CREATING NEW FOODS
THE PRODUCT DEVELOPER'S GUIDE
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Contents
About the book
About the authors
Preface
1. The product
development project
in the company

2. The organisation of
the product
development project

3. Product strategy
development: idea
generation and
screening

4. Product strategy
development: product
concepts and design
specifications

5. Product design and
process development

6. Product
commercialisation

7. Product launch and
evaluation

8. Summary: bringing
it together

8.10 Textbooks in
product development

Index of Examples &
Problems

Useful links
Feedback (email link)
CHAPTER 6
Product Commercialisation


6.3 KNOWLEDGE REQUIRED FOR THE MARKETING PLAN

The following operating functions are included in the marketing plan:

      market information - market research and analysis, particularly the
      targets to be set for the launch and post-launch and the methods to
      monitor these;
      product - product proposition (product concept), packaging,
      branding, image;
      market channel and distribution - choice, control and development
      of market channels, transportation, storage;
      pricing - price range, relation of price to demand, margins,
      discounts, specialling;
      promotion - retailer and consumer promotion, advertising, public
      relations;
      sales - methods of selling, terms of sale, sales reporting,
      analysis and forecasting.

6.3.1 Market information

The aim of information is to provide knowledge of both the consumer and the retailer as the basis for a successful marketing strategy, and also to predict the number of units that will be sold and revenue generated in order to set the targets for the post-launch analysis of the success of the marketing.

The questions to answer are:

      What will be the consumers' purchasing and repurchasing behaviour?
      What will be the consumers' reactions to the prices, the promotions?
      What are the predicted pessimistic, most likely and optimistic sales
      units and revenue over the next months, years?
      What are the predicted competitive reactions?
      What are the predicted market shares?

Before the marketing plan is developed, there should already be a comprehensive description of the potential consumers in the target market segment. With the 'line-filler' type of product, the company will know the consumer from previous marketing efforts. For the innovative product, market research, using either a survey or a product test or both, will provide information to predict the potential consumption rate. For the purpose of sales forecasting, the company needs to know the total number of potential customers and the potential consumption rate. From this type of data and allowing for direct competition, it is possible to make an estimate of the probable sales in conjunction with estimates from other sources.
There are short-term or launch forecasts and also monthly or yearly long-term forecasts. The intervals of forecasting depend on the predicted product lifecycle. If it is a one-season product with a life between three and six months then monthly sales at least need prediction. For the longer life product of five to ten years, then monthly sales for the first year and yearly predictions after that are often used.

Think Break 6.2
Knowledge required for the marketing plan: customer information


For the industrial marketing of a new fat ingredient, compare the introduction of the new product to large bread bakers and to small bakers and confectioners.

Contrast the needs of the two different types of customers, their possible buying methods, the types of products they make, the services they need.

D iscuss the marketing methods the company could use for each group of customers.


6.3.2 Product

The aim is to have a product the consumers will buy. Some of the questions to answer are:
      Is the product what the consumers want?
      Does it have the benefits wanted by the consumers?
      Does it have the desired characteristics wanted by the consumer (sensory, ease of use, safety,
      nutrition, psychological)?
      Is it packaged correctly?
      Is the pack the right size?
      Is the pack attractive at the point of sale?
      Are the product and the pack legal? ethical?
      Does the brand suit the product?

The product characteristics, benefits, packaging type and size, brand and packaging aesthetics, product image and the final product proposition to be presented to the retailer or the industrial customer are identified and then integrated into the complete product description for the market plan. The services provided for the industrial customer need to be identified such as delivery, packaging, technical help.

6.3.3. Packaging

The aim of packaging is to present a unique design which will stand out on the retailers' shelves and in the kitchen, encouraging consumers to buy and use the product. The packaging design consists first in choosing a brand and a product name, and then developing a graphic package design. In choosing the brand, there is the decision whether to use a family brand name or a product brand name or both. Products have been seen on supermarket shelves with three brand names, but this is confusing to the buyers! A family brand name gives recognition and reassurance to the consumer but must have strong associations with the new product. The product name needs to be readily recognised by the target consumers and instantly related to their food preferences and also related to the benefits they see in the product. Name selection is achieved through the typical process of idea generation and screening, with strong involvement by the consumer. The graphic design should be attractive but also informative, giving details on the ingredients, the nutritional value and how to use the product. There are also legal requirements from the Food Regulations which must be followed.

6.3.4 Market channel and distribution

The aim is to make the product available at the right price at the right place at the right time. The questions to answer on the marketing of the product are:

      Who will sell it?
      How will it be sold?
      How much will be sold?
      How will it be transported?
      How will it be stored?
      How will it be displayed?
      How will it be promoted by the retailer?

The type of market channel will have been identified but there is also a need to analyse the people/organisations involved so that the product can be sold effectively with control over and integration of selling and buying.

The overall system of food production is so complicated today, with international movement of raw materials, ingredients and consumer products, that the whole system from the agricultural and marine producers to the final consumer needs to be studied, not just the immediate market channel of the product from the company to the retailer. The domination of large multinational agricultural companies, processing companies, supermarkets and fast food restaurants means that they control or at least strongly influence the market channels. But there are still many small companies such as family bakeries, restaurants, coffee shops, market stalls, family stores, which need to be reached and the distributing company has to decide if they do this themselves or work through agents and wholesalers. Small companies, especially in food exporting, need to have agents or distributors to organise their market channel.

In studying the market channel, the coverage of the target market achieved is determined, the costs estimated and the sales predicted for the different types of outlets in the market channel. The logistics are important, especially in export marketing. The locations of the plants, storage facilities and the customers in the distribution system, the transport available, the inventory held in the total distribution system and the losses in quantity and quality of product in the system need to be investigated so that the optimum system for quality of product, sales and costs can be determined.

Most companies have an established distribution system and cannot change it to suit one new product. However, the launch of a new product is a good opportunity to study the alternatives if there are any. In the marketing of pre-packaged consumer food products, the supermarket has become the all-important means of achieving distribution, but there may be an opportunity to look at alternatives such as home selling.

Think Break 6.3
Knowledge required for the marketing plan: market channel and distribution

A company is planning to export frozen fish fillets from New Zealand to restaurants in California. Discuss the advantages and disadvantages of the three possible methods of distribution:
(1) their own salespeople,
(2) a frozen fish distributor/merchant
(3) an import agent.


6.3.5 Pricing

The price aim is to have a product giving 'value for money' for the consumer but at a price that will produce the desired sales revenue and profit for the company. Company pricing issues include the list price, discounts, allowances, payment period and credit terms. The list price is based not only on the company costs plus the profit and the advertising budget, but also on external factors that affect price.

The questions to answer are:

      What price range will the consumer accept?
      Does the consumer have any psychological attitudes to price?
      What is the relationship between sales forecasts and prices?
      How does the price relate to competitors' prices?
      What are retailer and wholesaler margins, agent percentage?
      What price specials, discounts may be needed?
      What are the subsidies, the taxes, the exchange rate?
      What are the basic company costs, the advertising allowances, the company profit? Do they
      vary at different levels of outputs and sales?

Pricing is not a simple matter for a new product because of the many factors to be taken into account, but in food marketing there is little scope for a great deal of movement in price once the company has decided on its basic cost structure, pricing policy and the position of the product on the market.

A major decision is where to position the product in the price range for this type of product: at the top as high quality, in the centre as good quality or at the bottom as 'cheap'. In launching new products, two pricing policies are particularly important: market skimming, where the price is set high to recover development costs quickly, and market penetration where the price is set so that the consumers will buy quickly and the main market is penetrated before competitors can react.

Think Break 6.4
Knowledge required for the marketing plan: pricing


Discuss the following two pricing situations and decide which of the two pricing strategies you would choose in each situation:

      market skimming or market penetration in launching an environmentally friendly, nutritionally
      acceptable soft drink by a large soft drink manufacturer;

      top of the market pricing or bottom of the market pricing for a new blue vein cheese from a
      small dairy company.


6.3.6 Promotion

The aim of promotion is to make the consumers aware of the product and encourage them to buy the product at the rate of sales growth desired by the company. Promotion includes advertising, personal selling, sales promotion and publicity.

The questions to answer are:

      Who are the target consumers?
      What is the product image?
      What is the message that has to reach the consumers?
      What promotion is needed to convey this message?
      What promotional methods are available?
      What budget is there?

For a food innovation, the consumer is made aware of the product, educated about its use and benefits, and encouraged to try it. Although TV advertising is often used for new food products because it reaches a large number of consumers very quickly, it may not be the most effective choice. Demonstrations and tasting can encourage the consumer to try the product and to remove some of their doubts about it because of its ‘newness’. Promotion is also to the retailer, an important intermediary on the way to the consumer. Because of the difficulty of persuading supermarket managers and owners to give shelf space to a new product, retailer promotion is being given a larger proportion of the promotional budget.

The promotional budget is the sum of money available for spending on the launch and is usually calculated as the amount needed for a given annual sales target rather than a fixed percentage on expected sales. Promotion as percentage of turnover may be as high as 30% or 40% in the initial stages of a product's life; this may be justified as being necessary to achieve maximum distribution quickly and to bring notice to the company's other products as a whole. How much should be allocated to a new product for the purpose of the launch is difficult to decide rationally - there is seldom a model correlating sales with promotion for a new product.

The next step is to assess whether or not the product is worth such a promotional budget, taking into account the purpose for which the product is being introduced. If it is not, then either work on a reduced sales forecast and budget or leave the market to someone who will find it worthwhile. As can be seen in some of the Case Studies throughout the text, even some large companies have not learnt this lesson. The whole situation is rather unsatisfactory but there are techniques to put the promotional budget decision on an analytical footing if the company and the industry has collected the requisite data.

Selection of the advertising mix presents similar problems to budget determination, and sometimes precedes it. Decide what you want to do and then allocate the budget to do it!

The obvious prerequisites to the selection of methods of promotion are to know whom the promotion is aimed at and what it is trying to do. The people to influence are usually the purchasers and all those who affect their decisions, and of course the final consumers who eat the food. The aims of the promotion may be to produce immediate sales, to stimulate brand recognition and to 'educate' the consumer on a new type of product benefit or characteristic. When the target people and the reasons for the promotions are decided, logical selection of media can commence. There are reasonably good quantitative techniques for this task, but it is still frequently left to experience and value judgements.

Think Break 6.5
Knowledge required for the marketing plan: promotion


A dairy company is launching a new high protein, high calcium, reduced fat, fresh milk which is to be sold under the brand name 'Active', and has asked you for a promotional brief.

      Prepare a promotional brief clearly describing the product concept, the people to whom the milk is
      to be promoted and the advertising objectives.

      From this develop a theme for the promotion.

      Discuss possible methods of promoting the milk, and outline a promotional campaign.


6.3.7 Sales

The sales aim is to achieve the sales targets that have been predicted at the budgeted costs. This needs organisation of the sales areas and the sales personnel. Sales targets are set for the sales areas and the individuals, and the sales people are organised to achieve these sales.

Training is provided before the market launch, so that sales people have knowledge of the product, the market research, pricing and promotion and know how to sell the product. Sales calls before the launch and merchandising (shelf display organisation) during the launch are needed to achieve the necessary shelf space for the new products. In the marketing plan the number of such special calls must be detailed to allow adequate planning by the area managers.

The product proposition is the material presented to the buyer by the sales person. This will include the product itself, written and oral details of the research behind the product, the advertising programme, the margins and suggested retail price and any introductory offer. In supermarkets, the sales person will contact the buyer who then has the choice of whether to recommend the product to the new products selection committee or to make the decision themselves. Some companies will sell through a wholesaler, a food broker or a manufacturers' agent. The sales person has to be equipped with facts which will convince the buyer, the wholesaler or the agent that the product is a 'must' to enable them, in turn, to 'sell’ the product to the buying committee.



THE MARKETING PLAN

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Creating New Foods. The Product Developer's Guide. Copyright © Chartered Inst. of Environmental Health.
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NZIFST - The New Zealand Institute of Food Science & Technology