food marketing presentation (3)

8/13/2019 Food Marketing Presentation (3)

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Food Marketing:

Consumers, Development,Manufacturing, andDistribution


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Food Marketing

Test marketing, segmentation, positioning,branding, etc.

Dealing with perishable products.

The value chain

Processing and Distribution

Services and Processing


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Demographics and Food Marketing

Understanding statistical characteristics ofa population.

Helps understand the current marketplace

Aids predicting future trends

Upward pull marketing


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Food Marketing and Consumption

Patterns Certain foods have experienced significant

growth in recent years.

Pork per capital consumption has increasedfrom immigration from Asia.

Beef and egg decreasing, but may be on the

rise again because of high protein dietsgaining favor.


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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 mostindustrialized countries.


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Food Outlets

Supermarkets, convenience stores, andfood markets sell food products at higher

pricesFood is being brought closer to people for more

convenient purposes which increases the cost due totravel.

Food being consumed away from homePeople who eat out pay more money for food due to

preparation cost


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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 demandfor food by 20 cents.


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Food Marketing Issues Branding

Allows increase in price for a product due to

promotion and innovation of a brand.

Leveraging the brandCan use their brand name on new product lines. Ex.

Heinz pickles branched into ketchup

Brand loyaltyConsumers will keep buying a brand they prefer


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The Four Ps of Marketing

Product Investing in the product

PricePrice strategies

DistributionPutting items on the shelf

PromotionGetting the word out


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The Value Chain

Value of a product increases as the foodpasses through more parties.

Allows people to specialize in what theydo best.

Farmers are able to focus on farming, and

agents able to focus on making deals withprocessors or manufacturers.


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Food Market

Food Marketing Efficiency

Characteristics of Food Products and

Production

Problems in Agricultural Marketing

Decisions on Marketing Efforts

Trends in Agricultural Marketing


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Food Marketing Efficiency

Desired levels of service at lowest costpossible.

Does not meant to minimize costs aftermaterials 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.


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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


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Problems in Agricultural Marketing

Farming output takes time to adjust tocurrent supply and demand

Farmers have low bargaining power withbuyers


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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


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Trends in Agricultural Marketing

Science Innovations lead to moreproductivity

Firmer Fruits for example

More growers, processors, andmanufacturers are needed to meet the

demands for consumers Food industry needs to produce nutritional

and safe products while being

environmentally savvy


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Distribution: Food Wholesaling and

Retailing Getting the product from the manufacturer

to ultimate consumer

Middleman adds efficiencyBreaking bulk

Carrying inventory

Financing

Channel structures will vary depending onthe nature of the product


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Distribution cont.

Manufacturers will distribute differentlydepending on the product

Parallel Distribution structures

Distribution must be realistic toward thefirm


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Retailing

Retail store can position themselves in manyways

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-Martand Target


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Margins

What the store pays the retailer and what itcharges the customer

Net Margins take into account allocatedcosts in running the store.


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Slotting Fees

Additional fees payed by a supplier to getaccess to retailers shelves.

Usually done by newer products to get shelfspace against branded products

Some of the fees are passed to the consumer


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Increasing Power of Retailers

The increase of products have allowedretailers to be more selective of sale items.

Retailers are able to hold out for better prices

Retailers also make their own private labelbrands to compete with manufacturers


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Wheel of Retailing

Retailers tend to progressively add servicesto their stores.

Other retail stores open up that has anarrow approach to fill the void of the

expanding retailers.


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Retailing Polarity

Retailers tend to go from one extreme ofservice

Low prices or high service Economic growth has made high service

retailers more desirable to higher income

consumers, and lower costs to low incomeconsumers.


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Scanner Data

Strategic decisions are made from informationgathered from items that are purchased byconsumers.

Patterns are recorded on how many people by aspecific product, or which products are purchasedtogether.

Retailers give membership cards to trackindividuals buying habits

Demographic buying patterns can be tracked fromchains in different areas


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International Markets

Benefits of International markets

More economical to grow in other countries

Can serve niche markets betterPerceived better quality if made from certain

countries (e.g., Belgian chocolate)


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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 andmore demand for yen.

FixedCurrencies dependent on another currency or

some other valuable such as gold.


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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 someasurements may not be meaningful.


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Protectionism

Tariff Barriers: A duty, tax, or fee is put on productsimported

Quotas: A country can export only a certain number ofgoods to the importing countries

Voluntary export restraints: Not official quotas, butinvolve agreements made by countries to limit the amountof 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.


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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 andpreservation of jobs

Retaliation


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Variations in Food Taste

Preferences Food preferences are establish at an early age

usually.

Strategies are devised to expose other cultures toproducts to allow future generations to establish apreference to that food.

Religion also disallows the consumption of certainfood.


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Food Diffusion

Food products spread to other countries

Process is long

Chinese food believed to be more popular inU.S. due to immigration of Chinese families.

Products from other countries start tochange drasticallyPizza in the U.S. is much different from the

traditional Italian dish.


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Food Positioning

Origin can have a lot to do with a food productsimage. e.g. Spaghetti from Italy

Sometimes producers imply origins to theirproduct which raises ethical questions.

Food may need a different type of positioning

based on usage occasionChina has cheaply made food on the streets so U.S.

fast food companies are less viable in China.


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Food Adaptation

Food sometimes has to be adapted to bemore successful in a new country.

KFC uses less sugar in Japan because of theyprefer food that is less sweet.

Serving size could also be adjusted.

Products shipping packaging might alsoneed to be upgraded before export.


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Promotional Decisions

The majority of U.S. food promotion is donethrough television. However, other

countries this media type is not the righttype of promotion.


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Government Export Assistance

The U.S. government and several stateshave programs to help food products

abroad.Financial assistance

Paperwork and making connections


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Price and Competition

Basic Economics Supply and Demand Curve

Sharp changes mayoccur when criticalprice points arereached.

Price Elasticity : theextent to which qualitydemanded is affectedby changes in price


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Price and Competition cont.

Real life demand isnot always as

smooth as it isportrayed intheoretical curves.

Sharp curves maybe reached whencritical price pointsare reached


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Demand Curves

Total demand for a product is the result ofadding the demand for each consumer

Certain consumers will value a productmore than others.

Atkins diet followers will value steak more.

Low fat diet followers will value steak less


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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.


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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.


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Changes in supply and Demand

Supply may change due to changes in themarket such as:

Size of the years cropChanges in population

Changes in income or wealth

Changes in tastes and preferences

Changes in the prices of substitutable products

Future price expectations


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Market/Clearing Prices

Set when market matches supply anddemand

If a price is too low more quantity will bedemanded.

If a price is too high there will be a surplus ofproduct.


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Macroeconomic Influences on

Prices Common concern is food prices are too low

Governments try to mitigate prices

Negative TaxFarmers given extra money from government

Price controls can be taken to effect such

as limiting maximum that can be chargedfor a product.


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Consumer Response to Price

Prices are dictated by both manufacturersand retailers.

Retailers handle final decisions for pricingManufacturers make promotional and other

decisions that influence retailer decisions.


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Ways to Change Prices

One obvious way to increase the price of aproduct is to increase the sticker price.

Consumers tend to react strongly to this type ofchange.

Other methods methods have been

devised.


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Value Received

NumeratorDenominator

Sticker prices is a change to the numerator

Supply affects the denominator QuantityQuality

Reducing the quantity can keep prices for a product thesame

Reducing the quality will help with cutting prices

Terms and Service


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Price Discrimination

Marketers are interested in getting acustomer to pay as much as he or she is

willing. Explicit price discrimination

Student or Senior discounts

Implicit price discriminationCoupons


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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 toprices.


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Odd-Even Pricing

Supermarkets end prices in .99 or .95 rather thanround figures.Makes prices seem lower than they really are

$2.99 is associated with $2 rather than $3

Consumers respond better to even pricing whenthe prices are higher

Odd pricing came from the fact that it forcedclerks to ring up purchases for customers to givethem change.


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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


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Competition in Agricultural Markets

Farmers are considered equivalent to otherfarmers, 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


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Food Prices and Costs

Prices that farmers receive are based on supplyand demand factors

Supply can be affected by the amount of outputavailable from other farmers, imports, orsubstitutes for that particular product.

Demand are based on the expected purchasingof a product by a consumer.


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Bargaining Power of Farmers

Farmers that sell small quantities usually havelittle 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 andeffort.


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Predictable and Less Predictable

Market Changes Farmers are vulnerable to environmental

change.

Changes in supply and/or demand alsoaffect change.

Some changes however are relatively

predictable.


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Predictable Market Changes

Phased-in trade agreements

Trade agreements are not opened immediately, andproducers 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.


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Less Predictable Changes

It is difficult to predict the supply conditionsof a harvest at the time of planting.

Exchange rates between currenciesfluctuate dramatically.


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Farm Value

The proportion of the total food costs paid bycustomers 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.


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Farm value cont.

Other parties other than the farmer making money is nota bad thing.

Recent years farm value of food products havedecreased. Not a bad thing due to increase in demand for services. e.g.

Consumers are willing to pay more money for prepared foodsversus raw ingredients.

We can think of this as a trend of consumers demandingmore value added to the products.

If this demand goes up so will the farmers demandtherefore leading to higher prices for the farmer.


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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 duringThanksgiving.

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.


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Trends vs. Fluctuations

In the chart pricesfluctuate but we

see a trend lineindicated thataverage prices

increase over time.


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Trends vs. Fluctuations cont.

Trends that have been experienced in thepast dont always continue.

E.g. eggs have been declining for some timebecause of concerns of cholesterol, until thetrend reversed because of high protein diets.


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Data with largefluctuations is

considered noisy.Noisy fluctuationsare difficult to

distinguish thetrend opposed toclean fluctuations.


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Trends can changeover time.

Some occur in alinear rate whereothers can reverse, or

level off


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Trends vs. Fluctuations cont. Some trends

involveseasonality.

E.g. Turkey andcranberries areconsumed moreduring theNovember andDecember monthsthan any other

month.


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Lags in response to market

conditions. Reacting demand levels will take time for

farmers.

Reaction could lead to reversing a trend of aparticular product.

Too many farmers producing one product will floodthe market creating to much supply for the demand.

By the time farmers meet the demand levels theprice might of already fluctuated.


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Real vs. Inflation-adjusted prices

Over time average prices tend to go updramatically.

Inflation rates vary dramatically betweenproduct categories.

To make price comparisons meaningfulover time we can adjust for inflation.


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Food Market Structure

Several characteristics determine a marketstructure.No one firm or individual controls the entire

value chain.


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Horizontal Integration

Economics of scale can be important tosome industries.

When growth opportunities in existing firmsare limited there may be significantpressure to find other businesses to invest

current earnings.Buying up another firm is an attractive

alternative.


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Vertical Integration

Growth through purchasing firms at a lateror 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 thevalue chain.

Potential conflicts of interests.


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Specialization

Firms that focus on one process are moreeffective.

e.g. KFC and its chicken.Allows research and technology spending

to be more focused.


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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 tocounteract this fluctuation. This is less efficient, but farmer will be less likely to be driven out

of business.

Larger firms consider diversification to be lessuseful. Financial theory holds that it is not beneficial for stockholders if

firms diversify


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Decentralization

In the old days, it was frequently necessaryfor buyers and sellers to physically gather

to settle market places. Nowadays, much negotiation can be done

electronically.

This causes more efficiency, but lessknowledge of market prices by someparticipants. This lack of knowledge can be overcome by extensive market

research.


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Farmer Cooperatives

Farmers may decide to set up organizationsto 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.


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Market Development

Involves creating or expanding a market fornew or existing products and/or increasing

the value of these products.

St t i bj ti d th


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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


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Strategic planning process


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Setting market objectives

Objectives need to be reasonably specificand 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 effectiveresources.


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Setting market objectives cont.

Some objectives may be.

Get more people to buy product.

Get product used for new purposesDevelop preference relative to other products

or brands.

Develop price insensitivity relative to otherproducts or brands.


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Setting strategy

Once objectives have been set strategiescan be made.

Improving quality might be achieved byincreased 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.


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Tactics and implementation

Once a strategy has been made, decisionsmust be made on implementation.

C d ti t f d


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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 attractcustomers.


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Levels of market development

Producers of a commodity may want topromote their own food to promote

preference to other food categories. Development efforts could be focused on

supporting all products within a brand.


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Standardization and Grading

Food standards and grades exist to allow buyersto determine the quality of a product with minimalinspection.

Standards are there to regulate food sanitation.

Food grades are done by federal, state, orindustry 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


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Transportation

A large part of the food product cost.

Occurs between many stages in the value

chain. Many products have special transportation

needs.

RefrigerationSpeed for perishable products

Special equipment


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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 thantrucking. However present the same problemswith sea transportation.

Trucking and flying products are more efficient butcost more.

To improve efficiency parties within a value chainmay locate themselves next to railroad locations

to minimize transportation costs.


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Storage

Storage is needed for certain products forpurposes 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.


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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 coststhe farmer. Futures contract: farmer agrees to sell at, and is guaranteed a

specified price.

Farmer takes the specified price no matter what the pricechange.

Buy an option: does not have to follow the contract, but the farmercan call upon it if the price is low in the open market.

food marketing presentation (3)

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