Department of Food Science and Applied Nutrition

Food Economics, Marketing and Distribution (FSAN 4201)

Food Commodity Marketing : Chapter Four

BY
  May, 2021
Demelash Hailu (MSc.)
Introduction
 In the usual situation, marketing involves
 Market: The place where buyers and sellers
serving a market of end users in the face
gathered to exchange their goods and services.
of competitors.
 The buyers share a particular need or want that
 The company and the competitors send
can be satisfied through exchange.
their respective products and messages
 Thus, the size of a market depends on the
directly to consumers or through
number of people who exhibit the need, have
marketing intermediaries to the end
resources to engage in exchange, and are willing
users.
to offer these resources in exchange for what
they want.
 Marketing: a process by which individuals and
groups obtain what they need and want by
creating and exchanging products and value
with others.
Figure. Main actors and forces in a modern marketing.
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Cont’d Marketing Management

 All of the actors in the system are affected by  Marketing management: the analysis,

major environmental forces; demographic, planning, implementation and Control of

economic, physical, technological, programmes designed to create, build and

political/legal, social/ cultural. maintain beneficial exchanges with target

 Each party in the system adds value for the buyers for the purpose of achieving

next level. Thus, a company's success organizational objectives.

depends not only on its own actions, but also  Thus, marketing management involves

on how well the entire value chain serves managing demand, which in turn involves

the needs of final consumers. managing customer relationships.

 Exchange processes involve work. Sellers  Most people think of marketing management as

must search for buyers, identify their needs, finding enough customers for the company's

design good products and services, promote current output, but this is too limited a view.

them, and store and deliver them. The organization has a desired level of demand
3
for its products.
Cont’d: Management
 Managing demand means managing
 At any point in time, there may be no demand,
customers. A company's demand comes
adequate demand, irregular demand or too
from two groups: new customers and
much demand, and marketing management
repeat customers.
must find ways to deal with these different
 Traditional marketing theory and practice
demand states.
have focused on attracting new customers
 Marketing management is concerned not only
and making the sale.
with finding and increasing demand, but also
Today, however,
with changing or even reducing it .
 The emphasis is shifting. Beyond designing
 Marketing management seeks to affect the
strategic to attract new customers and
level, timing and nature of demand in away
create transactions with them, companies
that helps the organization achieve its
are now going all out to retain current
objectives. Simply put, marketing management
customers and build lasting customer
is demand management.
relationships. 4
Cont’d: Management Marketing Management Philosophies
 Companies could attract new customers
 Marketing management as carrying out tasks
without worrying about losing old customers.
to achieve desired exchanges with target
However,
markets.
 Companies to day are facing some new
 There are five alternative concepts under
marketing realities. Changing demographics, a
which organizations conduct their marketing
slow-growth economy, more sophisticated
activities: The production, product, selling,
Competitors and overcapacity in many
marketing and societal marketing concepts.
industries- all of these factors mean that
A. Production Concept
there are fewer new customers to go
 The production concept holds that consumers
around.
will favor products that are available and
 Thus, the costs of attracting new customers
highly affordable, and that management
are rising. In fact, It costs five times as
should therefore focus on improving
much to attract a new customer as it does to
production and distribution efficiency.
keep a current customer satisfied.
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Cont’d: Concept
 The production concept is a useful philosophy
C. Selling Concept
in two types of situation. ?
 Many organizations follow the selling concept,
B. Product Concept
which holds that consumers will not buy
 Another important concept guiding sellers, the
enough of the organization's products unless
product concept, holds that consumers will
it under takes a large-scale selling and
favour products that offer the most quality,
promotion effort.
performance and innovative features.
 These industries must be good at tracking
 an organization should thus devote energy to
down prospects and convincing them of
making continuous product
product benefits.
improvements.
 Most company practice the selling concept
 A product orientation leads to obsession with
when they have overcapacity. Their aim is
technology because managers believe that
to sell what they make rather than make what
technical superiority is the key to business
the market wants.
success. 6
Cont’d: Concept
D. Marketing concept  It focuses on customer conquest-getting
 The marketing concept holds that achieving short-term sales with little concern
organizational goals depends on determining the about who buys or why.
needs and wants of target markets and delivering  In contrast ,the marketing concept takes
the desired satisfactions more effectively and an outside-in perspective. It starts
efficiently than competitors do. with a well defined market, focuses on
 This concept is a relatively recent business customer needs, co-ordinates all the
philosophy. marketing activities affecting customers
 The selling concept and the marketing concept are and makes profits.
frequently confused. By,
 The selling concept takes an inside-out  Creating long-term customer
perspective. It starts with the factory, focuses on relationships based on customer value
the company's existing products and calls for heavy and satisfaction.
selling and promotion to obtain profitable sales. 7
Cont’d: Concept
 Consider the Coca-Cola Company. Most
E. Societal marketing concept
people see it as a highly responsible
 The societal marketing concept holds that the
corporation producing fine soft drinks that
organization should determine the needs, wants
satisfy consumer tastes.
and interests of target markets.
 Yet certain consumer/nutritionist and
 It should then deliver the desired satisfactions
environmental groups have voiced concerns
more effectively and efficiently than competitors
that Coke has little nutritional value, can
in away that maintains or improves the
harm people's teeth, contains caffeine and
consumer's and the society's well-being.
adds to the litter problem with disposable
 The societal marketing concept is the newest of
bottles and cans.
the five marketing management philosophies.
 Such concerns and conflicts led to the
 According to the societal marketing concept, the
societal marketing concept.
pure marketing concept overlooks possible
 Setting three marketing policies: company
conflicts between short-run consumer wants
profits, consumer wants and society's interests
and long-run consumer welfare. 8
Food Marketing

 Food marketing: the activities that takes  In fact, the vast majority of what consumers

place within the food system between the pay for food represents value that is added by

farm gate and consumer. the food marketing system.

 The food marketing system provides the link  For instance: Statistics compiled by the United

between farms and consumers. States Department of Agriculture (USDA)

 As raw farm commodities move through the indicate that farm-gate value accounts for only

food marketing system, a myriad of value- 15.5 cents of the typical dollar an American

adding activities take place to transform consumer spends on food.

these commodities into something more  The remaining 84.5 cents pay for value created

accessible, more useful, more palatable, by activities in the food marketing system.

or otherwise more attractive to the final  The marketing system adds value in four ways.

customer.

9
Cont’d :Food marketing
 Third, a steady supply of foodstuffs is
 First, food manufacturers take agricultural
facilitated by numerous storage facilities,
commodities and change their form into
warehouses, and distribution centers
something more desirable to the customer.
that allow processors and retailers to
This is what happens when a commodity like
respond to consumer demands in a timely
wheat is transformed into bread.
fashion throughout the year.
 Second, value is added to assembling
 The fourth, and final, way the marketing
products that are geographically distant
system adds value is through activities that
from population centers and making them
facilitate ownership transfer as
easily accessible to consumers.
products move from the farm to the
 The year-round abundance of fresh foods
consumer..
throughout the industrialized world is a
testament to the logistical capacity and
global reach of today's food distribution
system.
10
Cont’d :Food marketing

 Brokers, a gents, financiers, insurance  These trends have fundamentally changed

providers, and many others participate in this and shaped the demand for food, with

system by providing the necessary support emphasis on convenience, ethnic

services that facilitate food marketing belongingness, and food quality.

activities.  The link between diet and health has also

 The activities performed by participants in the become much more important to the calculus

food marketing system are in response to of food producers and marketers.

important social and demographic  The population as a whole has also grown

changes. more aware of the role of food and lifestyle

 Other socio-demographic shifts included a on health outcomes. Foods are no longer

steady increase in household incomes, a perceived as a means to basic subsistence.

decrease in household sizes, and increased Instead, they are also directly linked to

participation of women in the workforce. health and wellbeing.

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Cont’d :Food marketing Food marketing in Africa
 The food marketing system has responded to  Agricultural production in most African
these trends by building convenience into the countries including Ethiopia is dominated
food supply, supplying a more diverse array by small-scale farmers who depend on
of foods, and innovating into new product their produce for home consumption and
offerings. income generation.
 As smallholder households increasingly
engage in market production, their
opportunity to increase household income and
food security largely depends on the
functioning of agricultural markets and
other relevant markets such as the financial
market.

12
Cont’d: Africa  Food crop price instability is of significant
 In the absence of well-functioning markets, interest to development economists. Price
prices of agricultural commodities in most sub- variability of the type described above
Saharan African countries typically fluctuate adversely affects household income.
over time.  It hinders intensification of input use, adoption
 Food crop prices are usually low at harvest but of technologies necessary for production
rise gradually until the next harvest. This efficiency and negatively affects productivity
seasonal price fluctuation is largely due to growth and food security.
variation in domestic or even local supply and why farmers do not store and choose to sell at low
demand, as markets are imperfectly prices?
integrated. Lack of
 Most smallholder farmers sell their produce at  Strong supporting institutions
low prices immediately after harvest, and buy  Market-based risk management instruments
food later during the lean period at a higher such as warehouse .
price.  forward price contracts and insurance 13
Cont’d Marketing Channels
 Most food producers use third parties or
 Lack of storage facilities or high storage
intermediaries to bring their products to
costs and
market.
 Most farmers the decision to sell or not to
Why do producers give some of the selling job to
sell a staple (and how much to sell) is largely
intermediaries?
driven by the needs of the household
 The use of intermediaries results from their
rather than the price of the crop.
greater efficiency in making food product
 One would expect that predictable price
available to target markets.
movements will affect decisions on when to
Through,
sell or store produce by farmers and third
 Their contacts, experience, specialization and
parties.
scale of operation, intermediaries usually offer
 both storage by farmers and traders could
the company more than it can achieve on its
help to attenuate price volatility.
own.
14
Cont’d: Channels
 Create personal relationships with them.
 Distribution channels can be described by the  Direct channels may facilitate the development
number of channel levels involved. of farmers skills.
A. Direct-marketing channel: has no  May allow farmers to reduce marketing costs,
intermediary levels. It consists of a thereby retaining a larger share of the retail
manufacturer selling directly to consumers. price.
 The popularity of direct-to-consumer marketing  Receive higher net profits
channels, such as, farmers markets,  Perceived better nutritional quality and
continues to grow. freshness.
Direct marketing channels has various advantage:  Enhancing own-community by providing
 Direct-to consumer outlets, such as farmers business to local farmers.
markets or urban farms, provide an opportunity  Security in knowing their food was produced
for local farmers to sell the food they grow by whom and how; better understanding the
directly to the customers. origin of their food. 15
Cont’d: Channels Marketing Characteristics

B. Indirect-marketing channels  Marketing is crucial to the success of any

 It contains number of intermediary levels , a
business. Several characteristics of the food
wholesaler, Broker/agent and retailer. market determine its structure and
 Channel institutions play an important role in
operation.
making products or services available to A. Packaging
customers.  Packaging a product is an important part
 Between them ,channel members ensure the
of marketing the product. a product is judged
transfer of several entities; the physical by its packaging.
product, ownership, money or payment,  People depend on food labels to tell them the
information, risk taking and promotion. nutritional value of a product. Food packages
often indicate nutrient content claims such as
“organic,” reduced sugar,” or “Cholesterol
free. 16
Cont’d: Characteristics
D. Distribution:
B. Price:  Distribution entails getting the product from
 Price Some consumers value a product the manufacturer to the consumer.
more than others and are willing to pay more.  Many manufacturers find it difficult to get
Marketers are interested in getting each their products into retail stores which have
customer to pay as much as he or she limited space.
is willing. E. Regulations: There are no worldwide food
 The total cost for determining the price is marketing laws or legislation, giving strict
equal to the variable cost plus the fixed guidelines for food international marketers.
cost.  Each nation can adopt their own legislation
C. Advertisement: with regards to food marketing standards.
 Advertisements are attempts made by a  The regulation of unhealthy food marketing to
company to persuade consumers to think consumers is good strategy for prevention of
favorably about their product and buy it. various consequences. 17
Selected Issues in Food Marketing

 New products as well as new ways of

A. Nutritional labeling
producing, processing, packaging, and
 Food labeling became a concern as the food-
handling food products have emerged. There
processing industries were rapidly increasing.
are several factors that have brought about
 The first regulation on food labeling was
these changes on food markets.
passed in 1906, and it mainly addressed the
1. Health Concerns
issue of food adulteration or misbranding.
 There is no question that nutrition and
 The regulations also update the list of nutrients
health issues are in the forefront of many
that appear on the nutritional facts panel and
individual, government, and societal concerns.
define nutrient content claims and health
 Increasing understanding of the correlation
claims.
between diet and health issues such as
 Although the NLEA mandates the mandatory
obesity, chronic disease, stroke, etc., has also
nutritional labeling of food products.
led to significant changes in food markets. 18
Cont’d: Issues
 60% of the risk of chronic diseases potentially
B. Food safety
is preventable with lifestyle
 Despite the fact that food has never been as
modifications, including changes in diet.
safe as it is today, food safety remains a
Consequently, functional foods have
major issue.
increased in popularity in recent years.
 Budget declines have led to a governmental
2. Environmental and Sustainability Issues
decision to cut funds on different programs
 In addition to an increasing demand for
including food safety programs. This is
functional foods, there is an increasing
expected to also affect food markets.
demand for sustainable food products.
C. Functional foods
 Examples of this trend are demand for local
 Health-related concerns have an influence on
and organic food, as well as demand for
decisions made by consumers to reduce the
carbon footprint information in food
consumption of harmful ingredients (e.g. fats
production.
and salt) and to increase the consumption of
beneficial food components into their diets.
19
Cont’d: Issues
A. Organic foods
 The marketing boom has pushed retail sales of
organic foods rapidly.
 A broader range of consumers has also been
buying more varieties of organic food.
Organic handlers, who purchase products from
farmers and often supply them to retailers, sell
more organic products to conventional retailers
and club stores than ever before.
However,
 Organic farms have struggled at times to
produce sufficient supply to keep up with the
rapid growth in demand, leading to periodic
shortages of organic products.
B. Food miles and local foods
 In recent years, expansion of international
food trade has significantly increased the
transportation of food products around the
world with negative impacts on the
environment.
 Food transportation, especially by air and
road, consumes large quantities of fuel and
energy, releasing greenhouse gases (GHG)
which contribute to global climate change.
 Food that is sourced by the major retailers
from global supply chains can be imported
from many thousands of miles.
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Cont’d: Issues
C. Carbon footprint
 Consequently, demand for alternative  Food's carbon footprint is the GHG emissions
foods, such as local food, is increasing produced by growing, farming, processing,
dramatically. This fact is confirmed by the transporting, storing, cooking, and disposing of
growing number of alternative food the food.
markets and local producer/consumer  There is an increasing demand from consumers
networks recorded. and private industries to reduce carbon or GHG
 However, despite some questions emissions associated with food production.
remaining on whether imported or local Hence, the market for sustainable products is
food is more sustainable, food miles expected to expand significantly in the future.
information is increasingly being used as a  It is also no longer just environmentalists and
quality cue of food products, in both the policymakers who are concerned about GHG
global and local markets. emissions but also food producers and
retailers. 21
Product Development And Life-Cycle Strategies
 In the face of changing customer needs, Why Do New Products Fail?
 There are several reasons. Although an idea
technologies and competition, product
Innovation or the development of new may be good, the market size may have

products has become vital to a company's been overestimated.

 Perhaps the actual product was not designed
survival.
 Introducing new products, however, is not based on consumer need.
 It may be a 'me too“ product which is no
sufficient. The company must also know
how to manage the new product as it goes better than products that are already

through its lifecycle: that is ,from its birth, established in the marketplace.
 Maybe it was incorrectly positioned in the
through growth and maturity, to eventual
demise as newer products come along that market.
 Priced too high, or advertised and promoted
better serve consumer needs.
 The company can hope to maintain market poorly.
 Poor marketing research findings.
and profit performance only by continuous 22
Test Marketing
 If the product passes functional and consumer  When the costs of developing and

tests, the next step is test marketing, the introducing the product are low or when

stage at which the product and marketing management is already confident that the

programme are introduced into more realistic new product will succeed, the company may

market settings. do little or no test marketing.

 Test marketing gives the marketer experience  The company uses test marketing to learn

with marketing the product before going to the how consumers and dealers will react to

great expense of full introduction . handling, using and repurchasing the

 It lets the company test the product and its product.

entire marketing programme-positioning  The results can be used to make better

strategy, advertising, distribution, pricing, sales and profit forecasts. Thus a good test

branding and packaging, and budget levels-in market can Provide a wealth of information

real market situations. about the potential success of the product

and marketing programme. 23
Thank You

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