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Branded cooking oil east indian market

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  • 1. Indian Institute of Management, Calcutta Marketing Management Project Report Branded Cooking Oils Prof. D.P. Ghosh Section C Group-III Ganesa Kumar K V Happy Saini Harshit Krishna Himanshu Kumar Rohan Gala Uday Mehta Vinay Kumar Juluri 0128/48 0137/48 0143/48 0147/48 0127/48 4035/18 4040/18
  • 2. Branded Cooking Oils 2011 Executive Summary Marketing Survey The objective of the survey was to know the areas affecting consumer behaviour when they buy edible oils. We analyzed the interactions between these areas and how they affect each other and the consumer and based on that we drew our conclusions on what the marketers must do in this regard. The methodology we used was a division of customer groups and shopkeepers groups. Even though the lines between the two are quite blurred, but still we managed to draw reasonable indication of the preferences of the two different groups. Also, we drew samples from southern region to highlight the differences in the preferences in these two regions especially as the data sample collected from southern region shopkeepers was quite comprehensive. We have designed 9 exhibits in our report which give a comprehensive insight to the data collected. The exhibits are divided as follows: 1. Preferences for types of edible oil 2. Factors affecting the choice of the edible oil 3. How customers came to know about the brand 4. Number of years since last brand switch 5. Willingness to switch brand, given an option of similar quality edible oil at cheaper rate 6. Brand preferences of consumers 7. Preferences in terms of branded and non branded oil 8. Shopkeeper’s responses regarding customers reaction 9. Customer responses from South Consumer Behaviour Analysis The analysis of Customer behaviour captures how consumers take buying decisions based on insights captured from the consumer survey. The section starts from a discussion of what is valued and moving through why it is valued and under what circumstances, it concludes with a summary of consumer buying. The analysis focuses on the following aspects Customer Value Analysis : benefits and costs entering the buying decision process Total Customer Satisfaction and Brand Loyalty Analysis: drivers of customer satisfaction The Buying Decision Makers: who make the final and the who influences the same The Five Stage model: A summary of the consumer analysis 2
  • 3. Branded Cooking Oils 2011 Analysis of Marketing mix variables Our main analysis focuses on marketing mix variables which affect or are likely to affect consumer buying pattern. The 7 P's of marketing that marketers can use to design their marketing strategy accentuate their sales. The main variables are in marketing mix are: 1. Product: It consists of Value, Quality and Packaging 2. Price: Loss leadership, Value Pricing, Product Quality Pricing 3. Place: kirana stores, retail stores and wholesalers 4. Promotion: Special offers, advertising and free gifts 5. People 6. Physical Evidence 7. Packaging 3
  • 4. Branded Cooking Oils 2011 1. Industry overview Oilseeds and edible oils are two of the most sensitive essential commodities in any economy. India is one of the largest producers of oilseeds in the world and this sector occupies an important position in the agricultural economy. India has a wide range of oilseeds crops grown in its different agro climatic zones. Groundnut, mustard, sesame, safflower, castor are the major traditionally cultivated oilseeds. Soya bean, sunflower and rice bran oil have also assumed importance in recent years [1]. In terms of volumes, India is the world’s fourth largest edible oil economy after USA, China and Brazil with total market size is at Rs. 600 billion and import-export trade is worth Rs.130 billion. India has 1,50,000 oil crushing units, 945 refineries, 795 solvent extraction units, and 26 vanaspati plants employing more than one million people [2]. India being deficient in oils has to import 40% of its consumption requirements. The Palm and soy oils constitute more than 95% of total edible oil imports. In 2008 the import duty on crude edible oils has been abolished and duty on refined edible oils has been lowered to 7.5% [3]. Edible oil industry is a low-margin and high-turnover industry because edible oil is majorly a commodity in India and it is very difficult to highlight the point of differentiation to common citizen. Majority of the edible oil sector comprises small units, with fragmented capacities and high operation costs. Big companies encompassing crushing, extraction and refining capacities can earn a better margin. By having a presence across the value chain, from trading to manufacturing and branding saves cost for big companies and enable them to earn better profit margins. The key success factor for any company in this area could be:  Raw material sourcing: Quality oilseeds at a nominal price which varies with the agricultural output and price in the international market.  Ensuring regular supplies: Good and mutually benefiting relationship with farmers and suppliers.  Price competency: Efficient distribution network and better packaging technology to reduce costs and reduce the difference between unpacked and packed branded oils.  Branding and point of differences are important for success i.e. health issues, packaging, blending various types of oils. Edible oils are refined, bleached and de-odorized and then packed. This processing renders oil practically colourless and odourless, therefore, have become easily interchangeable in the kitchen and across companies. Newer oils which were not known before have entered the kitchen, like those of cotton seed, sunflower, palm oil, oilve oil, soya bean and rice bran because these oils tend to have a strong and distinctive taste preferred by most traditional customers [1]. As, people are becoming 4
  • 5. Branded Cooking Oils 2011 more quality conscious, their preferences are shifting from unpacked oil to packed oil. Hence, consumers are shifting towards branded or packaged oil [3]. 2. Market Trend The demand for edible oils in India has shown a steady growth at a CAGR of 4.43% over the period from 2001 to 2011. The growth has been driven by increase in population and improvement in per capita consumption, which in turn is attributable to rising income levels and living standards. India’s annual per capita consumption has shown a steadily increasing trend from 4 kg in the 1970s to 10.2 kg in the late 1990s to current levels of 13.5 - 14 kg. However, it still ranks well below the world average of around 24 kg (per capita figures including consumption of bio-energy), thereby signifying the high growth potential of the industry [4]. Edible Oil Demand (million tonnes) 25 20 15 10 5 0 2000 2005 2010 2015 2020 Source: Ministry of food processing industries The share of raw oil, refined oil and vanaspati in the total edible oil market is estimated at 35%, 55% and 10% respectively [1]. The market share of refined oil is increasing and that of other two is decreasing. In terms of volumes, palm oil, soya bean oil and mustard oil are the three largest consumed edible oils in India, with respective shares of 46%, 16% and 14% in total oil consumption in 2010. Majority of the Indian consumers are high price consciousness and have varied taste preferences of Indian consumers, hence according to ICRA these three oils will continue to account for the bulk of edible oil consumption in the country [4]. The branded oil industry in India is annually growing at the rate of 20%, with sunflowers and soy oils leading the market [3]. The olive oil industry in India is small and largely people use it more for cosmetic purposes than for cooking. High end customers and highly health conscious people with high disposable income are moving to better cooking mediums like Olive oil. Olive Oil has always been placed somewhere between food and medicine and the biggest challenge is to educate Indian 5
  • 6. Branded Cooking Oils 2011 consumers on the benefits of olive oil as a cooking medium. Today, the domestic olive oil consumption is seen rising 25% annually [3]. The key market players are National Dairy Development Board, ITC Agro-Tech, Marico Industries and Ruchi Soya. Various well known brands in edible oil industry are Sundrop, Nutrela, Dhara, Saffola, Sweekar, Engine, Nature Fresh, Emami- Kachi Ghani, Ganesh etc. 3. Marketing Survey 3.1 Objective The objective of this report is to:  Identify the key areas which affect consumer buying behaviour with regard to edible oils  Analyze the interaction between these areas, and how they affect each other  Derive conclusions that would enable a marketer to make useful decisions in this field 3.2 Methodology Based on the Industry wide analysis available in public domain, we designed a survey in accordance with the objectives above. We conducted our marketing survey under two broad categories: Customers and Shopkeepers. The survey for customers was carried out by two sub-groups, one in a lower-middle class neighbourhood and one in a relatively affluent neighbourhood. We procured data from around 40 customers in each segment (83 overall), as well as 15 shopkeepers. Although the line between the two segments is quite blurred, the data we got gives a reasonable indication of the differences in preferences between two different sets of people. The questions for consumers were based around  their specific preferences in terms of brand names  why they chose those brands/what led them to the brands  a measurement of their willingness to switch to other brands The questions for shopkeepers were designed to identify  The influence of shopkeepers over consumer buying behaviour  Buying pattern and SKU preferences of customers 6
  • 7. Branded Cooking Oils 2011 We also procured data from 20 customers from southern India to highlight the differences between buying preferences of these two regions. Although the sample from southern India is small and homogeneous in socio-economic background, the data, especially from shopkeepers, is very detailed. This provided some key insights into reasons behind retailers’ behaviour and its effect on consumer buying behaviour. 3.3 Limitations The results of our survey are likely to affected to an extent by these limitations  Geographical limitations: Most data is procured from the city of Kolkata. The results are pertinent to urban areas of East India.  Sample Size: The sample size of 83 may not properly capture the preferences of different socioeconomic classes accurately. 4. Consumer behaviour analysis and influencing factors 4.1 Customer Perceived Value Customer Perceived Value is defined on the basis of a cost-benefit analysis among various factors which vary in the degree of importance from product to product and among consumer segments. The group holds the following three components of Total Customer Benefits as the main product based influencers in the customer’s decision to purchase branded cooking oil: 1. Economic: Price 2. Functional: Taste, Purity, Perceived quality 3. Psychological: Health benefits (intangible) For the Low Income Groups, economic costs were established to be of highest importance. As the income level increases, preferences are more and more determined based on Taste, Purity and Health benefits. Refer to Exhibit 2 The main component of the total customer cost while determining CPV was recognised to be monetary costs, especially for the low income groups. The analysis for the same is provided here forth. 4.2 Customer Value Analysis 7
  • 8. Branded Cooking Oils 2011 4.2.1 Most valued attributes and benefits The group approached customers with questions regarding the attributes and benefits they look for in a product while choosing a particular brand of cooking oil. The following attributes were found to be predominantly explanatory of the buying behaviour: 1. Health Benefits 2. Price 3. Taste 4. Quality 5. Traditionally used Importance of different attributes Based on data from our customer insights survey conducted among different income group areas of Kolkata, the group came out with the following results as to what extent the customer buying behaviour is affected by particular factors: Refer to Exhibit 2 As seen in Exhibit 2, health and price are the two most important attributes on average with 39%and 31% people rating it as the most valued attribute respectively. In the high income group, almost half (47%) of the respondents rated health benefits as the prime factor as compared to 31% of low income respondents whereas low income group gave more importance to price (42%). Thus, price on the whole turned out to be the second most important factor in total. Hence, a brand offering more health benefits or claiming to have more health benefits will be preferred more by high end consumers. These health benefits could be because of blending certain oils or essential vitamins or fatty acids present in the oil. Price and taste will be secondary factors for them and will not influence their buying decisions much. As most of the high income people don't do much of the physical work (both men and women) and usually have higher stress levels in their live. Hence, health factor is more important for them. Further, according to Maslow's hierarchy theory they are kind of achieving security needs. They are not just satisfying their primary need which is food. 8
  • 9. Branded Cooking Oils 2011 High income consumers have found to be less loyal. As these consumers are more educated, aware and health conscious. Hence they can spend more on their health and thus look for better options in the market. For low income low income consumers price is the key driver of their purchase. Rest are secondary factors for them. Hence, they will buy their oil from the company which is offering it at the lowest price. Group thinks that over time with increasing income, rising standard of living and awareness of products available will make these people less sensitive to price. With the hue and cry about heath by various NGOs may influence their decisions and they may start valuing health benefits, taste and purity over price. In nutshell higher income segment was thus found to have more health, taste, purity based preferences, while the lower middle income segment was bound by economic constraints and hence price considerations. Therefore the group contends that relative values of importance attached to different factors change over time and should be constantly monitored. 4.3 Total Customer Satisfaction and Brand Loyalty Analysis Total customer satisfaction after a purchase depends on the product’s performance in relation to the buyer’s expectations from the product. If the product performance meets or exceeds the buyer expectations, the buyer is accordingly satisfied or delighted. It is in this context that the group checked for consumer responses regarding their expectations. Branded cooking oil is a fast moving consumer good which has high rate of repeat purchases. Hence, if a customer is not satisfied with the product he/she can easily switch brands. So, it will be very difficult for a company to retain customers unless their expectations are being met consistently. It was found that the expectations of consumers are based on the benefits outlined above. The above list of attributes contains both tangible attributes like price, quality, taste, as also intangible attributes like health benefits. It is difficult to measure intangible attributes. Therefore the group contends that marketing activities should be focussed on influencing the perception of the customer in addition to maintaining product quality in meeting customers’ expectations. 4.4 Measuring Customer Satisfaction Analysis of customer satisfaction yields important results regarding extent of customer retention and loyalty attained by the product. Since a reverse causality exists between customer retention and 9
  • 10. Branded Cooking Oils 2011 satisfaction, a product’s customer retention in the range of over 10 years would signal high satisfaction with a product. Refer to Exhibit 4 As per the exhibit 4, 39% of the total survey sample was found to have been using their current brand of oil for more than five years and another 47% were found to have been using it for a period of 2 to 5 years. This implies a high amount of customer loyalty and retention which is because of satisfaction levels achieved by using their respective brands. 4.5 Major External Factors influencing Consumer Behaviour 4.5.1 Cultural Factors Cultural factor is one of the key influences in consumer behaviour as eating habits and thus usage and availability of different types of oils differ across regions and cultures. This affects the preference at a basic level and is a dominant driver of demand for traditional products. In terms of cooking oil, the group discovered in the consumer survey that mustard oil is widely consumed (41% of total households surveyed were using mustard oil) across different income households in Kolkata. Likewise groundnut oil is widely consumed in Andhra Pradesh (Exhibit 9) as they are required in most traditional recipes of these regions. Also a deviation was observed from the effect of cultural factors among the high income group only 18% respondents used mustard oil as opposed to 52% of low income group. This was found to be affected by health concerns for the family in the high income groups and therefore sunflower oil is been predominantly used (43%), while the low income group is driven more by other factors. 4.5.2 Personal Factors 1. Age and stage in life cycle: A clear indication from probing on brand selection and change of same over time has been that people although guided by television advertisements, and to a small extent word of mouth, were very much influenced by their age and age dependent ailments in choosing a brand over another. Most importantly, the focus on health benefits has been majorly reflected in the high age group. 2. Economic circumstances: The extent of importance of price as an attribute in purchase decision making is guided by economic circumstances of consumers. According to the survey of different income groups, the low income groups were found to be very sensitive to price in deciding the brand. 10
  • 11. Branded Cooking Oils 2011 5. The Buying Decision Makers 5.1 Buyers and Users The head of the household, in this case the male earning member, has been found to generally take the final decision for the purchase at the point of sale and thus externally affects the choice of Oil Brand. It was a hidden insight in the survey that the females although tended to decide which ‘kind’ of oil shall be purchased but in general did not bother about or did not have a say in which particular ‘brand’ was bought. 5.2 Influencers The other family members have been found to influence which attribute gets preference in deciding the Brand and Type of Oil would be purchased. As noted previously, older members in the family implied more health consciousness in oil purchase. Younger members (mostly middle income group households) implied more importance to the taste attribute. 6. The Five Stage model As a conclusion, the group proposes the Consumer Behaviour Analysis can be structured as per the Five Stage Model. 6.1 Problem recognition The consumer is in general aware of the Need and the Drive to purchase has been established as well. This is evident from the fact that the product is very frequently bought. 6.2 Information search For almost all the consumers, information search happens through TV ads (64% respondents reported to having gained primary and secondary information from Television). In case of new or better quality products the survey indicated that Word of Mouth also played an important role (22% of respondents). 6.3 Evaluation of Alternatives Some people do a continuous evaluation. While some consumers mentioned first using different products before deciding on their current one, brand loyalty in general has been high (46% expressing flat unwillingness to switch to a new offering and another 29% expressing doubt at best). Refer to Exhibit 5 11
  • 12. Branded Cooking Oils 2011 6.4 Purchase Decision As outlined, the different criteria used to evaluate a product intermingle with the Economic and Personal Background (Health and Age) as well as Social and Cultural standing of consumers to yield a purchase decision. 6.5 Post Purchase Behaviour Post-Purchase satisfaction and positive word of mouth are reflected in customer retention. At the same time price elasticities vary depending on the consumers’ income level and personal factors and it has been discovered that customers would switch to a cheaper variety if provided similar quality. Refer to Exhibit 4 & 5 Before moving ahead, it must be reinstated that the findings are reflective of Eastern Indian Urban setup. 7. Influence of marketing communications As mentioned in the exhibit 3, the most important marketing communication channel for branded cooking oils is TV advertisement and word of mouth. In total 64% of consumers get aware of brands by TV advertisements and 22% got aware by word of mouth. As, cooking oil is a consumer product which is used daily and is bought quite often hence continuous advertisements should be used to maintain the customers top of mind awareness. As, people are becoming more health conscious and related issues are discussed quite often with friends, family and people. 8. Analysis of marketing mix variables 8.1 Product  Value: The data related to rationale and pricing points out very clearly that value or perceived value of the offering/product was one of the major considerations for buying and a strong indicator of the consumer’s psyche.  It is therefore imperative that the product offers value both in terms of price and quality.  Both aspects of value – quality and price have been dealt with in detail in the following analysis. 12
  • 13. Branded Cooking Oils 2011  Quality: Product quality has an overbearing influence on the buying patterns of a large portion of society. The correlation is very strong when it comes to high and middle income families as expected but it is surprising to see that the correlation is almost equally strong for lower income groups.  This can be attributed to the fact that with television, even the masses are exposed to advertisements and understand the need for an element of health in the oil that they use. Marketers need to understand this paradigm and channelize their efforts towards healthy oils as we believe this segment is bound to become one of the largest, with both the classes and masses moving into this category.  Packaging: It is evident from pricing and SKU volumes data that individuals and small households prefer a 1L packaging. The reasons for this are two-fold: 5L packs are as expensive as 5x1L packs; Consumers have doubts related to spoilage of the oil when stored over long periods of time.  The above data in no way indicates that 2, 5L SKU are not selling. Restaurants, institutions and joint families have a higher consumption rate and buy more. 8.2 Price  Loss Leadership – Data collected from Modern Retail chains pointed to a strong fact that edible oil is one of those commodities that falls under the high volume, low margin items. Margins in modern retail stores are generally sacrificed for bundling multiple products and pushing higher volumes and larger SKUs through.  Value Pricing – From the pricing data of different brands and consumer preferences related to prices it can be inferred that although product quality is the major factor affecting price, the brand’s position in the market also has a role to play.  Different brands offering almost similar benefits are priced differentially, based on regional and local preferences. Some local brands are able to command a higher price and demand than national brands – a clear case of price skimming by market leaders.  Also some established brands provide very high quality at non-premium margins to provide maximum value to loyal customers, ensuring high volumes and profitability.  Product Quality Pricing – This is the most important factor for pricing the product. This is evident from the fact that better quality oils sell at higher prices than lower quality oils.  There is a definite exodus from non branded, lower quality oils into branded, higher quality oils and marketers can extract maximum consumer surplus by simply offering a higher quality product. 13
  • 14. Branded Cooking Oils 2011 8.3 Place  Edible oils account for a very large volume and thus are found almost everywhere. From small kirana stores, to retail shops, to wholesalers.  Wholesalers mainly serve retailers and large institutions like hotels, hospitals, educational institutes and other residential institutions. A few notable differences from retail outlets here are: Larger SKUs are typically more fluid and they do not stock every brand and variant.  Modern retail stores are a stark contrast to the wholesale outlet in terms of the options available. Every SKU and every variant of oil is present in decent quantities so that every customer meets his needs. 8.4 Promotion  Special offers–Brands, both in their infancy and mature stages, often resort to special offers and sales promotions to provide an impetus to sales for a given region/time period. These offers may include limited stocks of discounted packs or additional free volume. Although there is no data to support this observation right now it is well observed that some consumers may switch brands for that singular period to avail of the ‘10% extra’. As we all know and is well documented - Everyone loves a good discount .  Advertising– Like any other product Advertising in Televisions is very important for reaching a large number targets. Another important fact we observed is that most of these advertisements are aired on primetime television with house-makers being the target.  The advertisements are quickly moving towards portraying the oil to be a major contributor in making a family healthy and happy.  Free gifts–Freebies are a major draw in selling a multitude of products in the consumer segment but not so much in edible oil. A free gift may not induce a non-user to buy or a user to increase consumption but just like a promotion it is interesting to note that a few correspondents were open to switching brands and sacrifice loyalty for once if two offerings were different only due the free gift.  This can be used as a very important tool in the hands of marketers in introducing new customers to give their product a chance and subsequently prove itself. 8.5 People  The company making the oil does not directly interact with end consumers and do not influence buying patterns much. 14
  • 15. Branded Cooking Oils 2011 8.6 Physical Evidence  The oil is the physical evidence in itself. 8.7 Packaging  A basic necessity, the packing of typical oils did not attract much attention from consumers.  Luxury oil: Certain packages like that of virgin olive oils did elicit a certain positive response from a few correspondents. An aesthetic looking outer package gelled better with the sophisticated image linked to an extra virgin olive oil. 15
  • 16. Branded Cooking Oils 2011 Exhibits Exhibit 1: Preferences for types of edible oil Mustard 6 33 39 HMC LMC Total Sunflower 14 14 28 Sunflower 18% 18% Groundnut 43% Others 5 3 8 LMC Soya 21% Soya 7 11 18 Mustard HMC 15% Groundnut 1 2 3 Sunflower 5% Groundnut Soya 3% Others Mustard 52% Others 22% 3% Total Mustard Sunflower 8% Groundnut 19% 41% HMC: Higher Middle Class LMC: Lower Middle Class Soya 3% Others 29% Exhibit 2: Factors affecting the choice of edible oil HMC LMC Total 7% Tradition 11 3 13 Taste 2 9 11 Health 17 14 31 Price 6 19 25 HMC LMC 17% Tradition 20% 31% Taste Taste 42% Health Health Price 31% 5% 47% Total 31% 16% 14% Tradition Taste Health 39% 16 Tradition Price Price
  • 17. Branded Cooking Oils 2011 Exhibit 3: How customers came to know about this brand TV 21 23 44 HMC LMC Total Magazine 2 3 5 LMC WOM 6 9 15 HMC TV 6% 9% Magazine WOM 24% WOM 66% 6% Total 7% TV Magazine 19% POS 62% 8% POS 3 2 5 POS TV Magazine 22% WOM: Word of Mouth POS: Point of Sales WOM 64% 7% POS Exhibit 4: Number of years since last brand switch <1 3 2 5 LMC HMC Total 8% 1 to 2 0 4 4 2 to 5 11 19 30 >5 23 2 25 <1 HMC LMC 1 to 2 7% 8% 2 to 5 15% <1 0% 1 to 2 2 to 5 >5 30% 62% 70% 8% Total 6% 39% 1 to 2 2 to 5 >5 47% 17 <1 >5
  • 18. Branded Cooking Oils 2011 Exhibit 5: Willingness to switch brand, given a cheaper option of similar quality HMC LMC Total Yes 2 15 17 HMC No May be 13 7 20 Yes 8% No 11 21 32 LMC 16% 35% May be 50% Yes No May be 42% 49% Total Yes 25% No 29% May be 46% Exhibit 6: Brand preferences of consumers HMC LMC Total Saffola 11 5 16 Nature Fresh 4 3 7 Sundrop 7 12 19 Emami 2 1 3 Fortune 4 6 10 Exhibit 7: Preferences in terms of branded or non-branded oil HMC Branded 22 18 Non-Branded 0 LMC Branded 21 Non-Branded 4 Engine 2 7 9 Others 1 11 12
  • 19. Branded Cooking Oils 2011 References: 1.http://fcamin.nic.in/dfpd/EventDetails.asp?EventId=561&Section=Edible%20Oil&ParentID =0&Parent=1&check=0 2.http://fcamin.nic.in/dfpd/EventDetails.asp?EventId=562&Section=Edible%20Oil&ParentID =0&Parent=1&check=0 3. www.indialawoffices.com/pdf/edibleoilsindustry.pdf 4. www.icra.in 19