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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 1

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 2

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 3
Promotion: Strategic and Tactical
Objectives

• Awareness Emerging
Markets/
• Trial New Products
• Attitude toward the
product
– Beliefs
– Preference
• Temporary sales
increases
Mature markets
/established
products

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 4

Marketing Strategy
ASSESS AND RE-EVALUATE

STRATEGY TACTICS
MARKETING How to best use AND
OBJECTIVES available resources ADAPTATION
What we want to to accomplish objectives Implementing strategy
accomplish under circumstances. as things change.
Make tough choices! More tough choices!

TOOLS OUTCOME
Use resources such
CONSUMER/ Sales are influenced
as distribution,
(e.g., volume,
advertising, sales MARKET frequency, switching,
promotion, RESPONSE price sensitivity)
demonstrations
Consumers or
intermediaries
respond
ASSESS
MKTG 322AND RE-EVALUATE MARKET DEVELOPMENT Sabry Shehata professor 5
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.

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 6

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.

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 7

Market Development: The Objectives
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

GET MORE PEOPLE TO BUY PRODUCT

Hungry 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 BRANDS

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

DECREASE CONSUMER PRICE SENSITIVITY

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 8

Market Development Issues “Big picture
.
only”—details
not important!
DECREASE
GET MORE PEOPLE CONSUMER
TO BUY PRODUCT PRICE SENSITIVITY
ADVERTISING

TRIAL DISTRIBUTION
ENHANCE-
AWARE- MENT
INCREASED NESS
SALES OF
PRODUCT JOINT GET CURRENT
BUYING VENTURES/ USERS TO USE
CON- CO- MORE
VENIENCE BRANDING

DEVELOP SALES
PREFERENCE PROMOTION
GET PRODUCT RELATIVE TO OTHER
USED FOR PRODUCTS OR BRANDS
NEW PURPOSES
MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 9
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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 10

Some Tools

• Advertising
• Price/sales promotion
– Awareness
– Coupons
– Trial
– Sales
– Preference
– Value
– Reminder
– Premium
– New uses
• Joint ventures/co-
• Distribution branding
– Availability in
retail stores • Demonstrations
– Quality of • Product investment
placement within – Quality
retail stores – Differentiation
– Packaging
– Usability convenience

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 11

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.

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 12

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.

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 13

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.

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 14

Consumer Adoptions of New Foods or New Food
Uses

PROMOTION
TRIAL
ADOPTION BY
LIMITED GROUP

WORD OF MOUTH INCREASING

TRIAL ADOPTION/
ADAPTATION
OBSERVATION

MEDIA
COVERAGE

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 15

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),

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 16

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 17

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 18

Effects and Outcomes AWARENESS

TRIAL

SALES
Volumes
Prices REPEAT
PURCHASES
PREFERENCE

REDUCED
PRICE USED IN
SENSITIVITY MORE
SITUATIONS
USE BY USED
MORE MORE
PEOPLE FREQUENTLY
MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 19
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.”

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 20

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 21

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 22

 Innovators and Imitators:
The Lifecycle of A Product
a d o p to rs

Adoption of Innovations Over Time

N u m b e r o f n e w

40

30

20

10

0 Late
Early Early
-2.50
Innovators adop-1.50
tors -0.50
majority 0.50
majority 1.50
Laggards 2.50
2.5% (13.5%) 34% 34% (13.5%)

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 23

One Diffusion Pattern--Nicely Balanced...
P e r c e n t d iffu s io n

The S-Shaped Diffusion Curve

1

0.8
100% adoption
0.6
or saturation
0.4 point
0.2

0
0 5 10 15 20 25
Time

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 24

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 25

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 26

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

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 27

Bargaining Power

• Impact • Sources
– Price – Size, number, and
– Conditions concentration of firms
• Returns – Supply control
• Time of payment – Unequal information
• Interest or finance – Diversification (?)
charges
– Product differentiation
• Quality or other
adjustments – Control of resources
• Transportation or other – Financial resources
services – Ratio of fixed to variable
costs

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 28

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)

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 29

Market Information

• Some issues • Problems

– Crop forecasts – Price specification
– Demand forecasts—quantity (comparability of location,
and prices time, and other factors)
• Government information – Net vs. gross prices
(allowances and discounts)
programs
– Cost vs. accuracy of
information
– Changing market orientation
and scope of market
(proportion of buyers and
sellers involved in open
markets)
– Voluntary cooperation

MKTG 322 MARKET DEVELOPMENT Sabry Shehata professor 30