Food Marketing, Consumption, and Manufacturing
Food Marketing. Food products often involve the general marketing approaches and techniques applied the marketing of other kinds of products and services. In food marketing, topics such as test marketing, segmentation, positioning, branding, targeting, consumer research, and market entry strategy, for example, are highly relevant. In addition, food marketing involves other kinds of challenges--such as dealing with a perishable product whose quality and availability varies as a function of current harvest conditions. The value chain--the extent to which sequential parties in the marketing channel add value to the product--is particularly important. Today, processing and new distribution options provide increasing increasing opportunities available to food marketers to provide the consumer with convenience. Markting, services, and processing added do, however, result in significantly higher costs. In the old days, for example, consumers might have baked their own bread from locally grown flour. Today, most households buy pre-manufactured bread, and it is estimated that the farmer receives only some 5% of the price paid by the consumer for the wheat.
Demographics and Food Marketing. The study of demographics involves understanding statistical characteristics of a population. For food marketing purposes, this may help firms (1) understand the current market place (e.g., a firm interested in entering the market for sports drinks in a given country, or worldwide, might investigate the number of people between the ages of fifteen and thirty-five, who would constitute a particularly significant market) or (2) predict future trends. In the United States and Germany, for example, birth rates are relatively low, so it can be predicted that the demand for school lunch boxes will probably decline. Therefore, firms marketing such products might see if they, instead, can shift their resources toward products consumed by a growing population (e.g., bait boxes for a growing population of retired individuals who want to go fishing).
Food marketers must consider several issues affect the structure of a population. For example, in some rapidly growing countries, a large percentage of the population is concentrated among younger generations. In countries such as Korea, China, and Taiwan, this has helped stimulate economic growth, while in certain poorer countries, it puts pressures on society to accommodate an increasing number of people on a fixed amount of land. Other countries such as Japan and Germany, in contrast, experience problems with a “graying” society, where fewer non-retired people are around to support an increasing number of aging seniors. Because Germany actually hovers around negative population growth, the German government has issued large financial incentives, in the forms of subsidies, for women who have children. In the United States, population growth occurs both through births and immigration. Since the number of births is not growing, problems occur for firms that are dependent on population growth (e.g., Gerber, a manufacturer of baby food).
Social class can be used in the positioning of food products. One strategy, upward pull marketing, involves positioning a product for mainstream consumers, but portraying the product as being consumed by upper class consumers. For example, Haagen-Dazs takes care in the selection of clothing, jewelry, and surroundings in its advertisements to portray upscale living, as do the makers of Grey Poupon mustard. Another strategy, however, takes a diametrically opposite approach. In at level positioning, blue collar families are portrayed as such, emphasizing the working class lifestyle. Many members of this demographic group associate strongly with this setting and are proud of their lifestyles, making this sometimes a viable strategy. An advertisement for Almond Joy, for example, features a struggling high school student being quizzed by his teacher remarking, “Sometimes you feel like a nut, sometimes you don’t!” Nowadays, by the way, social class is often satirized in advertising, as evident in the Palanna All-Fruit commercials while the matron faints because the police officer refers to the fruit preserves as “jelly.”
Demographics in the U.S. have significantly affected demand for certain food products. With declining birth rates, there is less demand for baby foods in general, a trend that will continue. Immigration has contributed to a demand for more diverse foods. Long working hours have fueled a demand for prepared foods, a category that has experienced significant growth in supermarkets since the 1980s.
Food Marketing and Consumption Patterns. Certain foods—such as chicken, cheese, and soft drinks—have experienced significant growth in consumption in recent years. For some foods, total market consumption has increased, but this increase may be primarily because of choices of a subgroup. For example, while many Americans have reduced their intake of pork due to concerns about fat, overall per capita consumption of pork has increased in the U.S. This increase probably results in large part from immigration from Asia, where pork is a favored dish. Consumption of certain other products has decreased. Many consumers have replaced whole milk with leaner varieties, and substitutes have become available to reduce sugar consumption. Beef and egg consumption have been declining, but this may be reversing as high protein diets gain increasing favor. Some food categories have seen increasing consumption in large part because of heavy promotional campaigns to stimulate demand.
International Comparisons. Americans generally spend a significantly smaller portion of their income on food than do people in most other countries. Part of this is due to American affluence—in India and the Philippines, families are estimated to spend 51% and 56% of their incomes on food, respectively, in large part because of low average incomes. Food prices also tend to be lower in the U.S. than they are in most industrialized countries, leaving more money for other purposes. Americans, on the average, are estimated to spend 7-11% of their income on food, compared to 18% in Japan where food tends to be very expensive. This is because food prices are relatively low, compared to other products, here.
Food outlets. Food, in the United States, is sold in a diversity of outlets. Supermarkets carry a broad assortment of goods and generally offer lower prices. Certain convenience products—e.g., beverages and snacks—are provided in more outlets where consumers may be willing to pay higher prices for convenience. Distinctions between retail formats are increasingly blurred—e.g., supermarkets, convenience stores, and restaurants all sell prepared foods to go. A small number of online retailers now sell food that can be delivered to consumers’ homes. This is usually not a way to reduce costs—with delivery, costs are usually higher than in supermarkets—but rather a way to provide convenience to time-pressed consumers.
Internationally, there are large variations. In developing countries, food is often sold in open markets or in small stores, typically with more locally produced and fewer branded products available. Even in many industrialized countries, supermarkets are less common than they are in the U.S. In Japan, for example, many people show in local neighborhood stores because it is impractical to drive to a large supermarket. In some European countries, many people do not own cars, and thus smaller local shops may be visited frequently.
Food is increasingly being consumed away from the home—in restaurants, cafeterias, or at food stands. Here, a large part of the cost is for preparation and other services such as ambiance. Consumers are often quite willing to pay these costs, however, in return for convenience and enjoyment.
Government Food Programs. Government food programs, in addition to helping low income households, do increase demand for food to some extent. In fact, increasing demand for farm products was a greater motivation than helping poor people for the formation of the U.S. food stamp program. The actual impact on food stamps on actual consumer demand is limited, however, due to the fungibility of money. It is estimated that one dollar in food stamps increases the demand for food by 20 cents, but when food stamps are available to cover some food costs, recipients are likely to divert much of the money they would otherwise have spent to other necessities.
Food Marketing Issues. The food industry faces numerous marketing decisions. Money can be invested in brand building (through advertising and other forms of promotion) to increase either quantities demanded or the price consumers are willing to pay for a product. Coca Cola, for example, spends a great deal of money both on perfecting its formula and on promoting the brand. This allows Coke to charge more for its product than can makers of regional and smaller brands.
Manufacturers may be able to leverage their existing brand names by developing new product lines. For example, Heinz started out as a brand for pickles but branched out into ketchup. Some brand extensions may involve a risk of damage to the original brand if the quality is not good enough. Coca Cola, for example, refused to apply the Coke name to a diet drink back when artificial sweeteners had a significantly less attractive taste. Coke created Tab Cola, but only when aspartame (NutraSweet) was approved for use in soft drinks did Coca Cola come out with a Diet Coke.
Manufacturers that have invested a great deal of money in brands may have developed a certain level of consumer brand loyalty—that is, a tendency for consumers to continue to buy a preferred brand even when an attractive offer is made by competitors. For loyalty to be present, it is not enough to merely observe that the consumer buys the same brand consistently. The consumer, to be brand loyal, must be able to actively resist promotional efforts by competitors. A brand loyal consumer will continue to buy the preferred brand even if a competing product is improved, offers a price promotion or premium, or receives preferred display space. Some consumers how multi-brand loyalty. Here, a consumer switches between a few preferred brands. The consumer may either alternate for variety or may, as a rule of thumb, buy whichever one of the preferred brands are on sale. This consumer, however, would not switch to other brands on sale. Brand loyalty is, of course, a matter of degree. Some consumers will not switch for a moderate discount, but would switch for a large one or will occasionally buy another brand for convenience or variety.
The “Four Ps” of Marketing. Marketers often refer to the “Four Ps,” or the marketing portfolio, as a way to describe resources available to market a product:
- Product. Firms can invest in the product by using high quality ingredients or doing extensive research and development to improve it. Both McDonald’s and Burger King, for example, literally spend millions of dollars to perfect their French fries! In today’s Western markets with varying tastes and preferences, it has generally been found that products that offer a specific benefit—e.g., a very tart taste in jam—tend to fare better than “me, too” products that merely imitate a competitor’s products. Less is known about Eastern and developing countries.
- Price. Different strategies may be taken with respect to price. Generically, there are two ways to make a profit—sell a lot and make a small margin on each unit or make a large margin on each unit and settle for lesser volumes. Firms in most markets are better off if the market is balanced—where some firms compete on price and others on other features (such as different taste preferences for different segments). The same idea applies at the retail level where some retailers compete on price (e.g., Food-4-Less and Wal-Mart) while others (such as Vons Pavillion) compete on service while charging higher prices.
- Distribution. Most supermarkets are offered more products than they have space for. Thus, many manufacturers will find it difficult to get their products into retail stores.
- Promotion involves the different tools that firms have to get consumers to buy more of their products, possibly at higher prices. Advertising is what we think of by default, but promotion also includes coupons, in-store price promotions, in-store demonstrations, or premiums (e.g., if you buy a package of Jimmy Dean hotdogs this week, you get a free package of Kraft mustard).
The Value Chain. A central issue in food marketing is the value chain, the process by which different parties in between the farmer and the consumer add value to the product. In an extreme case, the farmer only receives about five cents for every dollar ultimately charged for bread in the store. Part of the added cost results from other ingredients, but much of the value is added from processing (e.g., milling), manufacturing, distribution (transportation, wholesaling, and retailing) and brand building. The value chain provides an opportunity for many firms to add value to a product. This, of course, pushes up the ultimate retail prices of foods. However, these added costs usually result from consumer demand where consumers are willing to pay for additional convenience. In recent years, for example, there has been a sharp increase in the demand for prepared foods—from supermarkets or from dine-in or take-out from restaurants.
It is important to note that the value chain comes about in large part because a sequence of contributors allows each to specialize in what it does best or is most comfortable—and best qualified—to be doing. Farmers, for example, tend to be most interested in doing actual farming tasks and may be uncomfortable making deals with processors and manufacturers. Agents may specialize in this task. The costs of learning can be spread across many different farmers. The farmer may then be better off paying the agent and spend his or her time on farming instead . For the agent, having a large number of farmers as clients is profitable. Most farms would not have a sufficient volume to justify setting up milling operations, but large processors can take advantage of economies of scale by servicing many farmers. Large manufacturers can invest in brand building, and distributors can combine goods from many different suppliers to distribute and sell efficiently.
The Food Marketing Environment. The food market is affected by many different forces—e.g., sociological (fewer children mean less demand for certain products), government regulations, international trade conditions, science and technology, weather and other conditions affecting harvest conditions, economic cycles, and competitive conditions.