Marketing 501: Product Differentiation Jon Seltzer, The Food Industry Center Megan Tweed, West Africa Trade Hub Development of Organic Agriculture, Certification and Trade in Africa June 1 - 4, 2010 Accra, Ghana Jonathan (Jon) Seltzer Phone: (952) 926-4602 [email protected]
Product Differentiation Where does your product fit ? What is unique about your product? What do you want consumers to remember about your product?
Product Opportunities 3 Major Opportunities Ingredients Finished Goods Bulk Finished Goods
Commodities Niche products (ex: Organic Mango)
Targeting strategy is the selection of the customers you want to buy your product. The decisions involved in targeting strategy include:
which segments to target how many products to offer which products to offer in which segments
You do not need to “target all consumers.” However the segments that you do target need to be sufficiently large to support:
Match supply and demand How large of a market can you supply and promote to? Will that market – retail target – value your product(s)? Is your target market segment large enough to satisfy your needs?
Selection and Right-Sizing
Ingredients: High-Volume, High Quality
Bulk Finished Goods
Ex: Baobab Powder Commodities: High-Volume, High Quality Ex: Rice Niche products: Lower-Volume, High Quality Ex: Organic Dried Mango
Finished Goods: Lower-Volume, High Quality
Ex: Cooking Sauces
The objective of segmentation:
Segmentation is the basis to identify and understand need and forecast demand. The closer you can get to the final consumer the better you can forecast demand.
Reaching large segments is expensive and imprecise.
Effective segmentation can be the basis to establish a competitive advantage. Day-in-day-out, segmentation is probably the best source of a competitive advantage. However, segments change! What does segmentation mean to you?
Segmentation Segmentation can be based on: Traditionally Demographics Geography Occupation Increasingly Attitudes Lifestyles
The objective of this strategy is to develop a position that potential customers will see as unique. If your target market sees your product as different from the competitors', you will have more flexibility in developing your marketing mix.
Product Differentiation Is your product unique in its destination market?
Modify your product for the export market (local product vs. export product)
Modify for different export markets (ex: US vs. Europe)
Non-Price Competition A successful product differentiation strategy will move your product from competing based primarily on price to competing on non-price factors. *It is VERY difficult for West African products to compete on price
Product characteristics Distribution strategy Promotional variables Selling your story Working with small holders
Differentiation Has a Positive Impact Reduced price elasticity: Consumers may become willing to pay a premium price for the differentiating factor/s. Reducing directness of competition: As the product becomes more different, categorization becomes more difficult and draws fewer comparisons.
Implications Pursuing a differentiation strategy requires advertising and production expenditures. However the benefits are significant.
When customers value the your offer, they will be less sensitive to aspects of competing offers, including price. Differentiation makes customers in a given segment less sensitive to other features (nonprice) of the product.
How to differentiate?
Strawberry Jam vs. Baobab Jelly
Even Commodity Products….
Organic Dried Mangoes from Burkina Faso in Starbucks! Unique Story Organic Taste Social Impacts:
# of Farmers # of Jobs Created
What is Marketing? More than just billboards… Branding Website PROMOTIONS
Promotional expense must be built into your product cost!
Branding Tell Your Story
Website “Your window to the world.” LOW COST marketing
Look to promotions that put product on the shelf. Retailer sells to obtain “their” money. Manufacturer obtains retail presence. Manufacturers’ costs are lower than cash.
Role of in-store promotions.
Three quarters of purchasing decisions are made in store. Most shoppers go to the store looking for yogurt or juice – not specific brands.
Product + Packaging = Promotion Variable expense of raw product + Variable expense for processing labor + Variable expense for packaging = Promotion expense
Trade Promotions in the U.S.
Over a third of Consumer Packaged Goods volume is sold on promotion in the U.S. Both manufacturers and retailers have made it very clear that feature ads, displays, and temporary price reductions are a huge part of how goods are sold in the grocery, drug and mass merchandiser channels. Tom Pirovano, Director of Industry Insights, The Nielsen Company
Trade Promotions in the U.S.
Food and beverage manufacturers spend about 16% of their gross sales on trade promotions. On average, trade promotions represent 60% of a manufacturer’s advertising and promotion budget with the remainder divided equally between consumer promotion and media advertising.
Achieving Product Differentiation The Marketing Plan is the vehicle to implement the company’s strategies with the marketplace. The Marketing Plan tells management, suppliers and distributors how the company will “go to market.”
What is Marketing Planning? The Marketing Plan answers 7 questions.
What do you want to achieve with your marketing? How will you meet your goals? (hint: Stress benefits.) Who is your target market? What tools will you use to reach your target market? What makes you different from your competition? What is your identity (who are you to your customers)? What is your daily implementation schedule?
Do You Know Your Product? As part of your marketing plan, the Product Section provides buyers: Details on your products. Product comparison to competitors. All of the supporting materials commercial customers will need to purchase the company’s products.
Product Section “Do you mean business?” If a company is serious they have precise product descriptions (packaging, labeling.) The company knows the competition and how the products are different. And, management has the program to “sell through.”
Product Section To Do List: Product Specification Sheets Labels/ Nutritional Information Product Cuttings/ results, with pictures. Updated Sales Literature Ordering Procedures Distributors, Brokers, Agents, etc.
Product Section Include “appropriate” information on new products. Mindful of the low success rates of new products overall, why will these new products succeed? How will new products be used to replace or complement existing products? Why is this good news?
New products reinforce a company’s “commitment” to the business. Make sure the right people know the company’s intentions.
Have You Analyzed Your Market?
How large is the market for the company’s products? Who are their customers? Where are they? What motivates them? Successful marketing communication requires specific messages for specific customer segments.
Market Analysis Section
Quantify! You are not ready if you do not know the size of the market (Rand/ Euros/ Dollars per week/ year) and who is purchasing the products when and why. These are estimates, however a number is needed. -- Why?
Bottom-line… What’s in it for Me?
Pricing What is the basis for the prices the company will charge?
What will the margin be at these prices for:
Resellers The company
Getting Started Shortfall of many plans:
Look at the business from the perspective of the company itself rather than the final consumer and resellers. Define competitors too “narrowly.” Rely too much on resellers. Expect too much from consumers.
Tools and Tactics Consumer Research
Visit Grocery Stores Whenever Possible (at least once per year)
Looking in consumers shopping baskets. Looking at the shelves. Listening to retail customers. Listening to sales floor store employees.
Tools and Tactics Look at your web site and the four most successful companies in your space.
Update your web site frequently. Tell a story.
Strive for engagement/ embrace feedback. Have fun!