas

26
International Markets
  • Benefits of International markets
  • More economical to grow in other countries
  • Can serve niche markets better
  • Perceived better quality if made from certain
    countries (e.g., Belgian chocolate)?

27
Exchange Rates
  • Floating
  • Currencies set based on the supply and demand of
    each currency.
  • If U.S. imports more from Japan than it exports
    there will be less demand for U.S. dollars and
    more demand for yen.
  • Fixed
  • Currencies dependent on another currency or some
    other valuable such as gold.

28
Measuring country wealth
  • Nominal per capita gross domestic product (GDP)?
  • The value of goods and services produced per
    person in a country which is exchanged into
    dollars.
  • Gross Domestic Product (GPD)?
  • Includes citizens working abroad, and does not
    include foreigners working in the country
  • GPD is more commonly used
  • Some countries income is unevenly distributed so
    measurements may not be meaningful.

29
Protectionism
  • Tariff Barriers A duty, tax, or fee is put on
    products imported
  • Quotas A country can export only a certain
    number of goods to the importing countries
  • Voluntary export restraints Not official
    quotas, but involve agreements made by countries
    to limit the amount of goods they export to an
    importing country.
  • Subsides to domestic products Cost advantage is
    given to producers who domestically make a
    product.
  • Non-tariff barriers testing of products for
    safety puts greater time constraints on foreign
    food products.

30
Justifications for Protectionism
  • Protection of an infant industry
  • Resistance to unfair foreign competition
  • Preservation of a vital domestic industry
  • Countries would prefer to be self sufficient
  • Intervention into a temporary trade balance
  • Country may want to increase their temporary
    decline in trade balances by limiting exports.
  • Maintenance of domestic living standards and
    preservation of jobs
  • Retaliation

31
Variations in Food Taste Preferences
  • Food preferences are establish at an early age
    usually.
  • Strategies are devised to expose other cultures
    to products to allow future generations to
    establish a preference to that food.
  • Religion also disallows the consumption of
    certain food.

32
Food Diffusion
  • Food products spread to other countries
  • Process is long
  • Chinese food believed to be more popular in U.S.
    due to immigration of Chinese families.
  • Products from other countries start to change
    drastically
  • Pizza in the U.S. is much different from the
    traditional Italian dish.

33
Food Positioning
  • Origin can have a lot to do with a food products
    image.
  • e.g. Spaghetti from Italy
  • Sometimes producers imply origins to their
    product which raises ethical questions.
  • Food may need a different type of positioning
    based on usage occasion
  • China has cheaply made food on the streets so
    U.S. fast food companies are less viable in China.

34
Food Adaptation
  • Food sometimes has to be adapted to be more
    successful in a new country.
  • KFC uses less sugar in Japan because of they
    prefer food that is less sweet.
  • Serving size could also be adjusted.
  • Products shipping packaging might also need to be
    upgraded before export.

35
Promotional Decisions
  • The majority of U.S. food promotion is done
    through television. However, other countries
    this media type is not the right type of
    promotion.

36
Government Export Assistance
  • The U.S. government and several states have
    programs to help food products abroad.
  • Financial assistance
  • Paperwork and making connections

37
Price and Competition
  • Basic Economics
  • Supply and Demand Curve
  • Sharp changes may occur when critical price
    points are reached.
  • Price Elasticity the extent to which quality
    demanded is affected by changes in price

38
Price and Competition cont.
  • Real life demand is not always as smooth as it is
    portrayed in theoretical curves.
  • Sharp curves may be reached when critical price
    points are reached

39
Demand Curves
  • Total demand for a product is the result of
    adding the demand for each consumer
  • Certain consumers will value a product more than
    others.
  • Atkins diet followers will value steak more.
  • Low fat diet followers will value steak less

40
Supply
  • Supply is determined by what is available
  • Prices go up when there is a lot of something and
    down when it is not.
  • Adjustments to supply often take a long time, and
    supply might have changed.

41
Costs
  • Come in fixed and variable categories
  • Fixed costs are not affected by the quantity
    produced.
  • e.g. mortgage on a farm costs.
  • Variable Costs depend on the quantity produced.

42
Changes in supply and Demand
  • Supply may change due to changes in the market
    such as
  • Size of the years crop
  • Changes in population
  • Changes in income or wealth
  • Changes in tastes and preferences
  • Changes in the prices of substitutable products
  • Future price expectations

43
Market/Clearing Prices
  • Set when market matches supply and demand
  • If a price is too low more quantity will be
    demanded.
  • If a price is too high there will be a surplus of
    product.

44
Macroeconomic Influences on Prices
  • Common concern is food prices are too low
  • Governments try to mitigate prices
  • Negative Tax
  • Farmers given extra money from government
  • Price controls can be taken to effect such as
    limiting maximum that can be charged for a
    product.

45
Consumer Response to Price
  • Prices are dictated by both manufacturers and
    retailers.
  • Retailers handle final decisions for pricing
  • Manufacturers make promotional and other
    decisions that influence retailer decisions.

46
Ways to Change Prices
  • One obvious way to increase the price of a
    product is to increase the sticker price.
  • Consumers tend to react strongly to this type of
    change.
  • Other methods methods have been devised.

47
Value Received
  • Numerator Denominator
  • Sticker prices is a change to the numerator
  • Supply affects the denominator
  • Quantity Quality
  • Reducing the quantity can keep prices for a
    product the same
  • Reducing the quality will help with cutting
    prices
  • Terms and Service

48
Price Discrimination
  • Marketers are interested in getting a customer to
    pay as much as he or she is willing.
  • Explicit price discrimination
  • Student or Senior discounts
  • Implicit price discrimination
  • Coupons

49
Consumer Price Response and Awareness
  • Most consumers neglect price comparison
  • Consumers on average inspect only 1.2 items
    before making a selection
  • Consumers respond to great deal price changes
  • Tend to respond to a promotional signal than to
    prices.

50
Odd-Even Pricing
  • Supermarkets end prices in .99 or .95 rather than
    round figures.
  • Makes prices seem lower than they really are
  • 2.99 is associated with 2 rather than 3
  • Consumers respond better to even pricing when the
    prices are higher
  • Odd pricing came from the fact that it forced
    clerks to ring up purchases for customers to give
    them change.

51
Estimating Consumer Willingness to Pay
  • Its extremely difficult to estimate how much a
    consumer will be willing to pay for a new product
  • Focus groups and questionnaires are ineffective
  • Laboratory tests
  • Conjoint analysis

52
Competition in Agricultural Markets
  • Farmers are considered equivalent to other
    farmers, and therefore have no bargaining power
    to raise prices.
  • Some manufacturers have a lot of power over the
    whole market
  • e.g. Coke and Pepsi

53
Food Prices and Costs
  • Prices that farmers receive are based on supply
    and demand factors
  • Supply can be affected by the amount of output
    available from other farmers, imports, or
    substitutes for that particular product.
  • Demand are based on the expected purchasing of a
    product by a consumer.

54
Bargaining Power of Farmers
  • Farmers that sell small quantities usually have
    little bargaining power.
  • Most farmers can sell at market price, but not
    any higher.
  • Many of todays commodities transactions take
    place electronically or through brokers.
  • Buyers will not have information on market prices
    and the farmer will have the upper hand.
  • This approach however takes a great deal of time
    and effort.

55
Predictable and Less Predictable Market Changes
  • Farmers are vulnerable to environmental change.
  • Changes in supply and/or demand also affect
    change.
  • Some changes however are relatively predictable.

56
Predictable Market Changes
  • Phased-in trade agreements
  • Trade agreements are not opened immediately, and
    producers are given time to adapt to the changes.
  • Long-term diet trends
  • Diets change the demand for certain products.
  • Trends in substitute products
  • Changes in cost structure and technology.

57
Less Predictable Changes
  • It is difficult to predict the supply conditions
    of a harvest at the time of planting.
  • Exchange rates between currencies fluctuate
    dramatically.

58
Farm Value
  • The proportion of the total food costs paid by
    customers that the farmer receives.
  • Foods like bread farm value is very low.
  • Farmer usually only gets 5 for the wheat
    supplied.
  • Farm value is higher for meat products.
  • Most of the value added is from processing,
    manufacturing, distribution, and marketing.

59
Farm value cont.
  • Other parties other than the farmer making money
    is not a bad thing.
  • Recent years farm value of food products have
    decreased.
  • Not a bad thing due to increase in demand for
    services. e.g. Consumers are willing to pay more
    money for prepared foods versus raw ingredients.
  • We can think of this as a trend of consumers
    demanding more value added to the products.
  • If this demand goes up so will the farmers demand
    therefore leading to higher prices for the farmer.

60
Farm Value Cont. 2
  • Several Factors Affect farm value
  • Degree of Processing required
  • Some foods require more processing which lowers
    farm value.
  • Perish ability
  • Perishable products require more expensive and
    less efficient transportation.
  • Seasonality of Supply
  • It may be necessary to add extra processing to
    maintain a perishable product. Canned and
    freezing crops during the off season will reduce
    value of crops.
  • Seasonality of Supply
  • Some commodities are demanded heavily at certain
    times. e.g. Turkey during Thanksgiving.
  • Transportation costs
  • Small quantities and difficult to handle products
    cost more to transport.
  • Bulk-to-value ratio
  • Bulkier and difficult to handle products cost
    more to transport.

61
Trends vs. Fluctuations
  • In the chart prices fluctuate but we see a trend
    line indicated that average prices increase over
    time.

62
Trends vs. Fluctuations cont.
  • Trends that have been experienced in the past
    dont always continue.
  • E.g. eggs have been declining for some time
    because of concerns of cholesterol, until the
    trend reversed because of high protein diets.

63
Trends vs. Fluctuations cont.
  • Data with large fluctuations is considered noisy.
    Noisy fluctuations are difficult to distinguish
    the trend opposed to clean fluctuations.

64
Trends vs. Fluctuations cont.
  • Trends can change over time.
  • Some occur in a linear rate where others can
    reverse, or level off

65
Trends vs. Fluctuations cont.
  • Some trends involve seasonality.
  • E.g. Turkey and cranberries are consumed more
    during the November and December months than any
    other month.

66
Lags in response to market conditions.
  • Reacting demand levels will take time for
    farmers.
  • Reaction could lead to reversing a trend of a
    particular product.
  • Too many farmers producing one product will flood
    the market creating to much supply for the
    demand.
  • By the time farmers meet the demand levels the
    price might of already fluctuated.

67
Real vs. Inflation-adjusted prices
  • Over time average prices tend to go up
    dramatically.
  • Inflation rates vary dramatically between product
    categories.
  • To make price comparisons meaningful over time we
    can adjust for inflation.

68
Food Market Structure
  • Several characteristics determine a market
    structure.
  • No one firm or individual controls the entire
    value chain.

69
Horizontal Integration
  • Economics of scale can be important to some
    industries.
  • When growth opportunities in existing firms are
    limited there may be significant pressure to find
    other businesses to invest current earnings.
  • Buying up another firm is an attractive
    alternative.

70
Vertical Integration
  • Growth through purchasing firms at a later or
    earlier period in the value chain.
  • McDonald's could have a meat packing plant
  • Allows an assured supply.
  • There can be downsides
  • Management overseeing investments where it has
    limited experience.
  • Management attention being spread among more
    industries
  • Developments depressing one industry will harm
    the others in the value chain.
  • Potential conflicts of interests.

71
Specialization
  • Firms that focus on one process are more
    effective.
  • e.g. KFC and its chicken.
  • Allows research and technology spending to be
    more focused.

72
Diversification
  • Agricultural price markets fluctuate dramatically
  • Could be harmful for a farmer to put all his or
    her eggs in one basket
  • A farmer may produce different products to
    counteract this fluctuation.
  • This is less efficient, but farmer will be less
    likely to be driven out of business.
  • Larger firms consider diversification to be less
    useful.
  • Financial theory holds that it is not beneficial
    for stockholders if firms diversify

73
Decentralization
  • In the old days, it was frequently necessary for
    buyers and sellers to physically gather to settle
    market places.
  • Nowadays, much negotiation can be done
    electronically.
  • This causes more efficiency, but less knowledge
    of market prices by some participants.
  • This lack of knowledge can be overcome by
    extensive market research.

74
Farmer Cooperatives
  • Farmers may decide to set up organizations to
    pool sales and purchases, or provide/obtain
    certain services jointly.
  • Cooperatives usually appear not because of
    economic savings, but idealogical reasons.
  • Cooperatives may not be cost effective.
  • They must also be managed by volunteers or
    outside management.

75
Market Development
  • Involves creating or expanding a market for new
    or existing products and/or increasing the value
    of these products.

76
Strategies, objectives, and the hierarchy of
effects.
  • The promotional activities needed for a given
    product will depend on factors such as its
    current stage in the product life cycle

77
Strategic planning process
78
Setting market objectives
  • Objectives need to be reasonably specific and
    manageable.
  • Priorities need to be made.
  • Firm may not have the resources to pursue all the
    objectives at the same time. So a firm needs to
    focus on the most effective resources.

79
Setting market objectives cont.
  • Some objectives may be.
  • Get more people to buy product.
  • Get product used for new purposes
  • Develop preference relative to other products or
    brands.
  • Develop price insensitivity relative to other
    products or brands.

80
Setting strategy
  • Once objectives have been set strategies can be
    made.
  • Improving quality might be achieved by increased
    research and development.
  • Most appropriate choice will depend on factors as
    cost, effectiveness, and risk.
  • As a strategy is considered and potential
    complications arise it may be necessary to
    reassess appropriate objectives.

81
Tactics and implementation
  • Once a strategy has been made, decisions must be
    made on implementation.

82
Consumer adoption to new food products
  • Some food products have great potential for sales
    growth through expansion of the customer base.
  • One way to spread new foods is through massive
    advertising.
  • Many foods also imitate others to attract
    customers.

83
Levels of market development
  • Producers of a commodity may want to promote
    their own food to promote preference to other
    food categories.
  • Development efforts could be focused on
    supporting all products within a brand.

84
Standardization and Grading
  • Food standards and grades exist to allow buyers
    to determine the quality of a product with
    minimal inspection.
  • Standards are there to regulate food sanitation.
  • Food grades are done by federal, state, or
    industry grading.
  • Most have no federal requirement, and state
    regulations vary.
  • Most consumers have little or no knowledge of
    what a specific grade or food criteria.
  • Grades are usually more useful in industry
    transactions

85
Transportation
  • A large part of the food product cost.
  • Occurs between many stages in the value chain.
  • Many products have special transportation needs.
  • Refrigeration
  • Speed for perishable products
  • Special equipment

86
Transportation cont.
  • Sea transportation is usually the least expensive
    method of transportation.
  • This type of transportation is slow, inflexible,
    and can only reach certain areas.
  • Rail transportation is usually less expensive
    than trucking. However present the same problems
    with sea transportation.
  • Trucking and flying products are more efficient
    but cost more.
  • To improve efficiency parties within a value
    chain may locate themselves next to railroad
    locations to minimize transportation costs.

87
Storage
  • Storage is needed for certain products for
    purposes such as
  • Awaiting processing
  • Maintaining safety from other stocks
  • Storing a food for use outside its season
  • Keeping unsold quantities from a previous period
  • Efficiency is important here, but costs must be
    weighted against the quality of storage provided.

88
Risk Management
  • One bad year for a farmer could risk losing their
    farm.
  • It is possible to guard against such a risk by
    someone else providing insurance, which costs the
    farmer.
  • Futures contract farmer agrees to sell at, and
    is guaranteed a specified price.
  • Farmer takes the specified price no matter what
    the price change.
  • Buy an option does not have to follow the
    contract, but the farmer can call upon it if the
    price is low in the open market.
  • Investors may buy and sell these contracts
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