market development

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 1

Market Development, Information, and Bargaining Power

• Reasons for market development

• Strategy in market development

• Tools and outcomes• Participation in

commodities market development

• Bargaining power and market “stabilization”

• Market information


define

• Market development involves creating or expanding a market for new or existing products and/or increasing the value of these products

• few consumers today are aware of the prickly pear, however, but farmers who grow this cactus plant



Promotion: Strategic and Tactical Objectives

• Awareness• Trial• Attitude toward the

product– Beliefs– Preference

• Temporary sales increases

EmergingMarkets/New Products

Mature markets/establishedproducts


Marketing Strategy

MARKETINGOBJECTIVESWhat we want to

accomplish

TOOLSUse resources such

as distribution, advertising, sales

promotion, demonstrations

TACTICSAND

ADAPTATIONImplementing strategy

as things change.More tough choices!

CONSUMER/MARKET

RESPONSEConsumers or intermediaries

respond

STRATEGYHow to best use

available resourcesto accomplish objectives

under circumstances.Make tough choices!

OUTCOMESales are influenced

(e.g., volume, frequency, switching,

price sensitivity)

ASSESS AND RE-EVALUATE

ASSESS AND RE-EVALUATE


Strategies, Objectives and the Hierarchy of effects

• The promotional activities needed for a given product will depend on factors such as its current stage in the product life cycle.

• Once more people know, a significant challenge is going to get more people to actually try the product

• This may be difficult to accomplish because of the high cost of the product and the vast number of choices of other products that consumers can consume.

• There is simply not enough time or money to try everything available.


Strategies, Objectives and the Hierarchy of effects

• If a product category catches on, emphasis may then need to switch to brand differentiation and the firm may need to work on getting consumers to hold favorable beliefs about their brand.

• In later stages of the product life cycle, where most consumers’ opinions have largely been set, temporary sales increases, usually through price promotions, may be the only realistic objective.


Market Development: The Objectives

DECREASE CONSUMER PRICE SENSITIVITY“Costs a little more, but it’s worth it” ● Zachy farms chicken ads ● Campbell’s soup ads

GET MORE PEOPLE TO BUY PRODUCTHungry Man dinners ● Hot Pockets ads ● Variety seeking advertising ● Spam luncheon meets advertising

GET PRODUCT USED FOR NEW PURPOSES“Orange juice—it isn’t just for dinner anymore” ● “Beef—it’s what’s for dinner”

● Spam luncheon meets advertising ● Baking soda ads

DEVELOP PREFERENCE RELATIVE TO OTHER PRODUCTS OR BRANDSKraft cheese ads suggesting that Kraft has more calcium ● Total cereal ads suggesting vitamins ● “Coke is the real thing” ● “The Pepsi generation” ● “The night belongs toMichelob” ● Florida orange juice “Maxwell—it’s good to the last drop”● Progresso and Campbell’s soup ads

GET CURRENT USERS TO USE MORE“Snickers satisfies you!” ● “Ask for A-1 Steak Sauce” ● “A sandwich just isn’t a sandwich without miracle whip” ● “Beef—it’s what’s for dinner” ● “The Incredible, Edible Egg” ●Fast food restaurant advertising


Market Development Issues

INCREASEDSALES OFPRODUCT

DECREASECONSUMER

PRICE SENSITIVITYGET MORE PEOPLETO BUY PRODUCT

GET CURRENTUSERS TO USE

MORE

GET PRODUCTUSED FOR

NEW PURPOSES

DEVELOP PREFERENCE

RELATIVE TO OTHERPRODUCTS OR BRANDS

DISTRIBUTIONENHANCE-

MENT

ADVERTISING

SALESPROMOTION

JOINTVENTURES/

CO-BRANDING

TRIAL

AWARE-NESS

BUYINGCON-

VENIENCE

.“Big picture only”—details not important!


Strategy Issues

• Deciding on objectives – Realism– Suitability for

• Company strengths• Competitor positions• Market structure and change

• How much to spend on objectives– Cost of advertising and/or other promotion relative to gains– Most appropriate ways of achieving objectives based on

• Cost• Effectiveness• Synergy

• Consistency of objectives


Some Tools

• Advertising– Awareness– Trial– Preference– Reminder– New uses

• Distribution– Availability in

retail stores– Quality of

placement within retail stores

• Price/sales promotion– Coupons– Sales– Value– Premium

• Joint ventures/co-branding

• Demonstrations• Product investment

– Quality– Differentiation– Packaging– Usability convenience


Setting strategy.

• Improving quality, for example, might be achieved either by increased research and development, the use of higher quality materials, or by investing in new manufacturing technology.

• The most appropriate choice will depend on factors such as cost and effectiveness, but may also depend on risk.


Tactics and implementation.

• If a decision as been made to position a product as a premium brand through advertising, specific ads must be developed and tested and appropriate media and advertising schedules should be resolved.

• When implementation begins, results need to be monitored.


Consumer adoption of new food products.

• One way to spread new foods is through massive advertising. This strategy has been used in marketing the Hot Pockets® convenience products. Many foods also spread as some groups of consumers “imitate” others they see consuming them, and some are encouraged to try new foods based on word-of-mouth communication.


Consumer Adoptions of New Foods or New Food Uses

ADOPTION BYLIMITED GROUP

MEDIACOVERAGE

INCREASINGADOPTION/

ADAPTATION

PROMOTION

WORD OF MOUTH

OBSERVATION

TRIAL

TRIAL


Levels of market development.

• Development efforts may center at several different levels.

• Florida orange growers—may want to promote their food, hoping that preference will be developed relative to other food categories

• Alternatively, development efforts can focus on a branded product (e.g., Diet Coke®), a brand (e.g., all Coca Cola ® branded products),


Commodities Market Development Programs

• Typically regional—e.g., Florida orange juice; Idaho potatoes; Hawaiian sugar cane; Washington Apples; Texas beef

• Intention is to differentiate• Compulsory participation in advertising

programs– Development is not worthwhile for the individual

farmer– The individual farmer is assumed to benefit from

overall campaign


Level of Market Development

• Levels– Commodity

• Differentiation from competing commodities• Increase in demand for commodity

– Corporate product category (e.g., Coca Cola drinks, including Dasani)

– Product category brand—e.g., Kraft American cheese slices

– Brand (product line)—e.g., Kraft foods


Effects and Outcomes

SALES VolumesPrices

AWARENESS

PREFERENCE

USED INMORE

SITUATIONS

REDUCEDPRICE

SENSITIVITY

USEDMORE

FREQUENTLY

USE BYMORE

PEOPLE

REPEATPURCHASES

TRIAL


Definitions

Innovation: “An idea, practice, or product perceived to be new by the relevant individual or group.”

Diffusion process: “The manner in which innovations spread through the market.”


To Adopt or Not to Adopt: How Will Consumers Answer the Question?

• Some causes of resistance to adoption– Perceived risk--financial

and social– Self image– Effort to implement

and/or learn to use the product

– Incompatibility– Inertia/overwhelming

existing choices


Types of Innovations

• Fashions—tastes go back and forth over time—e.g., food fat content

• Fads—product is “in” for a short time and then fades (e.g., ostrich meat)

• Trends—consumption of a food product either increases or decreases consistently over time


0

10

20

30

40

Num

ber o

f new

adopto

rs

-2.50 -1.50 -0.50 0.50 1.50 2.50

Adoption of Innovations Over Time

Innovators2.5%

Laggards(13.5%)

Earlymajority34%

Earlyadoptors(13.5%)

Late majority34%

Innovators and Imitators: The Lifecycle of A Product


0

0.2

0.4

0.6

0.8

1

Percent diffu

sio

n

0 5 10 15 20 25 Time

The S-Shaped Diffusion Curve

100% adoptionor saturationpoint

One Diffusion Pattern--Nicely Balanced...


Implications for Foods

• Many substitutes and individual tastes• Trying new foods for variety is common• Social opportunities for trial• Food tastes tend to be “learned” early in life

– Best opportunities for spread are with younger consumers


Influences on the Speed of Diffusion

• Risk to expected benefit ratio (relative advantage)—usually not an issue for foods

• Observability—is the product consumed in public

• Product pricing—scarce foods are “rationed” through cost

• Trialability—usually easy for foods• Switching difficulties and learning

requirements/ ease of use—not a problem for foods eaten out but may be for foods to be produced at home


Pioneering Advantage

• Consumer expectations are usually shaped by the first encountered brand

• Satisfying and awareness by consumers• Order of entry vs. pioneering advantage• Positioning of existing pioneer vs. strategy

of first entry


Bargaining Power

• Impact– Price– Conditions

• Returns

• Time of payment

• Interest or finance charges

• Quality or other adjustments

• Transportation or other services

• Sources– Size, number, and

concentration of firms– Supply control– Unequal information– Diversification (?)– Product differentiation– Control of resources– Financial resources– Ratio of fixed to variable

costs


Marketing Orders and Agreements

• Mandates intended to “stabilize” markets• Types of issues

– Grades, size– Packaging– Market allocation (quotas)– Minimum prices– Contributions to research– Advertising (market development)


Market Information

• Some issues– Crop forecasts

– Demand forecasts—quantity and prices

• Government information programs

• Problems– Price specification

(comparability of location, time, and other factors)

– Net vs. gross prices (allowances and discounts)

– Cost vs. accuracy of information

– Changing market orientation and scope of market (proportion of buyers and sellers involved in open markets)

– Voluntary cooperation