Lecture 5 Flashcards Preview

AGEC2102: Agribusiness Marketing > Lecture 5 > Flashcards

Flashcards in Lecture 5 Deck (30):

Role of food processors

- Add form utility to farm commodities
- Transforming bulky, perishable, homogenous farm commodities into concentrated, storable, and appealing food products


Why do food processors occupy a strategic position in the marketing system?

– On one end, their activities are closely linked to farmers
– On the other, they closely monitor consumer preferences


What are the 4 Ps that food processors use in developing value-added products that will improve their competitive position in the marketplace by better satisfying consumer needs and wants



Define "positioning"

– The image in the customers’ mind that a firm’s marketing strategy gives to its products to increase their value for customers



A brand is a name, term, symbol or design that identifies the seller and differentiates the product from those of competitors
– Helps to differentiate the product
– Helps to certify the quality of products
– Helps to transfer the goodwill of the firm to new products



1) New products or services – which add more value to the consumer
2) New marketing methods and techniques – which increase operational efficiency
3) New business organisations – such as the cooperatives or new market channels


Pricing strategies (3)

• Gourmet strategy – with a high quality, high price mix
• Value pricing strategy – with a lower price and quality appeal
• Psychological pricing – where higher price encourages consumers to purchase the product


Distribution (place) place strategies

selling food through conventional food-stores, non-food stores, selling to the food-service market, vending machines, by mail or online


Promotional strategies

• Goal of the promotion (remind, inform, or persuade)
• Theme of the promotion (price, quality, etc)
• Type of promotion (advertising, sales, etc)
• Media used for promotion (print, broadcast, etc)
• Target of promotion (buyer, retailer)
– Direct consumer advertising (pull promotion) – Trade promotions (push promotion)


Challenges with processing operations

– Agricultural production is a seasonal process – processors don’t always use their facilities at optimal capacity
– Some of these problems are being resolved by better refrigeration, storage facilities, and year-round supply arrangements


Challenges with buying operations

– Processors not only buy farm commodities, but also handle many of the marketing functions
– Processor usually possess greater market power as buyers than as sellers - because only a single processor serves a given geographic area, whereas processors face competition from other processors
– Procurement usually happens through contracts, which typically contain a wide range of specifications


Wholesalers and retailers are: (3)

– The “downstream” portion of the food industry
– The first to learn about changing patterns in consumer preferences
– Able to impact consumer demands and, thus, sales throughout the entire food system


Food wholesaling

• Wholesalers specialise in adding place and possession utility to food products
• Their job is to efficiently assemble various products in reasonable quantities from the processors shipping point and sell them in smaller quantities to retailers


Types of wholesalers (3)

merchants, sales branches, and agents and brokers


Merchant wholesalers

– The largest grouping in this part of the system
– Can be full-service or limited-function wholesalers
– Can also be general-line or specialty


Manufacturers' sales branches and sales offices

– Extensions of food processing firms’ marketing activities to the wholesale level
– Owned and operated by food manufacturers they perform the storage, selling, transportation and intelligence marketing functions


Wholesale agents and brokers

– Perform a wide variety of sales-related marketing activities for their clients
– Usually do not take title to products and are paid a commission for their services


Chain-stores and supermarkets

• The chain-store operation represents both a horizontal affiliation of retail stores and a vertical affiliation of food retailing, wholesaling and often processing activities
• Can be corporate chain-stores, affiliated independent chain-stores, or non-affiliated independent retailers


Differentiate between corporate chain-stores, affiliated independent chain-stores and non-affiliated independent retailers

• Corporate chain-stores have clear competitive advantages through large scale buying and selling
• Affiliated independent chain-stores can be retail- owned cooperative wholesalers or wholesaler sponsored voluntary retail chains
– In conjunction with whatever advantages there might be in owner-operation of independent stores, maintain competitiveness in the market
• Non-affiliated independent retailers, while still in market, have been in decline for some time


Pricing in food retailing (3)

Market based
Variable price merchandising
Everyday low pricing


Market based pricing in retail

when retailers offer a discount on one item, and compensate the losses by selling another item at a premium – provides the retailer considerable latitude in pricing any one food


Variable price merchandising in retail

when retailers offer price cuts on every item they offer – reduces the dependence of retail prices on farm or wholesale prices


Everyday low pricing in retail

when retailers constantly operate at a low profit margin


Vertical coordination

– Act of coordinating activities between middlemen along
the marketing channel
– The longer the food marketing channel, the more difficult it becomes to relay information from the consumer to the farmer


Grid pricing

process by which price paid for a commodity unit is based on the quality characteristics of that commodity unit


Characteristics of grid pricing

– Supply and demand conditions determine the base price
– Premiums and Discounts are assigned to a commodity based on the value of processors place on different qualities
– Farmers rewarded by producing a better quality commodity, and they will take costly actions to produce such a commodity if the value exceeds costs


Outline the two types of contracts that facilitate vertical coordination

• Production contracts
– An arrangement between a processor and a farmer, where processor supplies all the inputs, and assumes market risks, while the farmer supplies farm facilities and is responsible for commodity production
• Marketing contracts
– An arrangement between a processor and a farmer, where the parties agree on quantity and price of a farm commodity to be exchanged months in advance


Vertical integration

process by which two or more steps of the production process are under the same ownership
– Downstream integration is when a firm begins producing inputs which they previously purchased in a market
– Upstream integration is when a firm begins performing a function of a firm that previously purchased their product


Vertical integration vs production contract

– In the case of production contract a farmer acts like an employee of the processor
– In the case of vertical integration, a farmer is an employee of the processor
– Both forms of vertical coordination are called vertical control


Incentives for vertical control

- Allows processors to achieve desired outcome at lower transaction cost
- Risk sharing - reallocation of market risk from farmer to processor
- Increased efficiency in resource allocation, production and distribution