1. Chapter 14 Processor Marketing

2. 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

3. Components of Food and Beverage Manufacturing

4. 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

5. 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

6. 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

7. 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

8. 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.

9. 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?

10. 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.

11. 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

12. 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

13. Product Life Cycles

14. 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)

15. 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

16. 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

17. Break-even Point Analysis

18. 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

19. 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