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Analyzing Arlas prospects of marketing organic dairy products in Ukraine.

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Analyzing Arlas prospects of marketing organic dairy products in Ukraine.
a report for Cross Cultural Marketing
Kateryna Osypova, Lars Rachlitz, Stefán Steinsen, Akira Saito and Jespe Weltz Aarhus School of Business and Social Sciences

Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Abstract (all) Introduction (all) Problem statement (all) Limitations (all) Methodology (all) Arla (Jesper) Market Definition (Kateryna) PEST analysis for Ukraine (Stefán, Akira) Political Factors Landscape Foreign Relations Corruptions Tax for milk products Economic Factors Landscape Social Factors Landscape Population Education Technology Factors Internet R&D Production Technology in Milk Processing Overview of PEST Segmentation Geographical (Lars)

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Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Demographical (Stefán) Age Gender Occupation Income Family status Psychographic and behavioural (Lars) Ukrainian consumers Organic consumers Overview of segmentation (Lars) 5-Forces (Kateryna) Rivalry Potential Entrance Supplier Consumers Substitutes Overview of 5-Forces SWOT (all) 4 P’s (all) Product Price Place Promotion Conclusion (all) Reference List

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The organic dairy market is non-existent in Ukraine but organic products have seen increasing growth rate. Keyword: Arla. Co-branding. when it comes to marketing of organic dairy products. Ukraine. Based on our findings and after analysing all the data we think that at this moment this is not the right time to enter Ukrainian dairy markt. 2011) namely the Aarhus based company Arla. Introduction (all) The idea of bringing organic dairy products in to Ukraine is originally based on an article that suggested that the Ukrainian population was ready for a movement towards organic food (Grishko. and in which way will it be best for Arla to go in to the Ukrainian market. market segmentation. SWOT analysis and the 4ps. In helping us to decide we utilise different marketing models such as PEST. Organic dairy. Organic history.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. On this basis we decided to look in to whether Arla would have a realistic chance In Ukraine. (Arla. 2010) and the fact that Denmark is home to the world’s biggest producer of organic dairy products. Abstract (all) Page 4 of 31 This research is based on secondary data and addresses the issue whether Arla should enter the Ukrainian market and start producing organic dairy products in a joint venture with a Ukrainian company called Galychyna. Problem statement (all) In this report we will focus on the possibility of organic dairy sales in Ukraine and whether this will be a realistic market for Arla to enter in the near future and how they should potentially go about such a task. . Porter 5 forces. Our problem statement thus takes the following form: Will Ukraine be a potential market for Arlas organic products.

economic. This is done to get a picture of the overall attractiveness of the Ukrainian market. if they should decide to enter the market based on our analysis of risks and opportunities. social and technical aspects. Segmentation by geographical. Methodology (all) In the following research paper we will be analyzing the Ukrainian market from different perspectives and find the best possible strategy that Arla might use. II. Our approach takes the shape of a funnel. we will use the PEST-analysis. which will help us to generate a general picture of the country regarding political. Next. demographical. and which segment(s) is/are the most interest- ing targets? III. compared to if we have had the time and resources to collect our own primary data. in order to find out who could be potential target groups and if/why they’d might be interested in organic products marketed by Arla. We aim to answer this problem statement through the following sub-questions: I. We have had difficulty obtaining information about ukraine attitude toward scandinavian and western products and products. mean that the paper will take a rather general form. Firstly. What opportunities and risks are present in the Ukraine market? Page 5 of 31 How is the Ukrainian population composed. we will take a look at the consumers. of course. How should Arla adjust the 4 Ps in case they should decide to enter the market? Limitations (all) The study will be conducted by using secondary data sources. How is the competition situation in the Ukraine dairy market? IV. This will. psychographical and behavioral criteria will provide us with needed information by taking all relevant and available . We will instead identify the most important areas in which key information might be missing.Analyzing Arlas prospects of marketing organic dairy products in Ukraine.

2011) Despite Arla’s strong position on the local markets where they have a market share of respectively 95 percent in the Danish dairy production market and 65 percent of the Swedish market. (Arla. 2008) . (Arla. Organic history. (Arla. then known as FDB. Arla (Jesper) Arla Foods is a Aarhus based Danish-Swedish cooperative. (Euromonitor. 2011) where Arla is the world’s biggest producer of organic dairy products and with a history of organic dairy production dating back to 1988. Our findings will be summarized via a SWOT-analysis. Page 6 of 31 secondary data into account. History. as well as our suggestions to how Arla should adjust the 4 Ps. (Arla. 2010) And One of Arlas strongest business areas is organic dairy production. Arla was formed in April 2000 as the result of a merger between the Swedish dairy cooperative Arla and the Danish dairy company MD Foods. and our assessment of the market potential. which will be required in order to choose the potential strategy for Arla that has the highest chance of turning out to be a successful one. These suggestions will be of a more strategic than operational nature. 2011) Arla has in many ways paved the way for organic milk production I Scandinavia together with the retail chain COOP. and Scandinavia’s largest producer of dairy products. Arla Foods. mostly in the form of scientific research on the Ukrainian consumers and on organic consumer patterns across the globe. Thirdly. 2. P. Organic history. when they in the early 80 introduced a range of different organic products. 2011 & Brandt. (Arla. these two markets only account for 38% of Arlas annual turnover of 49 Billion DKK. Porter’s 5 forces analysis will form the framework from which we will analyse the more competition-related parts of the Ukrainian dairy market.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Annual Report 2010. 16) Arla Foods is the seventh largest dairy company in the world measured by turnover. Organic vision.

and the Arla brand as an umbrella brand for a range of smaller brands such as Kærgården and Yoggi This is a change form earlier where Arla had the Lurpak and Castello as international brands and a number of brands for all other product categories than chess and butter. (Arla. and to start an introduction of leading product categories. by focus on its tree main brands. with a focus on creation value added products. 12-13) When it comes to Arla’s focus on markets the work with three types of export market Core market. p. Annual Report 2010. With Arla’s new strategy they are trying to make the Arla brand into an international brand that will be acknowledged as more of a goblet brand. Strategy 2011) In value markets the main focus of Arla is to move focus from business sales to consumer sales. brands 2011 & Arla. Strategy 2011) Growth markets are markets where Arla focus on their core product categories and by growing through mergers and acquisitions. where Castello. 2010 & Arla. the target of these markets is to make a strong platform for further growth. P. Page 7 of 31 In 2008 Arla adopted its current strategy in witch their aim is to significantly increase sales of milk-based products. 10) As seen in Appendix 1. and Lurpak shout become there cheese and butter brands. (Arla. (Arla. (Arla. Strategy 2011) . Core markets are markets where the focus on obtaining or maintain a key position on these markets.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. This tree market types are as follows. Annual Report 2010. (Euromonitor. this is to be achieved through partnerships with shared interests. Arla Foods. Growth market and Value markets. This wide range of brand has for the most part been country specific.

. the second largest country in the Eastern Europe. Potential market – is those in the total population. 2010. Akira) Political Factors Landscape Ukraine.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Political Framework P. In February 2010. we assume that potential market is all the current consumers of dairy products. so we assume that more wealthy people will be willing to spend more on organic dairy. available market and target market. Finally. Orange revolution in 2004 motivated the change and improvements in the government system.. P. (netMBA 2010) PEST analysis for Ukraine (Stefán. however. 1991. our target market will include health-conscious consumers with higher income. Country Analysis Report Ukraine In-depth PEST Insights. Available market – are those in the potential market. who have the interest to buy the product. Since organic dairy market belongs to general dairy market. Ukraine Country Report. 11). who have money to buy the product. Inc. we have to consider potential market. 33). 2010. Market Definition (Kateryna) Page 8 of 31 Before establishing any kind of business activities in the country. got its independence from the Soviet Union on August 24. Viktor Yanukovych became the president of Ukraine. He attempts to keep the balance in the country’s diplomatic relation with Russia and the EU (The PRS Group. the fact that he does not have a great power in council will lead administration to interrupt his challenging (Datamonitor. His government is supposed to go forward with the reform.

which is a main barrier to foreign investment.1). 2011. Corruption in Ukraine arises from institutional traditions. 866). Ukraine has to keep a balance between Russia and Western Europe. P. 2010. This action increased the price of both raw milk and end products. and also Ukraine attempts to join the EU which is the largest trading partner. P. .Inc. 1). The average price of milk drinks increased by 15% in 2010 (Euromonitor. Climate for Investment & Trade. At the same time Ukraine established partnership with NATO. 12) Corruptions There is a high level of overall corruption in Ukraine. (Datamonitor. Russian Gas diplomacy could be the source of distress for Ukraine government. according to “Corruption Perceptions Index”. P. the government stopped refunding back VAT to milk processing plants. ranking them 134th out of 179 countries. 2010. Tax for milk products In 2010. such as the insufficiency of transparency to make decision and low social comprehension about corporate governance (The PRS Group. The reason is that Ukraine strongly relies on energy resources from Russia which provides amount of 35 percent of consumption (Journal of European Public Policy.Analyzing Arlas prospects of marketing organic dairy products in Ukraine.. Ukraine Country Report. Country Analysis Report Ukraine Indepth PEST Insights. 2009. Drinking Milk Products – Ukraine. P. Foreign Relations Page 9 of 31 Although Ukraine develops a friendly relation with neighbors.

Foreign Trade Ukraine became a member of the World Trade Organization (WTO) on May 16. Inc. . 5). However. The inflation in Ukraine peaked at 25% in 2008. severely affecting construction and mortgage sectors (Euromonitor. Climate for Investment & Trade P.2% in 2009 because of financial liquidity crisis in the banking sector that resulted from non-performing loans. PEST Analysis of Ukraine. Emerging Euro Monitor mentioned that The National Bank of Ukraine would maintain effective intervening in the exchange market. foreign direct investments have dramatically increased in Ukraine. 2010. 18).5% in 2009 and it is expected that it would average around 9% during 2010–13 (Datamonitor.6% and the financial sector with 16% (Bulgarian Investment Consulting Agency. WTO entry was the first step to develop the investment condition for Western countries (The PRS Group. 2010.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. The largest part of investment comes from EU countries. and keep market continuous stable condition. Currency Trend Ukraine currency. 1). Economic Factors Landscape Page 10 of 31 Entirely economic reform contributed to expand an average GDP growth around 6. In fact. 2008. it turned around to 4. declined by 47. Country Analysis Report Ukraine In-depth PEST Insights.2% in 2010. its main areas are the production with 27.9% from 2001 to 2008. Ukraine Country Report. Hryvnia. Risks and Vulnerabilities Ukraine. P. P. P. 2008. Although the economy in 2009 shrank by 15% because of the global financial crisis. 5). the inflation fell down to 16. 2010.

Rapid urbanization is a demographical challenge for Ukraine. However. Education The literacy rate in Ukraine is around 99. rising to almost 80% by 2050 (Bulgarian Investment Consulting Agency. 2010. eastern and western.17 million in 1993 the total population has been declining.7% in rural ones. P. the great part of people in the west are Ukrainians (The PRS Group. 31). There are many highly educated people in Ukraine and the country produces the fourth largest number of academic graduates in Europe (CIA. Ukraine could be divided two main regions. Currently 68. The majority in eastern part of the country is ethnically and linguistically Russian. 2010. 11). P. Inc. Ukrainians compose 77. Since reaching its peak of 52. The World Factbook).4% (Euromonitor. PEST Analysis of Ukraine. 2010. Population The total population in Ukraine was announced to be 45. resulting from lower birth rate and shorter life expectancy. 2-3). 2011. P.8% of the total population.10). According to Emerging Europe Monitor by 2035.3% (CIA. Country Analysis Report–Indepth PEST Insights. almost two-thirds of Ukrainians will be city dwellers. Social Factors Landscape Page 11 of 31 In terms of ethnical group.. . 2011.3% of the population is living in urban areas and 31. Comment & Analysis P. induced with financial support from the government (Euromonitor. Ukraine Country Report. Consumer Lifestyle. Russian consists only 17. The World Factbook). 2010 (United Press.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. 2008. the birth rate increased significantly by 23% from 2009 to 2010. In contrast.8 million as of 1st of December. 2011).

the online payment system is not totally secure because of low technical development.2% of all enterprises were engaged in innovative activity and 11. Along with increase in internet penetration e-commerce grew by 120% from 2008 to 2009. P.3-4) R&D According to the Ukrainian Statistical Institute. Milk is monitored only few times a month and only the fat in the milk I checked (Euromonitor. (Euromonitor. Technology Factors Internet Page 12 of 31 The Internet penetration reached 15 million in 2010. Milk having sour taste or large number of bacteria is often distributed to the market and thus exceeding established standards. The government strongly encourages innovation and technological developments with state support and tax benefits.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. 2011. there is not enough to have technology and inspection equipments to keep milk processing healthy and tasty. 2011.2% of the total population. from grocery products to car parts. . Main users of Internet are younger and middle-aged people in the urban cities. Innovation).5% introduced innovations during 2007 (State Statistics Service of Ukraine.1). P. 14. Production Technology in Milk Processing In terms of hygiene. However. Consumer Lifestyle. Drinking Milk Products. People can buy a large range of products online. almost 33. 2010.

We reckon that Ukraine has a good opportunity of economic growth by the implementation of market reforms against corruption and increasing privatization.796. 1. Segmentation Geographical (Lars) The 5 largest cities in Ukraine are all placed in either the central – or eastern parts of the country. and in a city like Kharkov it is only around 5-10% who speak Ukrainian on “the street”. In many of these cities Russian is preferred over Ukrainian as the spoken language. Demographical (Stefán) Ukraine is now ranked as the world’s 27th largest country. . lifestyles.000 (United Press. 2010. 2010. Even in the capital of Kiev.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Overview of PEST Page 13 of 31 We have concerns about the political uncertainty. 2010). 2011). There is a clear indication that the population is ageing and this could certainly have effect on consumer trends in the future. but recently that decline has been less rapid (Euromonitor. It is the second largest country in Eastern Europe and the sixth largest in the whole of Europe. however we realize that Ukraine government has been improving their transparency and encouraging foreign investment. this number is only around 30% (TryUkraine. The Ukrainian population is on a decreasing trend. 2010 (Appendix 2). p.10) Age Ukraine has had a demographic crisis since the 1980s because of its high death rate and a low birth rate. the country’s people numbered approximately 45. The share of Ukrainian’s over retirement age is quite high (for women 55 and for men over 60) or about 24% (Appendix 3) (Euromonitor. The population of Ukraine has declined by more than 3 million since December 2001 and as of Dec.

Gender As stated above. This shift in demographics could put pressure on labor force growth and could lower the country’s potential economic growth (Euromonitor. Age structure for Ukraine is as follows.7% (male 3.749/female 16.014. lifestyles. Elderly people also tend to be more conservative in their lifestyle and spending habits. Countries with aging population that is with high percentage of the population over 65 tend to invest more in the health sector. p. 0-14 years: 13.865) (2011 est. The World Factbook).606/female 3. 2010). p.000 million people live in Ukraine and women are in majority as they account for 54% of the total population.2).641) 65 years and over: 15. 2010. In the majority of Ukrainian households women are responsible for grocery shopping (Euromonitor.) Source: CIA.294. For females it is 75 years of age and for males life expectancy at birth is only 63 years (CIA. Ukraine has one of the most .796. While the work force is aging fewer workers will be available and that will make it harder for the Ukrainians to achieve economic transformation in the future. The World Factbook. lifestyles.8% (male 15. Ukraine The life expectancy of both males and females in Ukraine is much lower than in Western Europe.2). Economic prospects are not favorable due to economic trends.5% (male 2.34).777/female 4. Page 14 of 31 lifestyles.069) 15-64 years: 70.673. This can also affect some key socioeconomic issues and also help in predicting future potential political issues.682.282. about 45.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. There has been little change in the Ukraine’s health care system since its independence and most facilities that are operated by the state are weak and unable to perform the most basic functions (Menon. p. 2010.186.

In terms of income. Page 15 of 31 gender-equal labour markets in the world when it comes to figures. SIGI). There is however a huge gender inequality whereas women get paid on the average 30% less than men (OECD. the rural western and central regions of Ukraine are the poorest while Kiev and the industrialized eastern regions of Ukraine are the wealthiest. SIGI).24). experienced sharp fall in GDP the first 10 years of its independence. Occupation Ukraine is an emerging free market. and continue to limit women’s participation in society (OECD. lifestyles. .Analyzing Arlas prospects of marketing organic dairy products in Ukraine.1% decrease in Ukraine's GDP took place over 2008 and 2009 (National Bank of Ukraine). however. Income Before the current downturn in the economy. 2003). Negative stereotypes persist. 2010. In general terms. The most affluent consumers in Ukraine are those in their late thirties. Women in Ukraine have become more independent in the last decade or so due to better career opportunities and increased financial stability leading them to having children later in life. That goes along with that most of Ukraine’s big cities are located in the eastern part and city of Kiev having the highest average monthly income. A law providing for equal opportunities for men and women was passed in 2006. strong Ukrainian economic growth resulted in a significant increase in real gross income and disposable income (Euromonitor. However Ukraine was greatly affected by the economic crisis of 2008 and as a result a 15. p. Ukraine experienced rapid growth from 2000 until 2008 and was ranked 45th in the world. mainly because levels of male and female employment are almost the same (United Nations. Formerly a big part of the Soviet Union economy. Ukraine’s legislation upholds the rights of women and guarantees their protection. but very few judges are aware of its existence.

937   11.770 11.496 13. lifestyles.368 24.466 2008 15.254 16.283   9. Euromonitor International In 2009.273 18.581 14.824 27.217   7.548   12. is as follows: Table 35 Average Annual Gross Income by Age (Current Value): 2005-2009 2005 7. figures in hryvnia.827 15-­‐19  yrs   20-­‐24  yrs 25-­‐29  yrs   30-­‐34  yrs   35-­‐39  yrs   40-­‐44  yrs   45-­‐49  yrs   50-­‐54  yrs   55-­‐59  yrs   60-­‐64  yrs   65-­‐69  yrs   70-­‐74  yrs   75-­‐79  yrs   80+  years   Source: National statistical offices. They overcame many obstacles during their development and are reaping the fruit of their labor now.26).727 8.775 5.800   13.932 14. Consumer spending differs between rural and urban dwellers where urban inhabitants tend to spend more on entertainment.265 6.390 13.681 10.330   9.714 10.563 9.575   8.669 2009 15.760 15.123   6. leisure and recreation whereas rural inhabitants spend more on essential goods that they are not able to produce themselves.025 16.982 7.070 18.014 24.624 15.202 11.047 15.247 24. Over 42% of income went on food and non-alcoholic beverages compared to only 13% for residents of Western Europe (Euromonitor.422 15.922 14.032 8. Page 16 of 31 This age group was being educated during the first years of Ukrainian independence.792 17. The average annual gross income of different age group.364 12.839 17.383 20.792 7.511 20.741   11.383 13.271 24.153 11.Analyzing Arlas prospects of marketing organic dairy products in Ukraine.588 20.445 5.317 11. 2010.987 2006 8.283 4.417 13.549 11.820 27.719 28.417 20.384 20. that relates to that wealthier consumers are city dwellers. p. .254   13.515 27.310 20.648 6.303 2007 11.624 27.980 28.839 21.674 15. Ukrainians spent the majority of their disposable income on essential goods and services.888 8.442 12.

p.g. .Analyzing Arlas prospects of marketing organic dairy products in Ukraine. The question is how to measure these cultural differences in order to paint a sufficiently clear picture of the people we are trying to persuade to buy our products. such a study does not seem to exist.7).17).28 per woman (CIA. p. Optimally. The main contributing factors are people’s preference for independence and more widowed and divorced couples (Euromonitor. p. There has been a trend toward delayed childbearing in almost all countries in Europe. The population of this particular group will decline by more than 2. Family status Page 17 of 31 Ukraine has one of the lowest birth rates in the world. The number of household members has been going down for the last decade. 2010. 1. demographics. The average number of members per household in Ukraine is 2. social and political factors.5 million between 2000 and 2020 (more than 20%) (Euromonitor. lifestyles. on the Ukrainian consumers in general and on organic consumer patterns in general.59 (State Statistic Service of Ukraine. Psychographic and behavioural (Lars) There are. 2008. readily available. we would have access to a ready-made study on the culture and habits of Ukrainian Organic dairy consumers. so we will have to fill in the blanks by other means. demographics.9). Naturally. differences in the mindsets of e. We will her try to do this by using what is available. According to studies the main reason for the fall in fertility and birth rates has been postponed or decline in the number of second births (Euromonitor. namely articles and other materials. There are various reasons for Ukraine’s depressed fertility rate involving a combination of economic. Household). 2008. Danish and Ukrainian consumers. without a doubt. The World Factbook). One contributor is a sharp drop in the number of women of childbearing age (15-49 years).

S. low on “individualism” (and thus high on “collectivism”) and high on “uncertainty avoidance”. Ukraine was not included in the famous Hofstede-study on cultural dimensions. the people of Denmark. These findings are supported by the fact that the scores for Russia are very similar (Hofstede. the Ukrainian people are fairly western oriented or at least oriented towards the EU. This could have consequences for foreign companies who want to enter the Ukrainian market. but luckily a Ukrainian university has used the framework to analyze Ukrainian consumers (Chayka. p. one should be wary of comparing Ukraine and Russian consumers too much with one another. Even though the countries have often been linked together by marketers.. like Sweden. Ukrainian consumers Page 18 of 31 When trying to get a hold of what distinguishes consumers in Ukraine. when it comes to the mat- . or whether Ukrainians feel culturally connected with Europe. The Ukrainian market is in many ways highly fragmented and divided. thus giving us a tool for comparing the people of the country to others. in general. In that connection it should be mentioned that. They score high on the “power distance” index.and a European orientation in people’s minds. a good place to start is by analyzing the population on a more general and abstract level. A survey found that only 16% do not wish for Ukraine to join the European Union while around 60% explicitly want Ukraine to join at some point in the future (Bernd. According to this study. Lifestyle. 1973) and the fact that Ukraine and Russia have often been considered as being – at least loosely part of the same Eastern European cluster..g. 2005). e. and Govorucha. 4) and not very homogeneous in the sense that there is a constant tension between a Russian . J. Even so. they are in fact not nearly as tightly connected as for example the Scandinavian countries (Intersperience. G. Ukraine scores significantly different on three of the scales when comparing to Denmark and other of Arla’s core markets. both economically and politically between East and West (Euromonitor. But even if we assumed that Ukrainians are generally closer tied with Russia.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. 2010. Whether this is purely for economical reasons. the survey does not say. 2011). 2011).

Americans (Strizhakova et. Research conducted with mainly young Ukrainians. 2011. this is not necessarily a “bad” thing when it comes to Arla’s prospects of marketing organic food in the country. been active. Even when taking account of the relatively low disposable incomes of Ukrainians. Page 19 of 31 ter of culture. as respondents. 2008). so far. is that health is becoming increasingly important (Market Europe. ethnocentrism has theorised that consumers in these Eastern European countries are more ethnocentric and believe less in global citizenship than their western counterparts.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. national patriotism often co-exists with global influences and global brands signal a path for national empowerment and value sharing.. lead to a steady increase in the demand for organic food. p. 77-78). a positive relationship between ethnocentrism and importance of branded goods supports the notions of previous findings that a glocal identity is evolving among young people – especially in developing countries like Ukraine. among other things. it does not tell us a lot if we do not know to what degree they are similar or different when compared to the western markets in which Arla has. 2004 and Euromonitor. on. This has.. among other things. More than 85% of young consumers in both developed (western) and developing (East European) markets show strong preferences towards global brands. and there are no apparent differences in the importance of global brands between them and western consumers. consumers are willing to spend a disproportion- . 2008. However. they are also more culturally open. A trend among Ukrainian consumers – especially among the younger ones. Russians and Rumanians vs. But even if we know that Ukrainian and Russian consumers are similar in many aspects compared to one another. According to the authors of the paper. Like in Ukraine. 2011 – Spotlighting).p. In these countries. consumers’ preferences are also changing in Russia due to different factors such as a general westernization of markets and increasing disposable income. al. buying locally produced and an increased focus on quality (Euromonitor. al. In other words: These ethnocentric youths will often welcome global belongingness and brands as a potential road to success for their local companies and cultures (Strizhakova et. Lifestyle . 8).

is sparse and has sometimes been contradictory.. Food consumption has been very much shaped by what is available on the local markets. The rapid success of these chains is. not expected to be long lived when/if the economy goes back to similar conditions as in before 2007 (Euromonitor.and hypermarkets in the cities (Market Europe. Some studies have found that consumption of organic goods are closer linked to education than to income. 2004 and Euromonitor.9% GM ingredients are not allowed to enter Ukraine (Euromonitor. 2008. 2007 – p. Page 20 of 31 ately large amount of their money on food and will often pay a premium for perceived quality (market Europe. 2009. 26). however. However. That consumers.. are turning to mass-market chains. has children and is “older” (Hughner et. Ukrainians do not support the use of genetically modified (GM) foods and since the beginning of 2009 products with more than 0. al. which have traditionally dominated the market are loosing out to super. Goodbye Lenin). 2004. animal welfare and health. 2010. Lifestyle p. People’s motivations for buying organic are varied but universal reasons are: Environmental concern. so to say. so the verdict is still out on this matter. besides a wider selection (also of global brands) and superior hygiene. 96). but other studies have found the opposite to be true. 2008. a study from 2007 that compiled most of the existing data on the matter found that the average buyer of organic food is female. 350 and 360). Fuelled by the global financial crisis. and especially the middle-class. 2002. One of the reasons why consumers. buy a lifestyle and a belonging to a certain social group could also be a factor (Fahlbeck and Nilsson. so far.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Lifestyles). but these markets and neighbourhood stores. Goodbye Lenin). Hughner et. 2007 – p. al. Retail Therapy). Organic consumers Research on the purchase and consumption of organic food. 2011. is an increased focus on packaging and presentation of nondurable goods (Euromonitor. The health-related motivations seem particularly interesting since there . Discount chains have recently made a big impact as well. Euromonitor.

– p. The family segment (primarily women with children) is another obvious group to target since the archetype of an organic consumer – on a worldwide basis at least. 359). It is in these population centres that – not only youth. is a woman with a family. al. al. that would appear to be the best place to market organic goods. 106).Analyzing Arlas prospects of marketing organic dairy products in Ukraine. too low prices will often make consumers perceive the products as being inferior or of a lower quality than other organic products.. Furthermore. people in large cities tend to be more interested in environmental issues and are thus more likely to buy organic and the same can be said for people who live in university cities (Fahlbeck and Nilsson p. p. Research has also shown that even though high prices can act like a barrier. Overview of segmentation (Lars) Two different potential segments to target emerge from the above stated: A “youth” segment and a “family” segment. This segment also has the highest income. 2007. 105 and 106). . Page 21 of 31 has never been any proof. but also high education and income is mostly concentrated.. are most “westernized” and make up a large part of the population in the large cities. (Hughner et. The youth segment seem particularly interesting because they are deemed to be the ones that respond most positively to global brands. Another noteworthy finding is that consumers express strong confusion about what “organic” actually means. that organic food is actually healthier than “regular” food (Hughner et.

2011). France. Nobody on the market has organic products in its assortment (Galashevskiy S. 5-Forces (Kateryna) Page 22 of 31 In order to build the right strategy for Arla in Ukraine it is important to learn all the features of Ukrainian dairy market.. many European dairy producers got access to the Ukrainian dairy market (example: Danone. 2011). Russia. Big firms are working on the national level.5% of the market (Danone web-site). After Ukraine joined WTO in 2008.2% of the market. next 2-3 years.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. This is actually already happening: in 2010 Russian UniMilk. cream. They include companies from Ukraine.. 2011). Ukraine. The biggest rivalry for the dairy companies is open-air markets (Milk market. Porter’s 5 forces model is very appropriate tool to use in this case. The rest 39. however small ones are often working locally in one of the regions. therefore there is a possibility of the first mover advantage. and Holland.8% of the dairy market belongs to 300 small firms or individual farms (Menzhunova M. 2011). . others will be absorbed by foreign investors. Rivalry 11 big companies have 60. milk). Some Ukrainian companies will merge with each other. dairy market will be characterized by consolidations between big companies (Marketing research “Cheese market”. According to numerous reviews. where farmers sell their home-made milk products (sour cream. cottage cheese. which owns 9% of the market merged with French Danone . Lactalis).

none of them has a significant share of it. Potential Entrance - Page 23 of 31 Nowadays competition between milk processing firms is quite fierce because of the decrease in the production rates of milk (Lisovych M. It can be complicated for the new entrant to come with absolutely new brand. 2011). producers can be seen as more powerful.. they are fighting about the price. On the one hand. As well as there are many dairy producers on the market. processors have the way higher levels of modern technology than producers. Retailers have a lot of power and they may not accept the diary producer to their assortment (International Marketing Group. 2011). caused by the recent decrease in production of milk in the country - 4% annually during the last 4 years (Masur E. A lot of consumers have already formed their preferences among the existing brands.. There are two types of entities that produce milk in Ukraine: individual farms and big farm enterprises. therefore for the new entrance it’s crucial to build a strong relationship with milk producers (farmers). the demand exceeds the supply. 2011).Analyzing Arlas prospects of marketing organic dairy products in Ukraine. therefore they require better quality milk and have the opportunity to influence the price formation. On the other hand. About 67% of all the milk is coming from individual farms (State Statistic Service in Ukraine). whose facilities are not good enough in order to maintain the quality of . entrance barriers are acceptable. Supplier The relationship between milk producers and milk processors are quite tough.

2010). Page 24 of 31 the raw milk. Consumers Dairy products account for 32% in the consumption basket of the average Ukrainian and remain the first biggest grocery category (Observer. pear. 79% of the consumers want to buy organic products (Gryshko. According to sociological survey. kefir.1).. sour cream – as a basic product. One of the positive trends on the market is that milk producers are constantly improving the quality of milk aiming to earn higher profits (first class milk is 30% more expensive that second class milk). consumption falls down (Dairy Business in Ukraine and in the World). P. Consumers prefer traditional tastes: apple. Price sensitivity: if the price goes up. Drinking milk products grew by 16% in 2010 and is assumed to increase up to 13% regarding value terms (Euromonitor.L. Drinking milk – Ukraine.. 2011). especially those that are produced locally in his region. cereals. but yogurt sometimes still seems like a pleasure product (like a desert).Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Low level of price recall. . Consumer perceives milk. Consumer prefers dairy products made in Ukraine. 2009). therefore big milk processors prefer to work with farm enterprises (Antoniuk G.

Substitutes Consumers may prefer cheaper dairy products Page 25 of 31 Dairy products can be substituted by vitamins in some occasions. it has the biggest market share in the yogurt category. Company’s brand is one of the most recognizable dairy brands among Ukrainians (Butenko A. which are working with the retailers locally. They have their own distribution system. Most of the raw milk “Galychyna” buys is from individual farmers. There are around 10 brands that deserved consumer loyalty on the national level.. After we went through the information about the leaders of Ukrainian dairy market. we found out who could be our potential partner. the solution that we found is to create a partnership with one of the existing Ukrainian dairy processors that works on the national market and to extend its product line with the assortment of eco-products. who are ready to . Therefore. Overview of 5-Forces Nowadays. It may be difficult and costly to embed a comparably new to the market product (organic). produced by foreign company under the unknown brand. 2011). we have to make sure that all the production standards are maintained on the appropriate level. we would make agreements with several farmers. So. This is a joint-stock company. called “Galychyna” (Galychyna web-site). The production facilities of the company are located in the Western Ukraine. but in cooking traditions and taste preferences it does not have substitutes. Ukrainian dairy market is quite glutted. We believe that this will help to gain customers’ support more easily. Appendix   5. They have one huge factory and the products are distributed all around the country every morning by equipped trucks.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Since we are introducing organic products. There are nearly 26 sales representatives of “Galychyna” in the regions of Ukraine.

types of cheese that are familiar to Ukrainians and are already “top-sellers”. that are based on the market realities.g. Since the trend in Ukraine is an increased concern with health. like skimmed milk which is already very popular on the Danish market. Also. If Arla decides to enter the Ukrainian market. if they were to introduce a similar product on the Ukrainian market. and the purchasing of organic goods is also closely related to health concerns. milk should reflect local preferences in taste and so forth. We would guarantee them higher purchase prices and assistance in the system implementation. while also branding the name Arla in accordance with the company’s current strategy. we see this form of set up as the one with the highest potential for ensuring a successful venture in Ukraine for Arla. As suggested in the section on 5 Forces we would recommend that Arla use a co-branding strategy and try to establish a partnership with a company like Galychyna – putting both names on the brand. Therefore. relating to the 5 Forces analysis. at least starting by. and thereby catering to ethnocentric tendencies that some consumers might exhibit. these two areas should be the main focus of Arla if they should ever decide to enter the Ukrainian market. . it is also highly probable that Ukrainian consumers will show some degree of preference towards low-fat versions of milk. SWOT (all) All our findings above is summarized in a SWOT analysis that can be found in Appendix  6 4 P’s (all) Product Milk and cheese are the two largest and most profitable product categories when it comes to the Ukrainian dairy market. We assume that the safest way to go is by.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Page 26 of 31 change their production process into the required one. These are our suggestions. introducing organic versions of e.

However. which is not sustainable though. Arla could consider using this strategy. when it comes to the grocery categories. This provides a rational for using this premium pricing . this category is in the premium niche and too low price can confuse consumer perception of better quality. therefore they are unique. because. where there is uniqueness about the product. because firstly. etc. so higher prices reflect the fact that they belong to the premium level. grocery products are not such a prestigious category to fit under this strategy. This strategy would not be appropriate for the organic products.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. We considered 2 opposite pricing strategies that we could possibly use – price skimming and market penetration. Price Organic products are 30-50% more expensive that conventional ones. Today. in the case. we decided to choose premium pricing strategy that assumes comparatively high price. Price skimming anticipates entering the market with high price. The quality aspect poses a major challenge since it will likely be costly and difficult to ensure. organic products are not widely accessible in retailer stores. freshness and quality. The main reason for this is higher production costs. and that processing workers will be working effectively. organic products are also considered a luxury category. Market penetration strategy suggests entering the market with very low price in order to gain market share and once it is achieved the price is increased. as mentioned earlier. because it would have a first mover advantage in the organic dairy market. that local farmers will adhere to the rules of organic production. we concluded this strategy does not make sense. Finally. when company has competitive advantage. However. Page 27 of 31 The most important part is that the products have an organic “feel” in everything from (recyclable?) packaging to taste. consumers are very price sensitive and secondly.

Arla will provide high-quality product and by this convince consumers to pay more.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. we will work with. As the organic movements starts to catch on we should think being in more places and consider other channels. p. range and quality of goods. Deciding factors for consumers depend on their disposable income. It’s thus vital to . The retail formats most popular with middle.34). while poorer consumers still do a lot of their grocery shopping at an open-air market. and ethnic groups who have higher levels of education are more likely to buy organic products than less-educated consumers. Page 28 of 31 strategy. product prices. Disposable income for urban residents is significantly higher than that of the rural population. distance and availability of a private vehicle. (MarketingTeacher. Our focus should be on supermarkets and larger shopping complexes in the larger cities as our main sales channel. Consumers of all ages.com. 2010. Consumers are willing to pay more for quality. it’s important to reduce the time from production to actual purchase by consumer. Wealthier consumers shop for food and non-alcoholic drinks at modern supermarkets.and higher-income groups are supermarkets in malls and large shopping complexes (Euromonitor. races. the key selection criteria are opening times. 2011) Place Organic food is normally more expensive than conventional food due to the fact it simply cost more to produce. whether it is a discounter or normal supermarkets. As in large cities normally several competitive supermarkets are within reach. lifestyles. In addition. it is important to adapt the price to the overall pricing strategy of the retailer stores. and special offers and discounts offered by retailers. Dairy products have different shelf life. It is also apparent that organic food is bought by those with higher income and those who care for the environment. Our price should relate to the price level of the particular store. For those products that have shorter shelf life.

that Arla should focus on using imagery. People in the central regions are more willing to pay higher prices for organic products than people in the East and South. Women can be targeted through fashion. It makes the most sense in regards to reaching consumers in time and is more suitable for transportation. Communication tools have to be chosen carefully for each of the target groups. sustain your future. learn more about the products you eat. Internet marketing can cause word-of-mouth – this is basically what will create the awareness in the society. The fall of the Soviet Union could however have made this data outdated. Page 29 of 31 optimize distribution cost. telling about what organic milk is. that reflects Ukraine’s (and Russian’s) high scores on collectivism and e. being green. Hofstede’s survey on cultural dimensions would seem to suggest. Informative press-releases in these magazines that have educational purposes. fitness or leisure magazines. because people are very inclined to get promotions or any kinds of .g. because they are active users of it. The main messages we want to communicate to the consumers are: healthy lifestyle. Production sites need to be situated close to the larger urban areas and cities. Promotion Promotion strategy is aiming on the 2 target groups: young people and family segment (women with children). focus on how eating organic will tie the consumer closer to certain groups like family or other consumers. In-store promotion in the initial phase of entering the market will be very appropriate. conducted by a social organization. Discount coupons can be placed in magazines. Blogs and social networks will serve as very good tools to inform youth about organic dairy products. According to the survey.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. how it is produced and why is it better than conventional milk. Dairy business is local in nature and its products need to be stored and transported properly. 39% of Ukrainians are aware about the nature of organic products (Boiling. messages etc. Whereas milk is a perishable product the ideal distribution channel would be from Producer to Retailer. Young people will be most successfully targeted via the Internet. 2011).

would most likely be impossible without incurring substantial costs. who have a healthy lifestyle and are famous for their environmentally-friendly orientations can be used as role models.If given the chance. people will start to look for more information. or if some of these factors were to change for the better in the near future. no research has proven the opposite to be true either.and pull strategy. Arla would have to adopt a mix of a push.Analyzing Arlas prospects of marketing organic dairy products in Ukraine. However. in order to use Ukraine as a sort of “test” market for other Eastern European markets. using famous people. with the way that the political landscape is currently shaped. We don’t know the attitude of the Ukrainian to Scandinavia or Scandinavian products. and Ukrainians are willing to spend a disproportionally large amount on food. so we cannot decide how much we should emphasize on the Danish origins of the company in the communication campaign. when they see entertaining ads about organic products. since demand. Even doing so on a small scale. Disposable incomes are on the rise. Farmers have little incentive to convert to organic farming. Conclusion (all) Based on our analysis we would not recommend that Arla enter the Ukrainian market with organic dairy products at this moment in time. the Ukrainian market still holds lots of potential – either if Arla should decide on entering in spite of the above-mentioned risks and costs. Also it can be relevant to use celebrities in the TV-commercials. Consumers would need to be “educated” on what it means when food is organic. In order to capture wider potential market. and the GDP is substantially lower than in Arla’s current core markets for organic products. Page 30 of 31 discounts. as well as the supply-chain would need to be stimulated. It seems as if the risks and costs associated with such a move are simply too high. Research has however suggested that Ukrainians could be . whereof dairy products make up a substantial part. People will want to follow this trend. Even though no in-depth research has proven that Ukrainians would in fact buy organic . we could use advertisement in transport and city-lights. Presumably.

Analyzing Arlas prospects of marketing organic dairy products in Ukraine. Other things that should be considered. and that a form of co-branding strategy involving local production could be a way of entering the market. if going in to the country. . Page 31 of 31 welcoming of global brands. include apparent prevailing cultural differences but also a conversion towards a western consumer culture. Competition from large international players on the market is still limited. and the prospects of obtaining first-mover advantages is only getting smaller as time goes by.

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P. Annual Report 2010. 10 Appendix  2 Source: State Statistics Committee of Ukraine .Appendix  1 The distribution of Arlas tree types of markets Source: Arla.

Future Demographic-Ukraine.  p.  16 .Appendix  3 Source: Euromonitor International. Appendix  4 Projected  population  (in  major  cities): Source:  Euromonitor  International  (2011). October 2008.  Consumer  Lifestyle  -­‐  Ukraine.

8 % 6.Appendix  5 Market shares of the main participants of Ukrainian dairy market.7 % 5.8 % 4.8 % 3.5 % 39.7 % 5.2 % 3. 2010 (Marketing Information Database) 8.4 % 6.0 % 5.9 % 4.6 % 5.6 % UniMilk Wimm-Bill-Dann Galychyna Herkules Lustdorf Milkiland-Ukraine Lactalis Reinford Western Milk Group Danone Pridneprovskiy Others .

-­‐ First  mover  advantage.  corrup=on.   -­‐ Liability  of  foreigness . -­‐ Foreign  and  domes=c  compe=tors  enter-­‐ -­‐ Arla  has  a  low  presence  in  the  South  and   ing  the  market. -­‐ Strong  Private  Label  opera=ons. and  people  are  coming  there  in  order  to   -­‐ Heavily  biased  towards  Western  Europe save  money. Weaknesses Threats -­‐ Weak  “Arla”  brand  in  Ukraine  compared   -­‐ Poli=cal  instability.Appendix  6 Strength Opportuni=es -­‐ Good  organic  image  of  Arla  in  the  world’s   -­‐ Economic  growth. -­‐ Growth  in  dairy  consump=on  for  16%. -­‐ Incompa=bility  of  cultures  (Danish  and   Ukrainian). for  PLs. -­‐ Huge  experience  with  organic  produc-­‐ -­‐ Increasing  demand  for  organic  products. be  an  opportunity. -­‐ Lacking  a  “global”  brand -­‐ Decrease  in  the  produc=on  rates  of  milk   in  Ukraine. -­‐ Increasing  number  of  discounters  could   -­‐ Big  company  can  be  difficult  to  associate   be  a  treat  because  they  have  lower  prices   with  organic  produc=on. Eastern  Europe. -­‐ Westerniza=on  of  Ukrainian  consumers. -­‐ Arla  already  has  sales  office  in  Russia  and   -­‐ Rising  health  and  environmental  con-­‐ produc=on  facili=es  in  Poland  –  access  to   scious. to  compe=tors  like  “Danone”.  as  well  as  Arla  has   -­‐ Very  strong  posi=ons  in  Northern  and   good  experience  in  producing  products   Western  Europe. market. =on. the  Eastern  Europe. -­‐ Increasing  number  of  discounters  could   -­‐ Arla  is  a  big  company  with  big  capital.