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Chapter 14 Processor Marketing
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Food Processing as Big Business Processing cost share in 2004: $220 billion More value added in food processing than in farm production Leading food manufacturers are very large conglomerate operations Two-thirds of processor output goes to consumer sector; remainder to other processors, government, export, others
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Components of Food and Beverage Manufacturing
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Retail vs. Food Service Retail store market still largest market for processors However, food service market growing –Between 1955 and 2006, food service share increase: from 25% to 47.5% In food service market, prices, convenience reliable supply important; marketing/advertising less important
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Macrochannels Between Food Processors and Stores Two macrochannels exist First, organized by core of large processors: –Processors market highly advertised and promoted brand items to retailers Second, organized by food chains: –Chains procure generic/store brands –Processors have little control over marketing in this channel
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Four Ps of Marketing Mix Marketing mix: attention to a set of activities including product design promotion, channel organization, and pricing. These activities designated “Four Ps”: –Product –Promotion –Place –Price
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Product Product: output of a firm that has some value added to the original raw commodity Marketer must cater to needs to potential customers Selling set of satisfactions concerning product, its packaging, and image Marketer motivated to keep developing new products or new versions
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Promotion Promotion: communication of good, positive aspects of the marketer and product to potential customers Includes: –Advertising –Personal selling –Other: free samples, displays, coupons, etc.
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Place Marketing manager tries to develop best conduit to customers Decisions: –Intensive distribution? –More selective distribution? –Use existing channels or try to integrate vertically? –Develop sales force or rely on brokers?
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Price Price important part of marketing mix; can be perceived as indicator of quality Processor typically cannot control the retail price, but can influence it Factors include product newness and uniqueness, costs, desired margins, sales projections, etc.
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Processors’ Approach to Product “Convenience sells” Packaging: protective, attractive, easy to open and reseal, sized correctly Highly differentiated, successfully branded products mostly highly processed dry groceries
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New Products New products defined: –Innovative items, completely different –Distinct products new to a firm –Product line extensions –Product improvements Estimated 20% of sales are from new products Estimates of new product success vary
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Product Life Cycles
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Processors’ Use of Promotion Food the most heavily advertised/promoted of all consumer products Goals of advertising: –Categorize –Compete (brand insistence, brand preference, brand recognition) –Remind Personal selling (salespeople, brokers) Sales promotion (samples, coupons, sweepstakes, bonus packs, point-of-purchase)
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Processor Decisions About Place Most food products move from processor to distribution center Physical distribution more efficient now Vertical integration of wholesaler-retailer (WR)—processor selling to wholesaler also selling to retailer Some additional vertical integration of processors and wholesale-retail
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Processor Pricing Large, national-brand processors are price makers Pricing new products: –Requires consideration of costs and demand –Return on investment: TR – TC / Investment –Break-even point may be considered
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Break-even Point Analysis
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Pricing Tactics Prices change over time for various reasons: –Changes perceived in demand –Changes in costs –To promote WR interest Processors must follow government regulations in pricing
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Class Exercise Your instructor will assign five food categories. –Visit a local grocery store and interview the appropriate manager to learn about food products introduced in a category –Ask about successes and failures of new products
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