Marketing

Marketing Concepts 1
• geographic domain Each objective should meet the
Doing it Right • core technologies used following basic criteria:
Marketing is a general term used to • commitment to survival, growth Suitable: Do they fit with the corpor-
describe all the steps that lead to final and profitability ate mission?
sales. It is the process of planning and • key parts of the company’s Measurable: What will happen
executing pricing, promotion and philosophy and when?
distribution to satisfy individual and • company self-concept Feasible: Are they possible to
organizational needs. • company’s desired images achieve?
From this definition it is easy to see Do not expect a mission statement to Acceptable: Do they fit with the values
that marketing is more than just the be developed quickly. It generally takes of the company and the
process of selling a product or service. various revisions before a complete employees?
Marketing is an essential part of mission statement is written. Flexible: Can they be adapted and
business, and without marketing, even changed should unforeseen
the best products and services fail. Stage 2: Overall events arise?
Companies constantly fail because Motivating: Are they neither too
they do not know what is happening in
Company Objectives
Once a mission statement has been difficult nor too easy to achieve?
the marketplace and as a result, they are Understanding: Are they stated
created, the company can develop
not fully meeting their customer’s simply?
objectives. Objectives are specific goals
needs. They mistakenly believe that Commitment: Are people committed
to be achieved by the business. They
with the proper amount of advertising, to doing what is necessary to
are plans that will help a company
customers will buy whatever they achieve them?
move toward the mission statement. A
are offered. Participation: Are the people
business normally creates both one- and
Marketing consists of making responsible for achieving the
three-year objectives. Examples of
decisions on the four P’s: objectives included in the
company objectives are:
• Product objective-setting process?
• To earn at least 20% after-tax rate
• Place/Distribution Companies need to ensure that they
of return on our net investment
• Promotion do not set too many objectives. When
during this year
• Pricing too many objectives are set, the
• To make our cookies the best
Before a business owner can make company runs the risk of having
selling cookies in terms of units
decisions on the four P’s, he/she must objectives contradict and interfere with
sold in Kansas
devise a plan. A plan provides a each other.
business with guidance on making Types of Objectives
decisions. This chapter includes 1. Profitability Stage 3:
directions on how to devise a plan that • Net profit as a percent of sales
will assist in making decisions about
Competitive Strategies
• Net profit as percent of Once a company has determined
the four P’s. This type of plan is a six- total investment objectives a competitive strategy can
stage process that is commonly referred • Net profit per share of be developed. A competitive strategy is
to as strategic marketing; a strategic common stock developed so that a company can create
marketing plan is an important part of a
2. Volume advantages over the competition.
business plan.
• Market share Examples of creating a competitive
Stage 1: • Percentage growth in sales strategy include:
• Sales rank in the market • offering buyers a standard product
The Mission Statement • Production capacity utilization
The first stage in strategic marketing at a lower price; or
is the development of a mission 3. Stability • making the product different than
statement. A mission statement is a • Variance in annual sales volume the competition on attributes con-
brief description of a company, • Variance in seasonal sales volume sidered important to the customer.
generally no more that a few lines, that • Variance in profitability
Types of Competitive
describes where the company is and
where it wants to go.
4. Nonfinancial Strategies
• Maintenance of family control Overall Cost Leadership
A good mission statement
• Improved corporate image This refers to being a low-cost
should contain:
• Enhancement of technology or manufacturer and should not be
• target customers/markets
quality of life confused with setting low prices. Cost
• principal products/services
1
Adapted from Reference Guide for Kansas Food Processors, Kansas State
University and Kansas Department of Commerce & Housing, July 1998.

leadership can be achieved by: industry sales your company attains. • differentiating the product
• producing on a large scale For example, if a company sells 100 • serving a narrowly defined
• designing products that are easy to units of product, but total consumption target market
manufacture for the good is 100,000 units, the • flankers (new brands designed
• accessing low-cost raw materials market share is 1% (100/100,000). to serve new segments)
• predicting a broad range
of products Stage 5: Stage 6:
• pursuing cost reductions in Marketing Strategies Marketing Programs
production, marketing, research Marketing strategies outline Marketing programs are the
and development, customer exactly how marketing objectives will detailed approaches to the four P’s.
service, and the avoidance of be achieved. For example, if the (products, place, promotion and
marginal accounts marketing objective is to increase pricing). The approach for making
Differentiation market share, the marketing strategy decisions for each of the four P’s
Differentiation involves changing states exactly how the market share should closely follow the mission
the product so it is perceived as unique. increase will occur. A marketing statement, company objectives,
Change can be based on: strategy is a way to give marketing competitive strategies, marketing
• technical superiority orientation to a business by deciding to objectives and marketing strategies.
• quality position a product or service in terms of
buyer needs and wants. Inexperienced Types of Promotion
• customer support services Promotion includes all activities
• the appeal of more value for business people often make decisions
based on what they like or want, designed to inform, persuade and
the money influence people when they are making
leaving the customer out of the picture.
Niche Marketing A marketing orientation brings the the decision to buy. Promotion is made
Niche marketing occurs when a customer into the center of the picture. up of:
product is sold to a small number of The marketing objectives for profits, Advertising
total potential customers. The specialty cash flow and market share can be • non-personal communication
market is often referred to as niche achieved by increasing the number of transmitted through mass media
marketing, since products are marketed users, increasing the rate of purchase,
to a very small group of buyers. Niche retaining existing customers or Publicity
marketing requires the business owner acquiring new customers. The • free promotion through news
to identify customers with similar following are examples of various types stories in newsletters, newspapers,
demands and serve their needs of marketing strategies. magazines and television
extremely well. I. Increase the number of users by: Sales Promotion
Niche marketing implies that a • building willingness to buy • all forms of communication not
company will take a lower overall • increasing ability to buy found in advertising and personal
market share, but possibly with higher II. Increase the rate of purchase by: selling, including direct mail,
profits on the product. Higher profits • broadening usage occasions for coupons, volume discounts,
may be achieved by having higher the product sampling, rebates, demonstrations,
prices or producing at lower costs. • increasing level of consumption exhibits, sweepstakes, trade
• increasing rate of replacement allowances, samples and point-of-
Stage 4: III. Retain current customers by: purchase displays
Marketing Objectives • maintaining satisfaction In designing a promotional plan,
Marketing objectives can only be • meeting what competition offers clearly spell out:
developed after stages one through • developing or increasing • Which objectives to use. It is
three have been completed. Marketing relationship marketing possible to have more than one
objectives are designed to help a IV. Acquire new customers by: objective, but it is recommended
company attain overall objectives. • line extensions (variations of that a company target its audience
The five basic marketing existing products designed for or run the risk of losing focus.
objectives are: existing markets) • What to say
• to achieve a viable level of sales or • leaders (lower prices on certain • Who to say it to
market share products to increase the sale of • Criteria used to measure success
• to increase market share more expensive complements)
• to maintain market share • bundling (selling products - Suggestions for
• to maximize cash flow together, usually at a lower Inexpensive Promotion
• to sustain profitability price than if bought separately) Some inexpensive, appropriate and
Market share is a common term used • head-to-head market dominance effective methods of promotion for the
in developing marketing objectives. It • head-to-head price/cost new food processor include advertising
refers to the percentage of the total leadership through:

• Personal selling • Which promotion is working? Cooperative expenditures should be
• Product demonstrations • Which promotion is not working? examined in the same way as other
• Direct mail • What are the costs of the promo- advertising, public relations and
• Business cards tion compared to the benefits? promotional plans. A program can be
• Yellow Page listing considered weak if the focus is on
• Seminars Various Forms of Advertising generating immediate store traffic
• Newsletters Newspapers through markdown promotions and ads
• Contests Advantages—flexibility, emphasizing savings that could damage
• Flyers community prestige, intense coverage, the brand's quality image.
• Statement stuffers reader control of exposure, coordination Federated Cooperative’s program is
• Window banners with national advertising, a good example of a cooperative
• Greeting cards merchandising service program. In order to take advantage of
• Sports team sponsor Disadvantages—short life span, their program, several criteria must be
• Home parties hasty reading, poor reproduction met:
• Ethnic services—languages spoken • The product must be sold in the
Of course, one of the best free Radio Co-op stores
methods of promotion is good “word of Advantages—immediacy, low cost, • The company must be an
mouth." practical audience selection, mobility established supplier
Disadvantages—fragmentation, • The company must be able to ship
temporary nature of message the product to all Co-op stores
Promotion Objectives
Magazines Although a cooperative advertising
The promotion objectives need to
Advantages—selectivity, quality program can be expensive to the
be clearly stated and measurable. They
reproduction, long life, prestige producer, the benefits can also be
must be compatible with the objectives
associated with some, extra services significant. Cooperative advertising
of the company, as well as the
Disadvantages—lack of flexibility averages around 2 to 5 percent of the
competitive and marketing strategies.
invoice value. However, every product
Objectives vary for different products Outdoor Advertising is different.
and different situations. For example, Advantages—quick communication The value is put toward purchasing
producers must promote differently to of simple ideas, repetition, ability to newspaper ads together with the
brokers than to wholesalers. When promote products available for sale retailer. The ads are usually finalized in
promoting to a broker, the producer nearby December for the following year. Be
must promote what he/she wishes the Disadvantages—brevity of the sure to stipulate that the feature price
broker to present to the wholesaler. message, public concern over esthetics will be set six weeks prior to the date of
When promoting to a wholesaler, the
Television the promotion. Consider an average
producer simply wants the wholesaler
Advantages—impact mass price reduction of 10 percent in the
to purchase the product.
coverage, repetition, flexibility, prestige form of an off-invoice case allowance
There are five general promotional
Disadvantages—temporary nature timed to coincide with the cooperative
objectives to choose from. The five
of message, high cost, high mortality advertising feature.2
types of objectives for promotional
activities are1: rate for commercials, evidence of
Media Rates
• to provide information public distrust, lack of selectivity
Promotional and media costs are the
• to increase demand Direct Mail most difficult to allocate because their
• to differentiate the product Advantages—selectivity and speed, effectiveness is hard to measure in a
• to accentuate the value of intense coverage, flexibility of format, concrete manner. Before looking at the
the product complete information, personalization dollar costs of different promotional
• to stabilize sales Disadvantages—high cost per media, it should be decided:
person, dependency on quality of • which media are most likely to
Promotional Strategy mailing list, consumer resistance reach the target audience
Once the producer has reviewed all • which media suit the product
Cooperative Advertising image
the possible promotional tools, he/she Cooperative advertising should be
must devise a promotional strategy. A • whether any product-specific
looked at as a way to enhance consumer features make one medium more
promotional strategy should address the awareness of a product (or brand) in a
following issues: appropriate than another (i.e., is a
local market under both the brand and visual demonstration necessary?)
• What is the goal of the promotion? the retailer’s name. Think of
• What types of promotion should • what the promotional budget is
cooperative advertising as retailers Common errors to avoid are:
be used? helping to sell a product by paying part
• What effect should the promotion • trying to focus efforts on too broad
of the expense to promote the product a market
have on the customer? in their local market. • allowing the quality of a

promotional piece to lapse in order planned properly and presented well. trade show will provide
to afford more distribution, or lack Several months to a year may be information. Additional materials
of planning and coordination required to obtain a well located booth and information that should be
• no measurement of effectiveness and prepare the appropriate materials requested (if not offered) include:
• relying on one source of media and displays. • a floor plan (preferably with
other exhibitors indicated) so a
Setting Promotional Expenditures Choosing the Trade Show
high traffic area can be chosen.
Market share—A company that has 1. List several trade shows that would
Note: Do not hesitate to pay
a higher market share generally has to be suitable
extra for a good location; the
spend more on advertising to maintain Various directories are available that
whole point is exposure
its share. contain a complete index of trade
• booth specifications, including
Sales from new products—If a shows listed chronologically,
dimensions, lighting, tables,
company has a high percentage of its geographically and by subject. Each
chairs, skirting and any display
sales from new products, it has to spend listing has a phone number of the trade
or sample restrictions
more on advertising compared to show contact. Two sources of Trade
• information on all services
companies with established products. Show listings are:
being offered, such as
Market growth—Companies
accommodations, equipment
competing in fast-growing markets USDA, Foreign Agricultural Service
rental, assistance with set up,
should spend comparatively more Washington, DC 20250
tear down or packing storage.
on advertising. Phone: (202) 720-7115
Note: It is a good idea to exploit
Plant capacity—If a company has a Fax: (202) 720-1727
the services being offered on
lot of unused plant capacity, it should http://www.fas.usda.gov
site, as there are many details to
spend more on advertising to stimulate The FAS home page on the
be concerned with at a trade
sales of product. Internet’s World Wide Web is a direct
show event.
Product price—Both very high- link to information on U.S. agricultural
priced (or premium) products and very trade and export programs, including a Preparation
low-priced (or discount) products list of upcoming trade shows. • Set clearly defined goals for the
require higher ad expenditures because, trade show. This will help in
in both cases, price is an important Trade Show Week development of the presentation
factor in the buying decision. The buyer 12233 West Olympic Blvd., strategy and display.
has to be convinced (through Suite 236 • Set a budget allowing for enough
advertising) that the product is a good Los Angeles, California 90064–9956 personnel, accommodations,
value. Phone: (310) 826-5696 product and travel. If the trade
Product quality—Higher quality Fax: (310) 826-2039 show is out of the country, allow
products require greater advertising for insurance costs, and plan to
effort because of the need to convince “Trade Show Week” contains a spend a day in the host country
the consumer that the product is unique. listing of trade shows in the United before and after the trade show.
Breadth of product line— States, Canada and Mexico (in its • It is advisable to choose
Companies with a broad line of Domestic Edition) and other countries professional design and marketing
products have to spend more on (in its International Edition). consultants to help prepare the
advertising compared to companies materials for the booth. Effective
2. From the list of potential trade
with specialized lines. material can also be prepared by
shows, choose to participate in the
the company – just remember the
Trade Shows one(s) that:
target audience and the image you
Budgeting for a trade show, and • attract the most appropriate
wish to project. Materials will
including this venue in the overall customers, not necessarily the
include:
marketing plan is a highly focused way largest volume of customers
• a high-impact display to attract
to: • will draw an audience from the
the audience
• establish a presence in geographic area the company is
• professionally prepared infor-
the marketplace prepared to serve
mation handouts (Remember,
• gain an overview of the industry • are well supported by others in
the people attending are coming
at present the industry (i.e., if the
to gather knowledge.)
• obtain a list of serious buyers more competition never misses it,
• samples of the product
quickly than would be possible there could be a reason)
4. Prepare the sales presentation.
with a traditional sales approach • are well organized and
Exhibit selling must be polished,
Although trade shows are relatively promoted
brief and convey information. If
expensive, they are widely used in the 3. Obtain all information needed to
the presentation lacks impact, the
food industry. They offer the potential begin preparing for the trade
audience will quickly move on.
for a high return in sales and contacts if show(s). The contact person for the
5. Prepare a system for recording

leads. Several options include: In-Store Demonstrations they will be. Talk to them about
• lead sheets for sales staff Demonstrations, sometimes referred two weeks prior to the demonstra-
• a business card exchange to as product samplings, are an tions, so they will have the product
system effective and inexpensive means to on hand and on the shelves.
• sign up sheet for promote a new or existing product. • Be prepared to work the whole
more information weekend, not just peak hours. The
• a guest book Types of Demonstrations normal run of a demonstration is
6. Ensure everyone at your booth is There are three types of in-store during store hours on Thursday,
well-informed about your demonstrations: Friday and Saturday.
company, its product, prices and • Live demonstrations • The store may want incentives
terms of sale • Mobile demonstrations from you, such as cost cuts on the
• Static display product. If possible, get the store
At the Trade Show Live Demonstrations include a to offer special treatment for your
Staff will be presenting the product staffed area with activity, such as product during the demonstration.
and working with customers the entire simple preparation. They are best with a Be prepared to pay for this
time they are in the booth. Ensure that new product that requires information opportunity.
adequate breaks are given so the quality or answers to questions, or for a pro- • Try to place the demonstration area
of presentations remains consistent. duct that requires special preparation. where the product is stocked.
It is important that the customer One advantage of a live demonstration • During the demonstration, hand out
relate the product to their situation. is that you can encourage the customer simple information on the product
Sales staff should encourage customers to purchase the product. and any coupons.
to handle the product and talk about Mobile Demonstration is a form of • Be unique. Try new ideas, as
their situation so the most relevant live demonstration that occurs when a you must stand out from the
points about the product can be demonstrator walks through a store competition.
presented. Encourage customers to take offering samples. The demonstrator • Know the competition, but do not
information and samples: Just because usually has a base operation near the downgrade them during the
the materials are there does not mean product sales display. Not all stores demonstration.
they will be examined. allow for this type of demonstration. • Demonstrations normally do not
Follow up Static Display provide access to a very wide
Be sure to prepare a plan for follow- Includes an area displaying the market and, consequently, are only
up before the trade show, with product and offering unattended used as one segment of a marketing
deadlines for re-contacting interested samples. One advantage of a static and promotional package.
parties. Follow-up should be display is that they are cost effective.
immediate, and it is best to let Coupons
One disadvantage is that there is no
customers know in advance when and Coupons can be an effective way to
control on how much sample is used or
how they can expect to be re-contacted. increase sales and profits, but there are
on the purchasing decision. This type of
certain costs to consider:
demonstration requires consumer
• costs of physical distribution,
familiarity with the product.
Publicity mailing, placing advertisements
Publicity provides free advertising Steps in Planning Demonstrations and paying the retailer a handling
for the producer through news stories in • Determine what type of charge for redeeming the coupons.
newsletters, newspapers, magazines and demonstration you are going to • reduced contribution margins
television. Publicity can be attained by use. associated with the fact that
sending a media release to radio, • Decide which stores you are going coupons are price reductions.
television, newspaper and magazine to target. • coupons will be used by new
offices. A media release is a one-page • Choose a store that stocks customers as well as existing
letter identifying a newsworthy event your product. customers who would have bought
and outlining the who, what, when, • Find out the store policy on setting the product at the regular price.
where and why of the story. A media up in-store demonstrations. Every Any printer can print coupons.
release is appropriate to announce the store has different policies. Managers must estimate various
start-up of a new business, introduction • Decide if you wish to hire a rates to determine the effectiveness of a
of a new product, or any other success demonstration company or if you coupon promotion. The estimations
story related to the company. The will do it yourself. Consider time, could be based on past performance or
media will publish or announce the energy, ease of demonstration and on experiments that run coupons in one
story as a news item and, consequently, budget when making this decision. city or in one part of a city. These rates
there is no expense for the processor. • Talk to the store managers. The include:
Publicity is one of the most effective better the relationship you have Redemption rates: the percentage
and least costly means of advertising. with them and the better they know of buyers responding to the incentive.
your product, the more cooperative Displacement sales: sales made

during a promotion that would and tabulated from retailer, retailer Target pricing is where a company
otherwise have been made to regular clearing house, or billing agent. studies the competition and the
buyers at the regular rate. • Verifies retailer, checks coupons customer to identify a point where the
Acquisition rates: non-regular and reimburses retailer or retailer product must be priced to be
buyers who purchase the product during clearing house. competitive. Once the target price is
the promotion. • Sends coupon redemption report to identified, the company identifies a
Stock-up rates: sales made during manufacturer with invoice. desired profit and works backward to
a promotion that are borrowed from Provides complete audit of moneys calculate cost at which the product must
future periods because the customer received from manufacturers and be produced to meet the profit and
stocks up on the product at the paid to retailers. target price. These calculations must
discounted price. take into account the target profit
Retailer Clearing House
Conversion rates: the conversion of margin, price reductions for retailers,
• Performs coupon accounting
nonregular buyers into regular buyers. costs of promotion and future
service for retailer’s account-
To estimate the effect on distribution costs.
ing department.
profitability, one must: This is the reason that pricing is the
• Receives, unsorted and uncounted,
• estimate the increased contribution last of the four P’s to be covered. To
all coupons accepted by retailer.
from incremental sales to properly calculate the costs incurred by
• Sorts, counts, and tabulates.
new buyers a company, include present and planned
• Bills out to applicable manufac-
• estimate the reduced contribution activities for distribution, promotion
turers or agents.
from displaced and stock-up sales and product development.
• Reimburses retailer, deducting
• subtract the direct costs of the
service fee per coupon, plus any Pricing Strategies
sales promotion
shipment adjustments. Pricing strategies specify the role
Coupon Distribution Retailer Billing Agent of price in implementing marketing
Coupons can be distributed in a • Performs coupon accounting strategy. It states what the company
variety of ways. The most common service for retailers. wants to achieve by setting a particular
vehicles for issuing coupons are:3 • Receives, unsorted and uncounted, price. Pricing strategies are not
all coupons accepted by retailer. necessarily mutually exclusive.
Products:
• Sorts, counts and tabulates. Price strategies should be
• In- or on-package self
• Bills out to applicable manufac- determined for each marketing strategy
• In- or on-package cross
turers or agents in the name of set by the company and must be
• Instantly redeemable
the retailer. consistent with distribution and
Media: • Invoice retailer service fee promotion strategies.
• Newspaper per coupon.
• Free standing insert Pricing Programs
• Flyers Value Pricing Pricing strategies are arrived at
• Magazine Pricing is much easier with one through various pricing programs
• Direct mail (solo, co-op or product than with multi-products. such as:
selective) When a single good is being produced, Penetration Pricing
all fixed costs associated with the • a low price to stimulate demand.
In-store:
business are applicable to that one
• Shelf pads (or shelf dispensers) Used when
product. When several products are
• Handout (with product • lower prices result in overall
produced, fixed costs must be applied
demonstration) increased growth in the market or
proportionately to the various goods
• Entrance (crew handout or self- increased demand for the
according to use.
serve dispenser) company’s product
Many companies want to have both
• Cash register (bag stuffers, cash • the company sells higher margin
extensive marketing programs and the
register tapes) complementary products that are
lowest price. In most cases this is not
• Electronic coupons printed in-store being pulled along with the sale
feasible. The money for the marketing
There are three organizations that of lower priced products
programs must come from the con-
can help the handling of coupons. The • the company enjoys economies
sumer and this is not always possible
following is an outline of the services of scale
with low prices.
performed by redemption agents, • competitors have high-
Traditionally, companies have used
clearing houses and billing agents. cost structures.
costs as the basis for setting prices, with
Manufacturer’s Redemption Agent no regard as to the value a customer Parity Pricing
• Performs coupon redemption places on a product or how competitors • setting the price near or at
service for manufacturer’s are pricing. A market-driven company competitive levels, and using
marketing department. will “price on value, knowing costs.”4 other marketing variables to
• Receives coupons sorted, counted, This is known as target pricing. implement strategies

Used when Contribution Analysis PVCM = selling price-variable costs
• total market volume will not grow Contribution analysis studies how selling price
with lower prices the final selling price will contribute to
• competitors can easily match any fixed costs. Ideally, a product would PVCM shows which products
price decrease cover all the fixed costs and contribute contribute the greatest amount to
a new profit, but this does not always overhead and profit for each additional
Premium Pricing dollar spent to increase sales.
happen. Many products in a company’s
• setting a price above competi-
business only cover their variable costs Setting Prices
tive levels
and part of the fixed costs. A company
Two tools that are important for
Used when must decide if these products are worth
setting prices are:
• a company can differentiate a continuing (i.e., whether the product is
• break-even analysis
product in terms of higher quality necessary to the product line). Fixed
• cost-volume relationships
or special features costs exist whether the product is
• a company has little excess produced or not. The question that must Break-even Analysis
capacity and where it is difficult be answered: "Is it better to produce a Break-even analysis can be used as
for competitors to enter the product that pays for itself and part of a tool for initially setting a product’s
industry the overhead, or do nothing (i.e., not price or for calculating the effects of a
produce it) and cover none of the price change. It helps the owner/-
Monitoring Costs overhead?” manager understand that for certain
A multi-product company cannot get If a company has excess capacity, it prices, different levels of production are
the information it requires from the would be better to keep the products required to break even (i.e., covering all
conventional profit and loss statement. that are covering only part of the costs. variable and fixed costs).
Instead, it needs to track costs for the If capacity is full, selling a product with The break-even point is where total
company and for each product. Without low or negative total contribution may revenue equals total cost. Below break-
product-specific information, it cannot not be advisable. If resources and sales even, losses are incurred. Above break-
tell which products are doing well and are going to the low-contribution even, profits are realized.
which need additional marketing product instead of higher contribution “Sunk” costs, such as research and
support. products, a company is not maximiz- development, should be ignored. Use
To gather all the relevant ing profitability. equipment depreciation, rather than
information, a company needs to track Salaries can be split according to deducting full equipment costs.
two types of costs: hours spent on a product or some other Cost-Volume-Profit Relationships
• Variable costs (direct costs of reasonable basis. Rent and utilities can Economies of scale measure the
manufacturing): costs specific to be split on the basis of volume impact of changes in volume on fixed
the manufacturing of the particular allocation. costs. In many cases, a company’s
good or service under scrutiny (i.e., Company advertising and general ability to increase the volume of output
labor, raw materials and supplies) and administrative overhead cannot be allows them to decrease the per unit
• Fixed costs: ongoing costs that allocated to specific products, so are cost.
occur whether a business is shut non-traceable fixed costs. The experience curve effect is where
down for a period of time or in full Determining which products should variable costs decline as volume
production (i.e., depreciation, receive additional support becomes increases. This can cause better results
insurance, taxes, selling and clearer after we calculate the percentage from increasing the volume of products.
administration costs, utilities, and variable contribution margin.5
other costs)
Table 1: Break-Even Analysis

The following table shows an example of a break-even analysis for five different prices of one product.

Unit Selling Price $21.95 $23.95 $25.95 $27.95 $29.95
Unit Variable Cost $ 7.95 $ 7.95 $ 7.95 $ 7.95 $ 7.95
Unit Contribution(A) $14.00 $16.00 $18.00 $20.00 $22.00
Estimated Sales 27,500 27,500 25,000 20,000 18,000
Revenue $603,625 $646,650 $648,750 $559,000 $539,100
Fixed Costs(B) $400,000 $400,000 $400,000 $400,000 $400,000
Variable Costs $218,625 $214,650 $198,750 $159,000 $143,100
Profit (loss) ($15,000) $ 32,000 $ 50,000 $0 ($4,000)

Break-even (units)(C) $28,571 $ 25,000 $ 22,222 $ 20,000 $ 18,182

Experience curves may be due to:6 retail price working back, rather than processor must build in anticipated
• more efficient production from the cost working up. As a rule of costs, which will be invoiced to the
processes thumb, retailers’ margins average company at year-end for the rebate,
• higher discounts due to greater around 30% with distributors’ margins based on the processor’s total sales to
volumes of purchases being as high as 30%, depending on the food service distributors.
• workers becoming more efficient what services are being provided. The processor should not jump into
Calculating Mark-Ups The approach is similar when a volume rebate schedule without first
dealing with food service distributors calculating the impact of the increased
When setting prices, companies
such as Associated Food Distributors, volumes in the form of lower per-unit
must take into account their own costs
but with allowances made for volume costs. Many processors offer a volume
as well as the various mark-ups
rebates. Volume rebate schedules are rebate schedule that reduces profit
required as a product moves toward the
stepped with higher volumes, which ability because the volume rebate is
consumer. In the food business, mark-
means a higher percentage volume greater than the cost savings of the
ups are usually calculated from the
rebate is payable by the processor. The increased output.

Table 2: Cost-Volume Relationships

Product 1
2000 Units 4000 Units
Unit Variable Cost $40 $40
Total Variable Cost 80,000 160,000 Break-Even Total Fixed Costs (B)
Total Traceable Fixed Costs 240,000 240,000 ═
Total Direct Cost 320,000 400,000 Point (C) Unit Contribution (A)
Divided by Volume 2000 4000
Average Unit Cost $160/unit $100/unit
Increases in volume have the greatest impact on products with high PVCM because
most of the costs are fixed for these products.

Other features of the marketing 4. Floor stock protection is a References
program to consider when setting contentious area whereby the store
prices: asks that any downward adjustment 1. Beckman, M. Dale, David
1. A minimum delivery size is set to in price apply to the whole- L.Kurtz, and Louis E. Boone.
capitalize on freight. Minimum saler’s/retailer’s inventory of a Foundations of Marketing. Fifth
Order Size for freight prepaid product. Most processors do not Canadian Edition. Dryden Canada.
shipments is 2300 pounds or more. offer floor stock protection in the Toronto, On. 1992. p. 480)
An industry standard for minimum belief that it is up to the store to 2. Alberta Agriculture. Marketing
order size is 30% contribution.. control its inventory. Food In Alberta: An Access
2. New Store opening. In the case of 5.Some businesses charge prices Directory. p. 43.
a new store or a change of according to “rules of thumb,” 3. An Industry Guide to Couponing
ownership, 15% off invoice for a such as price is twice labor plus Practices. FCPMC and CCGD.
period of seven days, with a case materials, or price is materials and January, 1991. p. 5.
allotment of 15 cases per checkout. labor plus 20% for fixed costs and 4. “Pricing-Think Value Not Cost”,
3. “Deal prices.” It is important to 25% for profit. These methods for The Best Readings from Business -
recognize that “deal” periods are setting prices are not Marketing—Views from the
set by retailers in December, so the recommended, as calculating actual Trenches, PWS–Kent Publishing
processor has to have the year’s costs is the only sure means of Company: Boston, MA. p. 225.
promotion program agreed to by ensuring that prices cover costs. 5. Guiltinan, Joseph and Gordon
the store prior to December 31 for Paul. Marketing Management, -
the following 12 months. Most Strategies and Programs, Fourth
processors have some type of Edition. McGraw–Hill; Toronto,
maximum order volume to avoid Ontario. p. 226.
the wholesaler/retailer stocking up
on the product while “on deal.”

success and failure. Income levels
What Needs to be Done The marketing manager should Different customers have different
Marketing is the transferring of concentrate on marketing plans that will income levels, tastes and preferences
goods from producers to consumers. best serve the company and reach the for products. Some may consider
Marketing a new product may seem most consumers, because these are the a product essential, others,
simple, but actually finding consumers centerpieces of the marketing process. conspicuous consumption.
to buy the product and getting it to A good marketing plan should identify
them requires marketing managers to problems or hurdles to overcome and Number of market outlets
overcome many hurdles. Some of these collect the kind of information needed The number of market outlets is the
hurdles, such as the market structure, to solve them. number of places consumers can
cannot be changed but must be purchase the product, whether in one
understood; others simply require time Marketing Structure large store, many small ones, roadside
and hard work to overcome. A successful study of the marketing stands or mail order.
One of the first issues managers or structure must include a marketing plan
owners must decide is which area is specific to the product and the market
best suited to their interests, share goal. A market cost feasibility Participants in the
experiences and expertise. analysis should be formulated. This
information should be used to
Marketing Process
Production determine production practices, Many firms are involved in the
Production is developing new changes in the products, if needed, and marketing process. This section focuses
products or modifying existing ones, where products should be sold for the on who is involved. There are a variety
organizing production schedules, and greatest return. of middlemen and organizations who
keeping equipment operational. It An assessment of the current specialize in performing various
includes buying decisions about business environment also is required. marketing functions. There are no
equipment, whether to buy new or used, Although the business environment limits as to how they are organized.
and what equipment is actually needed of a particular area may be beyond the There are several types of middlemen:
to produce the products. control of local managers, it needs to be Wholesalers
understood, because it often influences Wholesalers sell to retailers, other
Marketing
the type of marketing organization wholesalers and industrial users, but do
Marketing involves collecting
required for success. not sell in significant amounts to
information, analyzing alternative
An understanding of customer ultimate consumers. There are two
market outlets, developing different
requirements, including the following, main kinds of wholesalers.
product forms, pricing products to
is needed.
compete in the marketplace, deciding Agent wholesalers
the scope of the proposed market area Market territory Agent wholesalers can act as
and meeting consumers’ needs at the The physical locations where the representatives of their clients. They
right prices. product is going to be sold must be also can provide access to market
decided. It must be determined territories that would be available only
Procurement
whether it is local, national or if the producer expended additional
Procurement is contracting with
somewhere between. time and cost. This activity requires a
sellers of inputs, maintaining an
great deal of specialization, and they
adequate supply for production and Population concentrations charge fees for these services. For this
scheduling deliveries to the local plant. There have to be enough people
fee, however, they can help locate
within a market who will buy the
Labor management alternative buyers, locations, prices,
product on a timely basis. It is easier to
Labor managers hire and supervise products, and various retail market
sell a given level of production
employees to obtain optimum outlets. In addition, some may
throughout the year in urban areas
production and maintain good specialize in a certain kind of product,
where there are many different types of
working relationships. in different market locations, or in a
consumers. In rural areas, a greater
It is difficult for one person to large number of different products.
percentage of people will have to buy
satisfactorily do everything, such as
the product in order to sell the same Merchant wholesalers
making decisions concerning Merchant wholesalers buy and sell
amount. A major factor in selling
production, marketing, procurement for their own gain based on their
products is how many times a year the
and labor management. Without knowledge of the market situation. For
product will be purchased: once a day,
concerted effort and attention to all example, they buy directly from
week, month, or year. The fewer times
details, the chances of success are processors and sell products to retailers,
a product is purchased by a specific
lowered. A management decision to other wholesalers, and industrial users.
consumer per year, the more buyers
organize production and separate They usually specialize in similar types
needed.
marketing activities for each new of products in which they have storage
product is often the difference between

and transportation investments. producers need to understand the of thousands of products, from luxury
pitfalls of producing too few or too items to basic necessities. They have
Brokers many products. many different traditions and tastes,
Brokers act only as representatives ranging from ethnic to generic
for their clients. Brokers’ incomes are Surplus products. Consumers affect production
from fees and commissions and are Too many products at a given price decisions every day.
payments for their knowledge of market in a certain market location are called Consumers are the final buyers and
outlets and contacts. Brokers do not surplus and will lower income users of products. The intent of any
assume physical control of the potential. Consumers may consider business is to make and sell a product.
products. They follow directions of buying the surplus at a lower “sale” The manager must do the following.
each principal and have less discre- price. This is a signal to producers to • Make it in the form that
tionary power in price negotiation. send fewer products to that location. consumers want.
Commission people Shortage • Make it when consumers want it.
Commission people usually control There is a shortage when consumers • Sell it in places where consumers
the physical handling of the product, want to purchase more products than want it.
moving it from one location to another. are available at specific locations. • Sell it at prices consumers are
They arrange for the terms of sale and When this happens, consumers who willing to pay.
collect money from the buyer for the want the products are usually willing to Managers have to get market
sale of the products. They deduct pay higher prices to get them. This will information in order to make the
predetermined fees and send the result in local retail managers offering following day-to-day decisions.
balance to the processor. higher prices to wholesalers to get • What quantity of a product are
additional volume. When these consumers willing to purchase?
Speculative middlemen additional prices are offered to pro- • Who is making those products,
Speculative middlemen take title to cessors, it is a signal to move more and who is competing for
the products. They buy products based products to that location. This infor- those consumers?
on their knowledge of the possibility of mation is valuable. Information from all • What prices are consumers willing
selling at a higher price. Their goal is to locations should be combined to decide to pay?
make a profit from price differences in whether or not to expand production. • What is the speed with which
various locations. products and information travel
Organizing to Sell through the channels of
Retailers distribution?
Retailers buy from many processors New Products • How long does it take for a price
and wholesalers to develop a product When selling new products,
increase to reach the producer?
mix that will attract consumers to their managers are faced with problem areas
• Based on this information,
stores. They rely on consistent quality that are unique for each product.
should production be increased
and availability of products. They buy Products have to be delivered to
or decreased?
and sell for their own gain. locations where consumers will be able
Managers need to decide what kind to buy them. For some products this is Food Ingredients—
of a market territory they want to serve complicated, but for others the
and how they can use any or all of the marketing process is fairly straight- Availability and
participants in the marketing process. forward. In any case, managers should Seasonality
Their selection will depend on different gather the kind of information needed Ingredients are one of the more
population concentrations, income to fully understand and be able to important factors in maintaining a
levels, number of competitive products choose the most profitable alternative. consistent quality, especially in food
and number of market outlets. All these To start this process, managers must products. The producer must know
should be used to develop the type of have enough information in all of the where to locate ingredients at different
market organization that will best serve following problem areas. times of the year, especially if they are
consumers and sell the product. seasonal. Proper storage and handling
If these data are too difficult to Consumers— should be considered, as well as
personally collect, they can be Convincing Them to Buy transportation and packaging. Costs of
purchased from various marketing ingredients that change frequently can
Identify consumers create problems when estimating
consultants and middlemen.
Who will most likely buy the production costs. This may require
Pitfalls to Avoid When product, how often will they buy it, contracting for future delivery
what price they are willing to pay, and (discussed later). Seasonality of some
Devising a Marketing Plan where will they be buying it?
Care must be taken when devising produce will require purchases in
Consumers have specific wants and different locations during the year. Pro-
a marketing plan. The buying public, needs. Their incomes vary from high to
unfortunately, is very choosy, and ducts that require special handling, such
middle or low. They are given choices as fresh meat or vegetables, present a

different set of problems and cost neighborhood stores, have a unique required to convince consumers to buy
factors. Also, shelf life of ingredients clientele. Again, the products must their products.
needs to be considered. match the clientele and image of the A good way to begin test marketing
One very important thing should be specialty store. is to take samples to store managers and
noted: The only way to maintain convince them the products will sell
consistent-quality products is to buy Roadside stands and make them money. Samples should
consistent-quality ingredients. This A roadside stand may be an be ready for consumers to test. Selling
cannot be emphasized enough. People alternative for fresh products or other them at reduced prices or giving them
might be willing to buy the product seasonal products, such as jams, jellies away is a good way to entice consumers
once, and if it is of good quality, they or pickles. These are open for part of to try new products. It is important to
will continue to buy it. However, if the year at a time when consumers are seek immediate feedback about what
they notice a difference in quality each willing to drive to a specific stand to consumers think of the products and
time they purchase it, they will cease to buy them. any suggestions they may have for
buy the product, and it will be almost Mail-order sales improvement.
impossible to get them to buy the When using mail-order outlets, sales When doing test marketing, it is
product again. volume can be controlled by the important to determine how the
number and type of catalogs sent. When products are competing with other
using mail-order catalogs, it is im- brands. Count the number of competing
Alternative Retail Outlets portant to know the number distributed brands in the stores. Buy some and
There are many ways to distribute compare them.
and the characteristics of the readers. If,
products once they have been produced. Do not forget that location within
for example, 400,000 people receive the
These marketing channels need to be any store is very important. Certain
catalog, and 1 percent of them order the
set up before production, not after. locations have “higher traffic” than
product, that means there will be 4,000
These include large chain stores, mail- others. This means more consumers
orders. If 5 percent of them order the
order sales, neighborhood stores, will see products in those areas and will
product, there will be 20,000 orders.
roadside stands, and door-to-door sales. be more likely to buy. The highest
Producers need to understand and be
Alternative retail outlets can help exposure for new products in stores is
prepared for the potential volume of
producers reach a specific consumer at the ends of the aisles or at the
mail orders. Conversely, there could be
group with income levels suitable to the checkout counter. There is a preferred
very few sales, and there could be
product, ethnic preferences that match height on store shelves where people
products left over.
the products, and lifestyles that are can see your product without looking
served by the products. Different retail Government contracts up or down.
outlets that will be able to sell products Government contracts cover such
should be considered. outlets as prisons, military bases and Advertising
government cafeterias. Contracts with Advertising is controlled
Large chain stores communication about a product.
various government purchasing
These stores can provide an Through symbols and language, it tells
agencies can provide sales
opportunity for a larger number of what a product or service can do for the
opportunities as long as government
consumers than a local store. They offer consumer.
specifications are met.
thousands of choices of different Advertising, when properly
When formulating distribution plans,
products from which consumers must understood, is a powerful tool for
be sure to inquire about terms of sales.
decide to spend their money. Large management. It can be most effective
Some large discount chains and
chain stores usually require large with products that can be differentiated
government procurers do not pay within
quantities of a product delivered at from similar products based on
30 days. In fact, sometimes payment is
specific times to specific places at consumer-accepted quality differences.
not received for at least 60 days.
predetermined prices. Getting shelf Consumer information is gathered by
Marketers must take this into
space can require substantial fees. giving small samples to consumers in
consideration when planning cash flow
Neighborhood stores statements and making marketing plans. stores or retail businesses. This
These stores often work with local information can give a direct consumer
producers if the managers feel the Test Marketing response to a new product for that
products will be accepted by their Regardless of the outlet chosen, test location.
clientele. Each store has developed a marketing a product in potential sales Regardless of the quality of a
clientele unique to that store, and new areas is essential. This is especially true product’s advertising, it is important to
products have to be a part of that image. if the product is new or different from remember a product has to compete on
what is already on the market. its own. Brand preference cannot be
Specialty stores Producers must work with retail established if the product fails to meet
Specialty stores are often single-line managers to decide how much consumer expectations. A well
stores or discount houses that, like advertising and promotion will be developed overall advertising program

can tell consumers what a product or The marketing manager for a Packaging
service can do for them compared to product must find a price that satisfies The purpose of a package is to
similar products on the market. If both consumers and producers. protect the product from spoiling and
consumers are convinced, they will buy Consumers are always willing to pay keep it clean until it is opened by the
the products. lower prices for any product. Producers consumer. Many producers overlook
“Business is built best which are always willing to offer products for the importance of product packaging,
attracts the kind of customer and only sale at higher prices. A market price for but this is the first thing consumers see.
the kind of customer it can best serve. long-term production is established When the package is appealing, con-
Every business is qualified by its when the price of any product is equal sumers are more likely to buy it. As
management’s beliefs to serve a to or above the average total cost of long as the anticipated quality is there,
particular segment of the total market, production and at a price consumers consumers will be satisfied. They will
and by reflecting its essential character, will pay. buy the product in the package they
its advertising can most effectively like and will not buy it in one they do
reach this segment and keep it a long Frequency of not like – even though the product is
time.” (Maynard) Consumer Purchases the same.
Frequency of consumer purchases is The consumer decides the size of
Pricing Competitively very important. Repeat purchases are package most suited to each product.
One question to ask is whether the the keys to a successful outlet selection. The size and type of package will
product is priced similarly to other Not all products are purchased at the depend on knowing what the consumer
competing brands but above costs of same frequency, and marketing man- will accept for each type of product.
production. For more information on agers need to understand how often Consumers are more likely to buy
this, see K-State Research and consumers will be purchasing their smaller food packages of items that are
Extension bulletin Economic Analysis products when determining production used occasionally. They will buy large
of a New Business—Doing it Right, rate, transportation, storage, etc. The packages of items used frequently and
MF-2184. most common purchasing patterns are in a relatively short time, if the product
Once consumers have been as follow. remains safe to use during this period.
identified, a retail outlet has been
Most plant and animal products must
located and test marketing completed, Daily
be packaged appropriately to be
producers need to determine at what Some products – such as milk,
preserved: pickled, canned, smoked,
price a product will sell and still be bread, and doughnuts – might be
cooked, dried, or frozen. The type of
profitable. Price is the only means for purchased daily, meaning the producer
processing will determine the length of
generating income and profit for the will have to deliver the product
time the product can be safely used
producer. frequently. These products are usually
from the time processed.
There is no one method of setting quite perishable.
prices. It is imperative to keep in mind Storage and
that costs of production do not Weekly
determine the price of the product. These are generally products with a Transportation of
Consumers are only interested in the 3- to 6-week shelf life. For these Food Products
lowest price they can get, and they do products, careful control of production Products must be stored from the
not care what it costs to produce the inventory will be necessary. A producer time they are processed until they are
product. must have the ability and capacity to transported and sold to consumers.
If the consumer’s desire for the store products between deliveries. Various products require different types
product is great, set the price high Monthly of storage and transportation facilities.
enough to ration the available supply These require a larger consumer Storage and transportation are
for sale. As production increases, prices territory if the consumer only buys one critical to the marketing process.
may have to be lowered to sell item per month compared to one per Obviously, different products require
additional products. However, do not week. Delivery will be less often, and different types of storage and
lower prices below the cost of storage will have to be increased, either transportation facilities. For example,
production. Always know your cost of on the shelf or in the back room. frozen products should not be allowed
production, and never price your to thaw during storage and
product below that if the goal is to Seasonal transportation. Keeping the product
remain in business. These are products that generally are frozen requires additional expense. Part
If the consumer’s desire for the associated with a specific growing of the storage and transportation cost
product is not great, and if the product season or holiday. These types of includes spoilage and breakage.
is in a competitive market, sales will products usually are sold only during Fresh products have to move to
depend on the success of convincing one time period each year. consumers quickly. Dried products can
consumers to buy products for prices remain in storage and be moved
above total costs. through marketing channels at a slower

pace without lowering quality. They Information should be gathered to consumers. Each entrepreneur has to
can be shipped further to reach different continuously in each location about evaluate information using estimates of
consumer areas. sales volume and changes in cost and the pricing system to decide to
Regardless of the type of storage and competitors, life cycles of the product, continue operation. When a firm is in
transportation required for a product, new products, service to vendors, and operation for a longer period of time,
it is imperative to maintain the same competitors. these estimates can be based on actual
quality from the time the product Remember that general information expenditures, which are more accurate.
leaves the processor until it reaches will provide general results, and Total marketing costs per unit have
the consumer. detailed information will allow for to be paid by the consumer. The
Plans must be made to store more detailed analysis and more marketing system also has to be
ingredients for processing and finished accurate results. Each manager has to profitable for every marketing function
products until shipment. This is decide what type of information is and every stage along the system.
especially critical if you can buy large needed and how much to collect to Understanding the cost of each
quantities of ingredients at lower prices. maximize usefulness. The more marketing function is necessary for
producers know about customers, the every phase and has to be paid if all of
Contracts better chance they have of satisfying the functions are to be continued.
Contracts are legal obligations made them. Consumers make final decisions about
between two or more business people any product based on quality, price,
for the sale and purchase of products. Summary disposable income, quantity and price
Major points in a contract spell out Creating a marketing plan takes a lot of substitute products.
price of the product, quality of hard work. The benefits of doing this By doing the research necessary to
requirements, amount to be delivered, work before you start to market your create a thorough marketing plan, a
specific location and time of delivery. product, however, are immeasurable. producer can more clearly understand
This ensures that buyers know when to This groundwork will make it much the needs and demands of the
expect the product and sellers know easier to borrow the necessary capital to consumer, can identify the best
when and how much of the product has start a business. Because lenders are potential markets, and can find the most
to be delivered at a specific time and interested in accurate information about effective and efficient means to get
place. Care should be taken when a potential investment, a well-done products to those markets. It is
finalizing a sales contract that marketing plan demonstrates the important to remember that a marketing
production can provide the product as management level for a company. If plan is only as good as the information
specified in the contract. The risks of there is no plan, lenders will not look it contains. If correct data are used, the
change in price and volume are favorably on lending capital to someone marketing plan will be accurate.
eliminated until the next contract is who has no alternatives in mind for the It is important to have a contingency
negotiated. future if changes occur. fund available. This will provide a
Whether completing a contract with A well-developed marketing plan reserve in case any of the other
buyers of products or sellers of inputs demonstrating knowledge of estimates are incorrect. It will be
needed for processing, sound legal production, how much capital will be impossible to accurately figure every
advice should be obtained to make required, cost of production, specific item in the marketing plan, so this
these transactions simple to understand market location and an understanding contingency fund provides extra cash in
and clarify legal obligations of all of consumer purchasing activities will the start-up phase of your business. Of
parties. be beneficial in creating a profit- course, any money not needed in the
able operation. contingency fund can be used for other
Consumer Feedback The most difficult part of developing purposes once the company is up and
Consumer feedback involves having a marketing plan is estimating total running.
people try the product and then asking marketing costs. Each marketing By following these guidelines,
them their opinions of it. A first step organization uses labor, management, producers will be well on their way
would be to ask friends and neighbors land and capital resources in varying to success!
for help, and to establish options for degrees of concentration. Each
testing the new product. expenditure item should be included in References
It is vitally important to continue to a cost analysis. If any expenditure is not Maynard, H.B. Handbook of Business
seek consumer feedback as the product included in an analysis, it will be paid Administration, McGraw-Hill
continues to sell. This process should out of a private account, which could Book Company, New York, 1970.
be included in a marketing plan. Ask mislead the decision-maker concerning Erickson, Donald, Economic Analysis
consumers the following questions. total costs. of a New Business—Doing it Right,
• How do they view the product Various marketing functions will MF-2184, K-State Research and
and company? have different costs, depending on how Extension, Kansas State
• Do they like the product? much of each is needed to move University, Manhattan, KS 66506,
• Will they buy it again? products from the place of production April 1996.
• How soon?

Marketing

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