Market Development (MD) in the Food Industry

 Food market development refers to a whole range of marketing activities designed to

enhance the value of food products for consumers.
 Advertising, quality control, packaging, new product development, personal sales,
merchandising, trading stamps, coupons, cents-off promotions, trade servicing,
public relations, and a host of other activities are all instruments of market
development.
 The goal of MD is to increase consumer satisfaction and, in the process, increase
farm or industry profits.
 Advertising is one of the more visible market development. In the modern food
industry, millions of dollars may hinge on market development tactics: a slight
variation in taste of a product, a new package design, a penny off, or even a catchy
advertising jingle can spell the difference between profit and loss or the success or
failure of a business.
 Many criticize this aspect of food marketing as trivial or wasteful, but such market
making activities seem inevitable in a high income, free-enterprise economy.
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 Market Development (MD) in the Food Industry contd.
• Market Development activities are particularly important in the competitive battles waged between
individual food firms and brands. However, market development is also becoming increasingly
important in competition between food products (beef versus mutton, margarine vs butter), food
concepts (fresh vs frozen foods), and food distribution channels (retail vs restaurants).

• As a result, farmers have also become concerned with market development as a marketing tool.

• MD activities are used either to shift food demand curves rightward or to alter their slope. This is more
than just ‘selling’ or “increasing consumption.”

• Consumers can be encouraged to buy more food at lower prices. Market development activities seek
to expand consumption without sacrificing prices and profits. This is done by developing and
marketing more pleasing products, providing better or more persuasive information for consumers, or
building consumer loyalty for the product.

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 Market Development (MD) in the Food Industry contd.
• MD activities are frequently classified by the 4 Ps: product, price, promotion, and place.
These are the four variables that the firm can control to accomplish its sales and profit
goals.
• Each firm or industry puts together a unique combination of the 4Ps, termed its marketing
mix.
• Supermarkets have a mix different from that of convenience food stores, and the mix of
grocery stores differs from that of restaurants, farmer markets, and vending machines.
• One mix cannot be judged, over all, to be better than another. Each satisfies different
consumer tastes and preferences.
• We should also distinguish between consumer-directed promotional efforts and trade-
oriented promotions.
• While consumers are more acquainted with such highly visible ‘pull’ promotion as mass
media advertising, coupons, packaging and the like, there is at least promotions are
designed to encourage food retailers to give favorable pricing and merchandising attention
to a brand or product. They are often called ‘push’ promotional strategies.

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 Market Development (MD) in the Food Industry contd.

• As consumer incomes rise and consumers shift their efforts from satisfying
survival needs to satisfying socio-psychological needs-such as status, esteem,
affiliation, and distinction-market development activities gain in importance.
• These needs require a wide variety of differentiated products, services, and
marketing channels.
• Few factors, have been more important in shaping the modern food industry than
the contemporary emphasis on market development.

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 Varieties of Food Demand
 There are several states of demand. These are important to the firm’s market development
strategies.
• A negative demand represents a situation where most potential consumers dislike the product
and would not buy it.
 Seaweed, fish worms, insects, and so on.
 Negative demand states can become positive. The tomato was considered poisonous in colonial
America, and liver was once fed to pets. Frequently, new information can convert a product from a
negative to a positive state.
• A no-demand state exists when consumers are unaware of their needs for a product. There was no
recognizable consumer demand.
 for example, for soft margarine, instant coffee, or presweetened cereals prior to their
development and market introduction.
 Most new food products and concepts go through an extensive period of trial, acceptance, or
rejection. Advertising, couponing, and samples may help convert a no-demand state into a
profitable demand.

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 Varieties of Food Demand contd.
• Latent demand refers to a general need for which there is no present product.
 Example: a calorie free potato, a low cholesterol egg, or a safer cigarette.
 Marketing task here is to develop new or revised products to meet latent needs.
• Faltering demand occurs when consumption of a product is declining or failing to grow at an
acceptable rate.
• This may be because of deteriorating quality, the availability of preferred substitutes, high price,
or a change in consumer preferences.
 Lamb appears to be in this category.
 Faltering products can sometimes be revitalized with new advertising themes or quality
improvements.
 Medical reports on the dubious healthfulness of certain foods sometimes cause faltering demand.
• Full demand is the ideal state of demand. Here, the current levels of consumption and prices are
satisfactory. The task is to maintain demand at this levels in the face of changing consumer
preferences and competition from alternatives.

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 Varieties of Food Demand contd.
• Irregular demand is a fluctuating demand situation such as for turkey, cider, or cranberries. The task is
to level out the peaks for a more stable year-round level of demand. For seasonal food products, this
may require considerable cost and effort as well as substantial production adjustments on the part of
farmers.
• Over-full demand is rare in the food industry but can occur when a product is so popular or in such
short supply that it is difficult to maintain adequate stocks without having prices rise to levels that
adversely affect future product sales. The solutions lie in better coordination of supplies with demand.
• Unwholesome or excessive demand represents a situation where high level of consumption may prove
detrimental to the long run acceptability of the product. Clearly, there are value judgments involved in
labeling the consumption of a product unwholesome.
 Tobacco and alcoholic beverages.
 Statements declaring that certain foods and consumption patterns are detrimental to the public interest
will continue to be made. Counter marketing efforts to cope with these situations include sponsorship
of research and development, reformulation of products, consumer education programs, and label
identification.

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 Varieties of Food Demand contd.
 These states of demand indicate that there is no one universal food demand
problem, but from time to time all states are represented in the food industry.
 Successful marketing development programs require tailoring marketing tactics
to specific demand states.

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 ADVERTISING IN THE FOOD SYSTEM

• Advertising is prevalent at all levels of the food system.

• The most visible advertising is sponsored by food processors and retailers in
magazines, newspapers, and on radio and television, facebook, utube.

• This advertising is intended to influence consumers' food product and brand

choices. In addition, there is considerable trade advertising designed to
influence the purchase and selling decisions of producers, resellers, processors,
and food distributors.

• The farm input industries, such as chemical, seed, and feed firms, also have large
advertising budgets.

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 ADVERTISING IN THE FOOD SYSTEM contd.
• Food products have several characteristics that encourage rather large
advertising expenditures on the part of food companies.
• They are relatively low-priced, packaged products consumed quickly and
purchased frequently from self-service stores.
• Although food shoppers exhibit some brand loyalty, they are generally willing to
try new food products and brands.
• Many food products lend themselves to emotional advertising themes and
messages.
• It should not be surprising, then, that advertising is an important food marketing
activity.

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 ADVERTISING IN THE FOOD SYSTEM contd.

• Food processors are the dominant food advertisers, accounting for about one-
half of food industry advertising expenditures and 25 percent of advertising
outlays by all manufacturers.

• Food retailers account for 30 percent of food industry advertising and spend
more on advertising than any other group of retailers.
• The remaining share of the food advertising dollar is sponsored by farmers,
commodity and trade groups, and other food firms.

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 ADVERTISING IN THE FOOD SYSTEM contd.
• Advertising is also important to the development of new food products.
Considering that the consumer is already faced with a bewildering array of various
brands, any new product must be introduced into the consumer's mind.
Advertising and other forms of promotion are effective ways of accomplishing this.
• Advertising expenditures are also stimulated by the struggle for relative power
between large processors and large retailing units.
• More and more, retailers wish to produce and sell products under their own labels
in order to secure additional customer allegiance.
• Processors, understandably, want to retain the connection to customers through
their own brands.
• Therefore, both groups find themselves spending more money to favorably
influence the consumer.

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 ADVERTISING IN THE FOOD SYSTEM contd.
• Food marketing firms often build their brand marketing programs around
two strategies.
• Product differentiation seeks to find a product's unique features that set it
apart from its competitors.
• The object is to build brand loyalty in order to achieve a less elastic demand
curve,
• Market segmentation is a complementary strategy concerned with
developing unique product variations that will better appeal to different
consumer classes or segments of the market.
• Both these strategies are apparent in food firms' advertising.

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 FARMERS AND MARKET DEVELOPMENT
• Considering advertising's apparent success elsewhere in the economy, it is
not surprising that farmers have frequently viewed advertising and
promotion as a solution to their price and income problems.

• Farmers have made numerous efforts to expand the demand for farm
products, using advertising, consumer education, foreign market
promotions, support for research and development of new foods and uses
of agricultural commodities, and encouragement of public food programs,
such as school lunches and food stamps.

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 FARMERS AND MARKET DEVELOPMENT contd.
• These promotional programs have been particularly attractive to farmers
during periods of surplus food production. However, the results have been
mixed.
• California orange growers seem to have had more success in promoting the
Sunkist label than lowa farmers have had in promoting lowa beef.
• Cotton promotion did not initially stop the incursion of synthetic fibers into its
market, but more recent attempts at cotton promotion have been more
successful.
• Dairy industry advertising has influenced milk sales and prices in some cases,
yet per capita consumption of fluid milk has continued to decline.
• Promotion obviously played an important role in consumer acceptance of the
kiwi fruit.
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 Rationale for Farmer Promotion
• What results can farmers reasonably expect from commodity promotions?
• The goal in expanding the demand for farm products is not simply to increase
consumption but to improve prices and producers' incomes.
• Consumption and sales always can be increased by lowering prices and
profits.
• What the farmer means by expanding demand is to shift the demand curve
rightward so that the same product volume can be sold at higher prices, or so
that increased volume can be sold without lowering prices.

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 Rationale for Farmer Promotion contd.
• Also, farmers sometimes attempt to make the demand for their products less
elastic by convincing consumers not to make substitutions when prices rise.
• But simply shifting demand is not sufficient for the success of a farmer
advertising program.
• Like any other marketing activity, advertising has a cost.
• The farmer wants to influence demand in such a way that profits will be
higher even after the advertising costs are paid.

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 Extent of Farmer Advertising
• As sellers of relatively homogeneous products, most individual farmers do not
find it feasible to promote their own branded products.
• Instead, when farmers promote their products, they usually do so through
group-sponsored generic advertising.
• This type of advertising attempts to alter the demand curve for an entire class of
food, such as beef, milk, or almonds.
• Examples of generic advertising themes are: "Orange juice or Mango juice. It's
not just for breakfast," “Mutton: the other white meat," and "The incredible
edible egg."

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 Extent of Farmer Advertising contd.
• Generic advertising may involve brands, such as the wool industry's Wool mark.
• However, the emphasis in generic advertising is on expanding total product
sales rather than the sales of an individual firm.
• Generic advertising also sometimes involves regional brands: Maine potatoes,
Georgia peaches, and Florida oranges.
• It may also promote the sale of a local product, such as at statewide roadside
markets.
• The important point about generic advertising is that it is sponsored by a group
of producers or firms and all producers and handlers stand to benefit from a
successful generic advertising program.

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 Extent of Farmer Advertising contd.

• Generic farm product advertising has several purposes. It may attempt to

promote the use of one product in place of another.
• It may try to alter public opinions and attitudes toward a product.
• Most generic advertising seeks to increase consumer product usage rates
or provides information that changes the ways in which the product is
used.
• Generic promotion may also attempt to expand the overseas market for a
U.S. food product; for example, the demand for U.S. pork in Japan.

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 Extent of Farmer Advertising contd.

• Generic promotion of farm products is usually sponsored by producer groups

and commodity organizations.
• Examples of such organizations include the National Dairy Promotion and
Research Board, the Washington State Apple Commission, the Egg Board, the
Florida Citrus Commission, and the National Livestock and Meat Board.
• Dairy products, meats, and fruits have accounted for the largest generic
advertising budgets in recent years.
• Other commodities have smaller promotional budgets.

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 Effectiveness of Farmer Advertising
• The goal of farmer promotional programs is to influence the demand for farm
products and improve prices and profits.

• Some promotional programs have been quite successful, some have produced
mixed successes, and others must be judged unsuccessful.

• It is difficult to generalize and say that all farmers should, or should not, promote
their products; each product and farm group must be considered individually.

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 Effectiveness of Farmer Advertising contd.
• Several criteria have been suggested for deciding whether farmers can
effectively promote their products.
• Generally, promotional efforts have been more successful for specific, highly
differentiated products than for generic classes of homogeneous products.
• Some brand or regional identification is important in differentiating farm
products.
• Also, the more substitutes there are for a product, the more effective the
advertising, even though one goal of advertising is to convince consumers
that a product has no good substitutes.
• For example, advertising "beef" would be more effective than advertising "all
meat," and "peaches" are more promotable than "all fruit."

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 Effectiveness of Farmer Advertising contd.
• A second criterion is that production and marketing of the product should be in
the hands of an organized group of farmers.
• This is necessary in order to obtain financial support of the promotional program
and to prevent supplies from expanding too rapidly in response to higher prices
and profits.
• These events can prove troublesome for a commodity produced by a large
number of geographically dispersed producers.
• For this reason, walnuts, avocados, and almonds, presumably, can be promoted
somewhat more easily than apples and peaches.

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 Effectiveness of Farmer Advertising contd.

• The need for supply control is critical to the success of advertising.

• Higher prices, sales, and profits will encourage expansion and entry into the
market, and in the long run, this supply response could nullify some of the
price effects of the advertising.

• The need for farmer organization is also evident. Unless all farmers in a
position to reap the benefits of the promotion share in its costs, free-rider
problems will undermine the program.

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 Effectiveness of Farmer Advertising contd.
• The advertising program must be closely coordinated with other marketing
activities.
• Advertising is only one component of the marketing mix and is seldom
successful without reinforcement from the other components.
• It must be coordinated with quality control, flow of supplies, prices, product
development, and point-of-purchase materials.
• It is frequently observed that farm product advertising is most successful for
commodities that move to the consumer in fresh form, with little change in
identity.
• These products, of course, are easier to brand than products that lose their
identity. They also tend to have a higher farmer's share, so that a shift in retail
demand has a considerable impact on farm prices.

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 Effectiveness of Farmer Advertising contd.
• A final criterion is that a substantial sum of money be available if mass-media promotions
are to have an impact.
• The effectiveness of advertising is not directly proportional to the dollars spent, and a
critical mass of promotional exposure must be achieved in order to penetrate the mass
market.
• Another concern in farmer promotional efforts is that because most foods are more or
less substitutes for one another, an advertising program that shifts demand rightward for
one product may shift the demand leftward for another.
• This parasitic advertising may benefit one group of farmers at the expense of another.
• Farmers need to consider the group impacts of farm product advertising in evaluating the
success of their separate programs.
• The felt need to launch a defensive promotional program to combat parasitic advertising
may result in forcing farmers to engage in commodity advertising when it would not
otherwise be advisable.

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 Should There Be Compulsory Farmer Advertising?

• The entry of farm groups into advertising ventures and the belief or
assumption that such efforts are successful have brought two major
reactions.
• First, there is the attitude that because advertising is successful, it is unfair
to support it by voluntary efforts.
• Under these circumstances, the non cooperators benefit equally from the
expenditures of the cooperators.
• Second, there is the attitude that if promotion is successful for one
commodity, it should be expanded to all agricultural commodities.

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 Should There Be Compulsory Farmer Advertising? Contd.
• The first attitude has led to pressures for legislation to make fund collections compulsory
for all producers.
• Various state and federal laws authorize compulsory check-offs or assessments of
producers to support generic promotion programs.
• For example, the dairy industry's promotional campaign is funded by a 15 cents per
hundredweight assessment on dairy farmers' milk production.
• Cattlemen contribute $1 per head of livestock to promote beef while pork producers have
25 cents per $100 of hog value subtracted from their receipts to promote pork.
• These programs and mandatory contributions usually must be approved by a two-thirds
referendum vote of all producers. In many programs, producers may apply for a refund of
the assessment if they choose to.
• Nevertheless, these programs are being challenged because many view them as an
infringement on the right of farmers to decide for themselves whether to promote their
products.

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 Should There Be Compulsory Farmer Advertising? Contd.
• Promotional activities by farm groups, therefore, have entered into the policy picture at the national
level.
• The second attitude mentioned becomes pertinent. Can the success of an individual commodity
campaign be generalized to the total output picture? Can all groups promoting all products persuade
consumers to allocate more money for the raw products of agriculture than they would have
allocated without the promotion expenditure?
• While promotion probably can expand the sales of one food product at the expense of another, its
affect on total food consumption is less clear.
• It is unlikely that promotions can encourage consumers to transfer some funds from nonfood
expenditures to purchase food items.
• At the present time, food in the aggregate does not have close substitutes and there is little potential
for this substitution to occur. As a rule, promotion works best when products have more substitutes.
• Therefore, advertising is most effective for similar, branded products and less effective for generic
products.

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 Should There Be Compulsory Farmer Advertising? Contd.

• Most Americans are well fed and are not good candidates for spending more on
food. There is a group of consumers who might prefer more or different foods
and who are not adequately nourished. However, most of these consumers are
not in this condition by choice but because of the lack of income. Persuasion is a
poor tool where lack of income is concerned.
• At present the potentialities of increasing the demand for all agricultural
products through a massive, across-the-board advertising campaign appear
meager except in areas where close substitutes are available.
• As synthetic foods become more important, defensive promotional programs
can be expected to take on added importance as producer groups struggle to
maintain their position.

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 Should There Be Compulsory Farmer Advertising? Contd.
• It appears likely that more and more general commodity advertising will be
done by farm groups.
• Individual groups are concerned only with the sales of their particular
commodities.
• As in individual companies, competitive pressures from other companies
that advertise force them to increasingly greater efforts in order to
maintain their share of the market.
• Trade groups threatened by synthetics will develop more aggressive
promotional programs.

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 Reference
Marketing of Agricultural Products
by
Richard L. Kohls and Joseph N. Uhl

Richard L. Kohls (1921-2006) Joseph N. Uhl (1939-

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