Chapter 14Chapter 14

Processor MarketingProcessor Marketing

Food Processing asFood Processing asBig BusinessBig Business

Processing cost share in 2004: $220 Processing cost share in 2004: $220 billionbillion

More value added in food processing than More value added in food processing than in farm productionin farm production

Leading food manufacturers are very large Leading food manufacturers are very large conglomerate operationsconglomerate operations

Two-thirds of processor output goes to Two-thirds of processor output goes to consumer sector; remainder to other consumer sector; remainder to other processors, government, export, othersprocessors, government, export, others

Components of Food andComponents of Food andBeverage ManufacturingBeverage Manufacturing

Retail vs. Food ServiceRetail vs. Food Service

Retail store market still largest market for Retail store market still largest market for processorsprocessors

However, food service market growingHowever, food service market growing– Between 1955 and 2006, food service share Between 1955 and 2006, food service share

increase: from 25% to 47.5%increase: from 25% to 47.5%

In food service market, prices, In food service market, prices, convenience reliable supply important; convenience reliable supply important; marketing/advertising less important marketing/advertising less important

Macrochannels BetweenMacrochannels BetweenFood Processors and StoresFood Processors and Stores

Two macrochannels existTwo macrochannels exist First, organized by core of large First, organized by core of large

processors:processors:– Processors market highly advertised and Processors market highly advertised and

promoted brand items to retailerspromoted brand items to retailers Second, organized by food chains:Second, organized by food chains:

– Chains procure generic/store brandsChains procure generic/store brands– Processors have little control over marketing Processors have little control over marketing

in this channelin this channel

Four Four PPs of Marketing Mixs of Marketing Mix

Marketing mix: attention to a set of Marketing mix: attention to a set of activities including product design activities including product design promotion, channel organization, and promotion, channel organization, and pricing. pricing.

These activities designated “Four Ps”:These activities designated “Four Ps”:– ProductProduct– PromotionPromotion– PlacePlace– Price Price

ProductProduct

Product: output of a firm that has some Product: output of a firm that has some value added to the original raw commodityvalue added to the original raw commodity

Marketer must cater to needs to potential Marketer must cater to needs to potential customerscustomers

Selling set of satisfactions concerning Selling set of satisfactions concerning product, its packaging, and imageproduct, its packaging, and image

Marketer motivated to keep developing Marketer motivated to keep developing new products or new versionsnew products or new versions

PromotionPromotion

Promotion: communication of good, Promotion: communication of good, positive aspects of the marketer and positive aspects of the marketer and product to potential customersproduct to potential customers

Includes:Includes:– AdvertisingAdvertising– Personal sellingPersonal selling– Other: free samples, displays, coupons, etc.Other: free samples, displays, coupons, etc.

PlacePlace

Marketing manager tries to develop best Marketing manager tries to develop best conduit to customersconduit to customers

Decisions:Decisions:– Intensive distribution?Intensive distribution?– More selective distribution?More selective distribution?– Use existing channels or try to integrate Use existing channels or try to integrate

vertically?vertically?– Develop sales force or rely on brokers?Develop sales force or rely on brokers?

PricePrice

Price important part of marketing mix; can Price important part of marketing mix; can be perceived as indicator of qualitybe perceived as indicator of quality

Processor typically cannot control the Processor typically cannot control the retail price, but can influence itretail price, but can influence it

Factors include product newness and Factors include product newness and uniqueness, costs, desired margins, sales uniqueness, costs, desired margins, sales projections, etc. projections, etc.

Processors’ ApproachProcessors’ Approachto Productto Product

““Convenience sells”Convenience sells” Packaging: protective, attractive, Packaging: protective, attractive,

easy to open and reseal, sized easy to open and reseal, sized correctlycorrectly

Highly differentiated, successfully Highly differentiated, successfully branded products mostly highly branded products mostly highly processed dry groceriesprocessed dry groceries

New ProductsNew Products

New products defined:New products defined:– Innovative items, completely differentInnovative items, completely different– Distinct products new to a firmDistinct products new to a firm– Product line extensionsProduct line extensions– Product improvementsProduct improvements

Estimated 20% of sales are from new Estimated 20% of sales are from new productsproducts

Estimates of new product success varyEstimates of new product success vary

Product Life CyclesProduct Life Cycles

Processors’ UseProcessors’ Useof Promotionof Promotion

Food the most heavily advertised/promoted of all Food the most heavily advertised/promoted of all consumer productsconsumer products

Goals of advertising:Goals of advertising:– CategorizeCategorize

– Compete (brand insistence, brand preference, Compete (brand insistence, brand preference, brand recognition)brand recognition)

– RemindRemind

Personal selling (salespeople, brokers)Personal selling (salespeople, brokers) Sales promotion (samples, coupons, Sales promotion (samples, coupons,

sweepstakes, bonus packs, point-of-purchase)sweepstakes, bonus packs, point-of-purchase)

Processor DecisionsProcessor DecisionsAbout PlaceAbout Place

Most food products move from processor Most food products move from processor to distribution centerto distribution center

Physical distribution more efficient nowPhysical distribution more efficient now Vertical integration of wholesaler-retailer Vertical integration of wholesaler-retailer

(WR)—processor selling to wholesaler (WR)—processor selling to wholesaler also selling to retaileralso selling to retailer

Some additional vertical integration of Some additional vertical integration of processors and wholesale-retailprocessors and wholesale-retail

Processor PricingProcessor Pricing

Large, national-brand processors are price Large, national-brand processors are price makersmakers

Pricing new products:Pricing new products:– Requires consideration of costs and demandRequires consideration of costs and demand– Return on investment: TR Return on investment: TR – TC / Investment– TC / Investment– Break-even point may be consideredBreak-even point may be considered

Break-even Point AnalysisBreak-even Point Analysis

Pricing TacticsPricing Tactics

Prices change over time for various Prices change over time for various reasons:reasons:– Changes perceived in demandChanges perceived in demand– Changes in costsChanges in costs– To promote WR interestTo promote WR interest

Processors must follow government Processors must follow government regulations in pricingregulations in pricing

Class ExerciseClass Exercise

Your instructor will assign five food Your instructor will assign five food categories.categories.– Visit a local grocery store and interview the Visit a local grocery store and interview the

appropriate manager to learn about food appropriate manager to learn about food products introduced in a categoryproducts introduced in a category

– Ask about successes and failures of new Ask about successes and failures of new productsproducts