Title: Food Marketing:
1Food Marketing
- Consumers, Development, Manufacturing, and
Distribution
2Food 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
4Food 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.
5International 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.
6Food 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
7Government 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.
8Food 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
9The Four Ps of Marketing
- Product
- Investing in the product
- Price
- Price strategies
- Distribution
- Putting items on the shelf
- Promotion
- Getting the word out
10The 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.
11Food Market
- Food Marketing Efficiency
- Characteristics of Food Products and Production
- Problems in Agricultural Marketing
- Decisions on Marketing Efforts
- Trends in Agricultural Marketing
12Food 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.
13Characteristics 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
14Problems in Agricultural Marketing
- Farming output takes time to adjust to current
supply and demand - Farmers have low bargaining power with buyers
15Decisions on Marketing Efforts
- Producers promoting their own products
- Most participation is voluntary, and some
producers will put in more effort than others. - Brand building
16Trends 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
17Distribution 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
18Distribution cont.
- Manufacturers will distribute differently
depending on the product - Parallel Distribution structures
- Distribution must be realistic toward the firm
19Retailing
- 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
20Margins
- What the store pays the retailer and what it
charges the customer - Net Margins take into account allocated costs in
running the store.
21Slotting 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
22Increasing 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
23Wheel 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.
24Retailing 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.
25Scanner 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
26International 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)?
27Exchange 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.
28Measuring 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.
29Protectionism
- 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.
30Justifications 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
31Variations 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.
32Food 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.
33Food 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.
34Food 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.
35Promotional 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.
36Government Export Assistance
- The U.S. government and several states have
programs to help food products abroad. - Financial assistance
- Paperwork and making connections
37Price 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
38Price 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
39Demand 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
40Supply
- 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.
41Costs
- 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.
42Changes 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
43Market/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.
44Macroeconomic 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.
45Consumer 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.
46Ways 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.
47Value 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
48Price 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
49Consumer 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.
50Odd-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.
51Estimating 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
52Competition 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
53Food 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.
54Bargaining 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.
55Predictable 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.
56Predictable 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.
57Less Predictable Changes
- It is difficult to predict the supply conditions
of a harvest at the time of planting. - Exchange rates between currencies fluctuate
dramatically.
58Farm 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.
59Farm 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.
60Farm 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.
61Trends vs. Fluctuations
- In the chart prices fluctuate but we see a trend
line indicated that average prices increase over
time.
62Trends 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.
63Trends vs. Fluctuations cont.
- Data with large fluctuations is considered noisy.
Noisy fluctuations are difficult to distinguish
the trend opposed to clean fluctuations.
64Trends vs. Fluctuations cont.
- Trends can change over time.
- Some occur in a linear rate where others can
reverse, or level off
65Trends 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.
66Lags 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.
67Real 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.
68Food Market Structure
- Several characteristics determine a market
structure. - No one firm or individual controls the entire
value chain.
69Horizontal 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.
70Vertical 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.
71Specialization
- Firms that focus on one process are more
effective. - e.g. KFC and its chicken.
- Allows research and technology spending to be
more focused.
72Diversification
- 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
73Decentralization
- 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.
74Farmer 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.
75Market Development
- Involves creating or expanding a market for new
or existing products and/or increasing the value
of these products.
76Strategies, 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
77Strategic planning process
78Setting 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.
79Setting 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.
80Setting 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.
81Tactics and implementation
- Once a strategy has been made, decisions must be
made on implementation.
82Consumer 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.
83Levels 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.
84Standardization 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
85Transportation
- 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
86Transportation 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.
87Storage
- 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.
88Risk 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