Differentiated Product Marketing

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Differentiated Product Marketing
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SYSTEMS OF PRODUCT IDENTIFICATION

• Government-Mandated Traceability
• Motivations
• Facilitate and monitor traceback to enhance food
  safety
• Enhance consumer information about food safety
  and quality
• Protect consumers from fraud and producers from
  unfair competition
• Protect domestic producers

• Voluntary Traceability
• Motivations
• Differentiate and market foods with subtle or
  undetectable quality attributes
• Facilitate traceback for food safety and quality
• Improve supply-side management

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations for Voluntary Traceability
• Differentiate and market foods with subtle or
  undetectable quality attributes
• Credence attributes Characteristics that
  consumers cannot discern even after consumption
• Content attributes Affect actual physical
  properties of product, but difficult for
  consumers to perceive
• Process attributes Concerned with production
  process, usually cannot be detected even with
  specialized testing equipment

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations for Voluntary Traceability
• Differentiate and market foods with subtle or
  undetectable quality attributes
• Firms sometimes resort to third-party entities to
  validate claims about quality attributes
• Examples
• Good Housekeeping Institute
• American National Standards Institute (ANSI),
• Underwriters Laboratories (UL)
• Council of Better Business Bureaus
• International Organization for Standardization
  (ISO)
• Government inspectors

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations for Voluntary Traceability
• Differentiate and market foods with subtle or
  undetectable quality attributes
• Facilitate traceback for food safety and quality
• Traceability helps producers reduce time to
  identify and remove contaminated foods from
  production lines and/or from market, before food
  item reaches consumers

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations for Voluntary Traceability
• Differentiate and market foods with subtle or
  undetectable quality attributes
• Facilitate traceback for food safety and quality
• Improve supply-side management
• Traceability helps manage product flows and track
  retail activity

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations for Mandatory Traceability
• Facilitate and monitor traceback to enhance food
  safety
• Mandatory traceability enables authorities to
  identify sources of food contamination/hazards
  and contain risks faster

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations for Mandatory Traceability
• Facilitate and monitor traceback to enhance food
  safety
• Enhance consumer information about food safety
  and quality
• If producers are not providing as much
  information about safety/quality as consumers
  desire, mandated traceability may allow consumers
  to choose food products better matching their
  preferences

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations of Mandatory Traceability
• Facilitate and monitor traceback to enhance food
  safety
• Enhance consumer information about food safety
  and quality
• Protect consumers from fraud and producers from
  unfair competition
• By enforcing traceability, the government may
  assure consumers and competitors that firms
  claiming to sell products with credence
  attributes can substantiate their claims

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SYSTEMS OF PRODUCT IDENTIFICATION

• Motivations of Mandatory Traceability
• Facilitate and monitor traceback to enhance food
  safety
• Enhance consumer information about food safety
  and quality
• Protect consumers from fraud and producers from
  unfair competition
• Protect domestic producers
• Mandatory traceability to identify domestically
  produced vs. imported foods may allow domestic
  producers to command a premium

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SYSTEMS OF PRODUCT IDENTIFICATION

• Examples of Mandatory Traceability
• Certified Organic
• Country-of-Origin Labeling (COOL)
• Age verification for Japan
• Grass-fed beef
• Naturally raised livestock

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SYSTEMS OF PRODUCT IDENTIFICATION

• Examples of Mandatory Traceability
• Certified Organic Products
• Products grown and processed according to USDAs
  national organic standards and certified by
  USDA-accredited State and private certification
  organizations
• Organic Foods Act of 1990 established national
  standards for organically produced commodities
• Organic growers must have to be certified under
  USDAs National Organic Program
• A person may sell or label an agricultural
  product as organically produced only if product
  has been produced and handled in accordance with
  National Organic Program

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SYSTEMS OF PRODUCT IDENTIFICATION

• Examples of Mandatory Traceability
• Certified Organic Products

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SYSTEMS OF PRODUCT IDENTIFICATION

• Examples of Mandatory Traceability
• Certified Organic Products

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SYSTEMS OF PRODUCT IDENTIFICATION

• Country-of-Origin Labeling (COOL)
• 2002 Farm Act
• Retailers must ensure verifiable audit trail
• COOL not required for foods that are ingredients
  of processed food items
• Foodservice establishments exempt from COOL
• Unknown origin label not allowed
• 2002 Farm Act
• Was to become mandatory Sept 30, 2004
• Delayed until Sept 30, 2006
• Delayed again until Sept 30, 2008

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SYSTEMS OF PRODUCT IDENTIFICATION

• Country-of-Origin Labeling (COOL)
• Disagreement on how to implement
• Presumed US
• Make importers label
• Anything not labeled is presumed to be US
• Verifiable audit trail
• Move the product with a signed affidavit
• Keep records to back up claim if audited
• Regardless of cost at farm level there is a cost
  beyond the farm gate to segregate and document

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NAIS is NOT COOL

• COOL is an amendment to the 1946 Agricultural
  Marketing Act
• Retailers inform all consumers
• Sec of Ag cannot implement traceback
• NAIS (National Animal Identification System)
• Animal health surveillance
• Confidential system, only federal veterinarians

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The Proposed NAIS System
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SYSTEMS OF PRODUCT IDENTIFICATION

• ISO, Greek for equal
• International standard for quality systems
• In a nutshell
• Say what you do
• Do what you say
• Document it with records

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SYSTEMS OF PRODUCT IDENTIFICATION

• Age verification for Japan
• Japan will accept 20 months or less
• Two methods to confirm age
• Physiological maturity A40
• Production records
• Need records to export variety meat
• Based on ISO principles

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Age verification for Japan

• Signed affidavits alone are not sufficient to
  qualify cattle for the EV Program for Japan.
• Cattle must be approved either through an
  approved USDA Process Verified Program or QSA
  Program. These Programs require supplier
  evaluations and re-evaluations.

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Age verification for JapanQuality Management
System

• A written management system that must address
• Documentation Requirements
• Management Responsibility
• Resource Management
• Production of Product
• Measurement, Analysis and Improvement
• Record Requirements

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Age verification for JapanProducer Requirements

• Records to validate age
• Procedures Farm or Ranch Plan
• Written management plan
• Records to validate activities
• Must be repeatable
• Producer is evaluated by company and/or USDA to
  verify conformance.

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Age verification for JapanManagement Plan

• Describe operation/farm
• Define practice
• What is done
• Who does it and how are they trained
• How is it recorded
• Where are the records

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Product v. Process Certification

• Tighter product specification
• Sorted by processor
• Process specification
• How it is produced
• Role of and return to producer????

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Commodity v. Product

• Commodity
• Undifferentiated
• Perfectly competitive markets
• Products
• Differentiated
• Monopoly - Workable competition
• Niche Market, branded, labeled, etc

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Motivation

• Commodity market
• Price takers
• Cost driven
• Long-run Pminimum ATC
• Product markets
• Price makers
• Costs not as important
• Potential for sustained higher profit margins

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Commodity system

• Extremely efficient
• Challenges
• Co-mingling from many sources
• Consumers signals not transmitted
• Little incentive to improve because benefits not
  passed through to producer
• Expand to capture economies of size

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Product system

• How to differentiate?
• Managed supply chain
• Allows traceback to producer
• Restricts production
• Focus on quality

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Procedures

• Why is the product different?
• How it is produced
• Where it is produced
• What is produced
• What it includes
• What it doesnt include
• Develop marketing around the difference

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Procedures

• Limit production and access to control supply
• Cant look like price fixing to regulators
• Geographical restrictions
• Swiss cheese
• Champaign
• Trade secret
• Emphasis on quality
• Traceability to verify

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Farmer-Owned BrandsHayes and Lence

• Parma Ham
• Restricts area where ham can be cured
• Claim unique climate and winds
• Restricts breeds and regions where hogs can be
  produced
• Italian hog prices averaged 7.44 more than
  German hogs 1999-2001

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Farmer-Owned BrandsHayes and Lence

• Vidalia Onions
• Selected region in south Georgia
• Used existing state law to restrict area
• State-owned trademark
• Premiums of .30-.34 per pound
• First spring sales are 30-50 higher

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Iowa 80 Beef

• Minimum Certification Requirements
• Verified to be sired by a 100 Angus bull.
• Source verified to the farm of birth using an
  identification system
• Fed in an Iowa feedlot for a minimum of 180 days.
  
• Fed a high-concentrate ration that totals at
  least 75 percent corn or corn co-products over
  the feeding period.
• Age verified and processed at 18 months of age or
  less.
• USDA grades upper one-third Choice or Prime.

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Commodity v. Product

• Commodity
• Minimum requirements
• Anonymous
• No product or price differentiation
• Profits tied to low cost of production

• Product
• Product specifications
• Traceback and accountable
• Product and price differentiation
• Profit tied to costs and ability to protect
  higher prices