Consumer behaviour, food marketing

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Consumer behaviour, food marketing policy issues

• Week 10 14 March 2003

2
Lecture outline

• Food firms marketing strategies
• Retailing marketing strategies
• Policy implications of consumer behaviour
• Public marketing strategies

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The role of marketing in the agribusiness system

• The goals of an agribusiness firm
• To identify market needs and demand in the firms
  area
• To obtain information about segments of the
  market demand that have special needs
• To develop a line of products and a name for the
  firm that achieve recognition in the market
• To obtain financing for business operations and
  expansion
• To develop a pricing strategy that will ensure
  reasonable profits and long-term growth
• To maintain the ability to develop marketing
  innovations

4
Food firms marketing objectives

• Understanding consumer tastes and preferences
• Providing variety
• Addressing use-by and freshness concerns
• Ensuring food safety
• Providing nutritional information
• Pricing and providing price information
• Special displays and promotions
• Time-saving shopping services

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Dynamic marketing activities

• Identifying changes in consumer needs
• attitudes measurement / questionnaires
• Designing new or modified products to satisfy
  demand
• Preference mapping
• PCA / Cluster analysis
• Improving packaging to satisfy consumer demand
• Conjoint analysis
• Selecting brand names
• Selecting pricing strategies
• Sales modelling
• Determining advertising and promotion strategies
• Response to advertising
• Building distribution systems for new products
• Establishing an information system for a changing
  market environment

6
The food chain and its contrasting objectives
Producers

• Sell large quantities and at high prices

• Buy at the lowest possible price
• Sell competitively at the highest possible price
• Sell large and standardised quantities

Commodity merchants

• Adequate and regular supplies
• Meet quality requirements and changing market
  needs

Processors
Wholesalers and retailers

• Buy and store just the optimal quantity of
  products
• Set a balanced marketing mix to maximise profits

Consumers

• Needs are satisfied

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Problems in food marketing

• Commodity price uncertainty
• Low involvement of consumers
• Mature market
• Cross-cultural marketing
• Product quality variability
• Changing lifestyles

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Marketing strategies

• Market growth
• Market penetration
• Persuade existing consumers to consume more
• Drink orange juice in the afternoon
• Market development
• Look for new customers (e.g. in other countries)
• Product development
• New products for existing market
• Diversification (extension)
• Products outside the present line
• No growth (maintaining share)

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Marketing program

• Delineate the market
• Mass marketing
• Target marketing
• Segment the market
• Readily identifiable and accessible segment
• Segments responding to product differentiation
• Evaluate market segments
• Size, spending power, stability, accessibility
• Anticipate consumer behaviour
• Market research
• Consumer behaviour

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The advantages of retail marketing

• Market power of retailers
• Direct contact with customer
• Evolution of information systems
• International dimension
• Non-store retailing

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The retail marketing mix

• Product range
• Product (store) image
• Consumer franchise (own-brands)
• Shelf price
• Distribution
• Shelving
• Advertising
• Store location
• Selling environment

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Is the consumer rational

• Cognitive paradigm
• Rational decision
• Reinforcement paradigm
• Progressive learning
• Habit paradigm
• Just habits

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when choosing about food?

• Characteristics of a food product
• Low price (low involvement?)
• Frequent purchasing
• Quick decision
• Experience good
• High transaction costs for information
  (relatively to price)
• High brand and store loyalty

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Are the consumers (we) all stupid?

• Understanding the decision process
• Involvement
• Environment (society, culture, family, store)
• Beliefs and attitudes (personality)
• Marketing mix (four Ps)
• Information gathering and processing
• Habits
• Loyalty
• Which of these aspects are the consumers actually
  able/willing to control?

15
The consumer and the (food) policy-maker

• Everyday purchasing is not irrational
• People have reasons for acting habitually
• The process is a time-minimisation one
• Policy problems
• Consumer may miss innovation (resistance to new
  products)
• Consumer may not notice defects in the habitual
  products
• Loyalty prevents entry to market (loss of
  efficiency)
• Difficult to lead people to a healthier diet
• Should policy-makers disrupt loyalty and make
  consumer spend time on decisions?
• Good products should be able to enter the market
• Manufacturers need to make profits on loyalty to
  invest on product development

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Competition and change

• Some change does occur
• About 15 of customers lose allegiance to a brand
  in a year
• But why? Will they move purposively in a better
  product?
• Competition does not usually lead to success of
  the better product
• Should policy-maker enhance competition?

17
Was Pareto wrong?

• The idea that perfect competition leads to
  optimal social allocation is part of our
  (economic) culture, but
• Microeconomic consumer behaviour is based on
  price and income
• Price and income are becoming less and less
  relevant for foods, while quality is a major
  issue
• Microeconomics (usually) assumes that the
  consumer considers the whole bundle of
  opportunities when making decisions
• Applied microeconomics work better at aggregate
  level (it is difficult to make inference at
  individual level)
• Economics is normative (assumption)
• Consumer behaviour allows to consider the
  environment
• Prospect theory (framing) allows also to explain
  discrepancies between human behaviour and
  economic assumptions (perfect information)

18
Economic psychology

• How can psychological research illuminate
  economic issues?
• Gambling
• Compulsive shopping
• Tax evasion
• Money perception

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Academic research and policy makers

• Economics and economic policy
• Keynesian economics
• Monetarists
• Economic theory and policy intervention
• Free market vs intervention schools
• Regulating economic environment
• Privatisation is the private sector more
  responsive to consumer needs?

20
Public vs private services

• If the public provision is unsatisfactory, a
  freer market should allow an optimal supply
• Counter examples
• Take a train on weekends
• Results of British privatisation fare increase,
  smaller patronage
• Competition may lead to private monopoly
• It is important to consider consumer inertia

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Private competition

• Pressure towards lower prices
• Pressure towards higher quality (?)
• Policy measure
• Make consumer take advantage readily of
  advantages of competition, by contrasting
  consumer inertia

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Public policy and customer voice

• Private organisations
• Employees rewarded according to performance
• Public organisations
• Structure should enable to consider customer
  demand
• Employee performance should be evaluated
• Tools
• Regulations
• Targets
• Feedback on performance
• Incentives
• Total quality management

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Regulations that raise (defend) competition

• Rules against cartels
• Price displays using standardised notices
• Prohibiting exploitation of consumer inertia
• Requiring a formal procedure for redress and
  complaining
• Ensuring minimisation of service-switching costs
• Limiting the level of premia when consumer choice
  is limited (trains)
• Raise access to information
• Restricting promotions/loyalty schemes?

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Public advertising

• Influence consumers to make them more quality
  conscious and vigilant
• Profits for most receptive supplier
• Consumer benefit
• Improving health, raise safety, limit energy
  waste
• Ads for encouraging price and quality
  competitiveness