Chapter 5:

Food processing and ManufacturingThe marketing Credo:

Find Wants & Fill Them

Objectives

1.Explain how and why food processors add value to farm products.2.Food processors 4P marketing strategies .3.Trends in food processing.4.Marketing and management problems of food processing companies.

Manufacturers & Processors primarily responsible for Adding form utility Wheat => Flour Livestock => Meat products Fruits & vegetables => Canned or frozen

Manufacturers & Processors

They occupy a strategic position in the food industry.

Food Processing

Adding valueIt involves Canning Freezing Dehydrating Disassembling (livestock into separate meats cuts) Combining (ready frozen prepared dinner)

The 4 Ps

Food processor are quite adept at using all 4ps in developing value added products that will improve their competitive 1. Product Strategies2. Pricing Strategies3. Promotional Strategies4. Placing Strategies

Product Strategies

The goal of mkt mgt in food processing is to transform: This is not an easy, inexpensive task.In their product strategies , food processors attempt to incorporate all relevant aspects of the product bundle of attributes into their marketing strategies.Different foods and brands may emphasize quality, convenience, packaging, nutrition, price etc Mass-marketing or Niche-marketing

Product Strategies

Branding main product strategy Name, term, symbol, design Brand loyalty benefits (well known and trusted brands) Introducing new products Averting consumer substitutions Prolonging the product life cycle _40_% of U.S. food products are branded

Product StrategiesOther product strategies are: development of convenience foods Built-in maid service (ready to serve dinners, boil-in-the-bag foods, instant coffee, minute desserts) Dehydrating Irradiating Freeze-drying New packaging materials (Foil, cellophane, polyethylene etc)

Product Strategies

Three types of Innovations have been important for food manufacturers:

1. New marketing methods & techniques Increase operational efficiency (bulk cooling facility)

2. New products or services Add more consumer value to products (cheese, ice-cream etc from milk)

3. New business organizations Cooperative food processor Joint ventures between firms New market channelsFrozen concentrated orange juice for example

Product Life Cycle StagesNew foods pass through a PLC1.Development (substantial research and marketing costs)2. Introduction (acceptance stage, profitable as pioneering firm)3. Growth & Mature (imitators, loses initial uniqueness, profits begin to wane, price cutting, low profit, )4. Declining Sales

Pricing Strategies

Gourmet pricing strategy High quality-high price

Value pricing strategy Lower quality-lower price

Psychological pricing Higher price & status advertising ($1.99)

Not everyone wants the highest quality products. Almost everyone is willing to sacrifice some quality for a lower price.

Placing StrategiesDistribution strategies of processor include: Conventional food stores Nonfood stores Foodservice Vending machines Mail or catalog Home delivery Door-to-door

Often multiple strategies are preferred to a single approach.

Larger processors usually have their own sales offices, ware houses, and personal sales force.

Smaller farms may sell their products through food brokers.

Placing Strategies

Three principal markets1. Industrial consumers2. Foodservice firms3. Consumer markets

The large processor with a relatively full line of products will often operate its own warehouse and wholesaling system. The meat packing industry, for example.

Promotional Strategies

Goal remind, inform, persuade Appeal price, quality Type advertisement, sales promotion Media print, broadcast, direct mail, point-of-purchase Target user, buyer, influencer

Increasingly, processors are finding it profitable to shift their promotional dollars from direct consumers to trade promotions (Pull versus push strategies)

Promotional Strategies

major ways to differentiate: Mass-media advertising Coupons Free samples Cents-off deals Point-of-purchase merchandising

Lower prices & greater satisfaction Also consumers can make choices between:-Highly promoted products Private-label, lower-priced products

Food ManufacturingSpecialization

Specialization by product lines Flour millers Dairy processing Poultry processing Vegetable processing Livestock packing

Largest Processing Companies

Mergers & Acquisitions

Less competing firms More market dominance Merger motives Grow or expand Diversification Increase buying & selling market power Improve financial performance

Food Manufacturing Sectors

1. Dominant core Few Very large Well-known brands Large share of sales

2. Competitive fringe Many Smaller Less well-known Small share of sales

Market Concentration

The share of total industry salesaccounted for by the largest companies

50 largest manufacturers 1967, ____% of food manufacturing value added 1977, ____% 1987, ____% 1997, ____%

Market Shareof the Four Largest Firms

Location of Food Processing

Should a food processing plant be located near farm production areas or near consumers? Product perishability Transportation costs Raw farm product to plant Processed product to consumers Consumer versus production oriented location.

The Law of Market Areas

Management Problemsof Food Processors

Food processors experience problems and face challenges in two major areas: Processing operations and procurement.

Processing operationsFood processing involves significant investment in plant and equipment. In order to operate efficiently, these facilities should be used to full capacity year-round. This is difficult to achieve when there are:

Wide Variations in farm product supplies Operating above/below capacityFor example , livestock slaughter and processing plants typically operate at close to 90% of capacity utilization year-round while fruit and vegetable canning plants may average 60% capacity for the year.More utilization of equipment and machinery often lead to shut down the old one and build an new, expensive plant

Buying operations

Food processors are the buyers of the farm products. -Their procurement decisions must consider how to handle many of the marketing functions including storage, transportation, risk bearing, financing and market intelligence.

Because of Variations in output and prices of farm products, the buying and pricing decisions of processors affect the division of risk shared between food producers and processors.

-Food processors utilize a wide variety of ways to procure their raw product materials from farmers

-contract between producers and processors may contain wide range of specifications like time & delivery terms, quality required, method of price determination even production practices.

-market orientation requires that processors more carefully coordinate their procurement activities with their processing and selling operations.Buying operations

Summary

Food processors specialize in adding formutility to farm products. Competitive rivalry centers on product,pricing, promotional , and placing strategies.

The food processing industry is composed of large and small firms.

Market concentration is increasing in manylines of food processing.

Food processors may locate in eitherproduction or consumption areas.

FIRST MID-TERM EXAM: CHAPTERS INCLUDED: (1,2,4 & 5) And Articles as follows:Agricultural Marketing System in Bangladesh.Organic Farming.The role of agricultural marketing in living standard of Bangladeshi peasantsMango Marketing Systems in selected areas of BangladeshMilk Marketing Channels in Bangladesh When I asked God for peace, He showed me how to help others "Swami Vivekananda 12th batch, the best batch