Consumer Psychologist Facebook Forum

Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213) 740-7127


Food Markets: Characteristics

Food Marketing Efficiency refers to providing consumers with desired levels of service at the lowest cost possible.  This does not necessarily mean to minimize costs after materials leave the farm.  Services added later in the process may be very valuable to the consumer.  Raw wheat would not be very valuable to most end consumers.  The objective, then, is to add the needed value steps as efficiently as possible.  Wal-Mart is extremely efficient in providing the retail (and effectively wholesale) part of the value chain even though that service ultimately costs money.  Few consumers would want to drive a long distance to a bakery, and even if they did, the baker would then have to provide the retail services.  The baker would probably have to spend more money on hiring people and maintaining the store than Wal-Mart adds to the cost by performing these services.

Characteristics of Food Products and Production.  Certain problems are introduced by the characteristics of agricultural production:

Problems in Agricultural Marketing.  Farmers tend to face serious problems due to their limited control over market conditions.  In the long run, farmers can to some extent control their own production levels, but they have no control over others.  If other farmers increase their production, thus increasing supply and resulting in decreased market prices, there is nothing that the farmer can do about it.  Another problem is that it takes time for the farmer to adjust his or her output.  To increase production of hogs, for example, it is necessary to breed more stock.  This takes time, and by the time the larger stock is available, prices may have reversed—i.e., the farmer decided to raise more hogs when prices went up, but by the time the stock is ready, market prices may have declined (either because of an increasing supply from other farmers or because of a change in consumer tastes).  Farmers have low bargaining power in dealing with buyers.  Processors or manufacturers have many farmers to choose from.  They do not need the product from any one particular farmer since commodities are seen as identical.  Farmers, therefore, end up having to sell at a market price that may or may not be profitable at a given time.  Farmers often face a “cost-squeeze” when market prices change.  When market prices decline (usually due to supply conditions), prices paid to farmers decline.  However, the farmer’s costs are unlikely to decline, leaving the farmer to absorb this loss.  Such price fluctuations may change a crop from being mildly profitable to being causing significant losses.

Decisions on Marketing Efforts.  Certain food product producers have decided to collectively promote their crops—e.g., Florida oranges, Washington apples, and beef growers.  For a commodities product, it is generally not worthwhile for the individual farmer to promote.  Thus, promotion efforts are typically undertaken by trade groups such as the Beef Council.  If participation is voluntary, many producers would be likely to free-ride—that is, benefit from others’ efforts without contributing themselves.  In many jurisdictions, participation in various programs in mandatory.  In some cases, farmers can petition for a refund, but must then go through a great deal of effort.

Manufacturers frequently engage in brand building—e.g., Kraft promotes Kraft cheese as being of especially high quality.  Here, the manufacturer benefits, and thus may have an incentive to spend money on these promotional efforts.

Trends in Agricultural Marketing.  Science has allowed both for significant increases in productivity and for adapting products to market needs.  For example, it is now possible to produce firmer fruits that are less likely to be bruised or spoil in transit.  (This may happen at some cost in taste, however).  Other research may be conducted to optimize tastes and appearances for one or more consumer segments.  This research is often proprietary—sponsored by specific manufacturers and kept secret as a competitive advantage.

In order to meet the demands of consumers and manufacturers, there is now an increased need for growers, processors, and manufacturers to work together to create products that meet needed standards.  It is also possible today to produce an increasing number of niche products—products that appeal to one particular segment of the market.

Competition is increasingly global, with both suppliers and buyers being spread increasingly across the world.  Because of the increasingly complex marketplace, managers increasingly need more business and interpersonal skills in addition to technical knowledge.  The food industry faces pressures not only in terms of nutritional value and safety, but also from environmental concerns.