Merketing Segmentation of The Food Industry - Essay Example

?Marketing Segmentation Table of Contents Table of Contents 2 Introduction 3 Critical Literature 3 Analysis of the breakfast foods market 5 Principleand importance of market segmentation strategy 13 Conclusions 15 References 17 Bibliography 19 Introduction The modern trend of the market is changing the food industry at a very fast pace. The changing needs of the consumers due to the fast track lifestyle are growing the need to implement strategies by the company to introduce new products in the market. High growth in the fast food industry in the initial stages during the year 2005 to 2009 gave rise to many players of the market to serve the consumers with different types of foods based on the demography and taste of the people in different parts of the world. But post 2009 companies recognized the saturation in the fast food and identified the growing prospect of the breakfast food industry and introduce many healthy items for the market by the leaders like Mc Donald’s, Subway and many others. Ready-to-use food producers like Kellogg’s, General Mills, Post and others also gaining huge sales with the modern trend in the market using readymade breakfast food in busy lifestyle just at the beginning of the day. Companies are implementing strategies depending on several factors like lifestyle, personality, demography, attitude, consumption pattern etc. for proper segmentation of the market to reach the target customers and meet their demands of daily life. Critical Literature Markets have always been segmented and products have been differentiated on the basis of the ways in which suppliers have applied different techniques of competing in the market. The crucial evidence for the above aspect collected in recent times is that researchers have been using behavioural and economic theories along with sophisticated analytical techniques for identifying the various market segments and opportunities for product differentiation (Dickson & Ginter, 1987, p.1). The concepts of market segmentation and product differentiation have been discussed in literature for long. Shaw (1912) has described the strategy of market segmentation and product differentiation as that of trying to cater to human needs and wants more accurately than competition. The result of market segmenting and product differentiating is the creation of a potential which attains a price level which is higher than prevailing stock commodity (Croft, 1994, p.47). Researchers have identified the recent changes in the market environment of firms which have presented with new opportunities and chances of further segmentation of the market. However, the aspect of the possibilities of identifying the groups of customers as individual segments in the market in reality is an empirical one. Researchers are of the opinion that if it is possible to segment the market into individual and homogeneous segments, market segmentation could be effective only if the manageability and efficiencies of the marketing activities could be substantially influenced by the distinguishing and different groups of customers (Wedel & Kamakura, 2000, p.4). Globalization and technological advancement across the world along with fresh new developments have provided marketers with in-depth information regarding the actual behaviour of customers and having direct access to such information through database marketing or demographic segmentation (Wedel & Kamakura, 2000, p.4). As a consequent of this, the marketers have been found to be focussing more on the small segments using concepts like direct marketing and micro marketing approaches. However on account of globalization, the leading multi product manufacturers have been looking at the global markets beyond the geographical boundaries (Yankelovich, 1964). It is seen that if the various market segments respond to the marketing efforts they are considered to be responsive to the segmentation strategies. Responsiveness accounts for the success factor for any market segmentation strategy. Mere response from the segments to the advertising campaigns and price changes would be not be considered enough to realize effectiveness of the strategies. The responses must be different one another for the purpose of discriminating through prices (Wedel & Kamakura, 2000, p.4). Thus the only segments which are found to remain stable over time would be able to provide the basis for the development of an effective and successful marketing strategy. In case the segments which are targeted change in terms of their composition and behaviour during the implementation of the strategy, the effort would not be likely to succeed. That is why, researchers have emphasized on the need for stability for a time period in which the segments are identified, segmented marketing strategies are implemented and its produces results too (Wedel & Kamakura, 2000, p.4). The development of the strategies in segmenting marketing largely depends on the present structure of the market as perceived by Reynolds (1965) and Kotrba (1966). Segmentation research forms the basis on which the structure of the markets is perceived. In has been realized that the segments are real entities and have physical existence and exists in the markets naturally. They must have a clear ground of definition by the managers and researchers who recognizes their abilities to serve customers in the best of ways. In other words, market segmentation can be considered to be a theoretical marketing concept which involving grouping of consumers artificially for the purpose of helping managers to design, target and implement their strategies (Wedel & Kamakura, 2000, p.5). Analysis of the breakfast foods market In today’s first moving consumer world people are constantly trying to maximize their free time and spend more on leisure time. From different survey conducted globally it was found that people are keener to manage their daily compulsion and find more time for relax. This generated the need for readymade items in their life. One of the major areas where consumers try to cut time in their busy life is preparation of food which generated huge potential for fast-food manufacturers to serve the market. People are more concerned with time than money in today’s market. This change in behavior of the consumers is well identified by the fast-food companies to produce food for the different needs of the consumers. Due to less time for cooking and preparation of meal people are generating habits of irregular meal time and eating attitude. Today people are likely to buy food for the different time and have it in time without the obligation and inconvenience of preparing the food (Agriculture and Agri-Food Canada, 2010, p. 2). Understanding this trend in the market manufacturers has great opportunity to position their products in the market and increase their market share. Over the last few years the readymade food market has huge growth of around 6% annually at Europe and around 4% at USA. Different types of food availability, cutting cost on labor and reducing time in preparation are the major drivers for this new impetus in the fast-food industry. But on the other hand people especially in USA, UK and Europe are also concerned with the quality of food offered by the companies in this market segment. Packed food provided by the companies should be healthy as well due to more awareness of healthy food eating in this modern developing country. Packaging also plays a vital role in attracting the customers for the breakfast food market. Based on location and demography the packaging of products also varies which also facilitates the process of growth for the fast-food industry in the growing market like Europe, UK and USA (Rexam, 2004, p. 17-19). Analysis of UK market Although snacks and readymade food habit are increasing gradually but the rise in the consumption has gone stagnant post 2000 after a rapid growth during the year 1990 to 2000. Due to tough competition and growing health consciousness people are more into buying healthy foods and low fat consumption. Thus companies in the market are implementing strategies to cope with the market scenario and introduce new products like sandwiches for breakfast which helped the companies to boost the market share. Market share with ?7.5bn worth, achieved one third of the total earning from its new introduction of sandwich for breakfast. The market post that period is growing at a very fast pace of 4% annually. Various breakfast items like Burgers from different companies have huge growth in the market with about 91 % share where as other sub sectors of the fast food industry have lower growth rate as compared to the breakfast food sector (Huxley, 2003, p. 43). Analysis of USA market USA market in food industry is quite similar with the UK market trend. There is huge growth in the market during the year 2007 as consumers are more into buying new readymade products due to less time of preparation of meals in their daily life. But the market in fast food declined post 2009 phase which is expected to turn after few years as the situation was pre-2009 level. But the forecast from the market growth don’t seem to promise for such strong growth prospect for the industry as it is expected to reach to 3.6% by 2014. During the period of 2005-2009 the fast food market earned total revenue of $71.4 billion with a growth rate of 3.7%. Other parts of the world like Europe and Asia showed better growth of 4.7% and 6.1% compared to USA market. The market consumption volume increases by 2.8% during the period of 2005 to 2009 with a total transaction of 40.3 billion transactions in the year 2009. The compound annual growth rate is expected to grow with 1.2% till 2014 which is very low compared to pre2009 period with 2.8%. People in the region are more into takeaway food and quick service restaurants providing different types of foods for the market. The QSR segment shows huge demand with total revenue of $59.7 billion which is about 83.5 % of the total revenue of the market from the food industry (Datamonitor, 2010, p. 8). This generated huge demand for breakfast foods as people are busier during the start of the day. People will prefer to have their breakfast readymade before going to workplace. The growing trend in the market forced the fast food industry to expand their food items and move towards the breakfast segment to increase their market share. Figure 1: Fast food market segmentation of USA (Source: Datamonitor, 2010, p. 11) Breakfast Food Market There is huge competition in the food market. Companies are constantly trying to grab each other’s market. Companies like Mc Donald’s modified their meal strategy and entered into the breakfast category to expand their business from lunch and snacks. To grab the market Chicago Fast food chain also entered the market with their products and launched breakfast for the market. The fast food market has grown for many years and might approach to saturation within few years due to huge number of players in the market. Thus companies are implementing strategies to enter a new segment of business process with the introduction of breakfast food for the market. The sale so of the fast food market has gone flat in recent years on the contrary there is huge growth in the breakfast food market accounting to nearly three times the total sale of the food market. Within five years the sales of the market has grown to about 22 % during the year 2001 to 2005. This growth in the market shows the popularity of the breakfast food market depicts how people are more likely to adapt the readymade foods offered by the different companies especially at USA at the beginning of the day. Many consumers of the market are still into homemade foods which gives a great potential for the companies to grow their business in these market. Companies like McDonald’s have earned about 25% of its total sale of 19$ billion from its new breakfast introduction of Egg McMuffin. Other players of the market are also introducing new products in the breakfast food category with varieties of products targeted towards specific customer group according to their taste and origin (Gottfried, n.d.). Figure 2: Items offered by different Fast food Companies (Source: Fast Food FACTS, n.d. p. 3) Analysis of different breakfast foods Apart from the readymade foods from the different food chain companies various other breakfast foods are also available in the market for consumption. Ready-to-eat breakfast cereal from leading companies like Kellogg’s, General Mills. Post and others are gaining huge market share due to the increased demand of the consumers. At USA market Kellogg’s and General Mills are the leading companies with market share of 32.2% and 31.2% respectively and the growth is also increasing with increase in demand from the consumers. Figure 3: US Ready-to-eat annual sales of the leaders and their market share (Source: Tremwel, Lynch, Crowell, 2008, p. 2) The chart below shows the top ten ready to eat cereal brands with their sales figure during the year 2009- Figure 4: Top ten Ready-to -eat Cereal brands (Source: AIB International, 2010) Statistics of other types of food items for the consumers on breakfast can be Granola Bars and Hot Cereal and Oatmeal. The charts below show the sales figures of the different companies producing these food items for the market. Figure 5: Top 10 Companies producing Granola Bars (Source: AIB International-a, 2010) Figure 6: Top Companies producing Hot Cereal & Oatmeal Venders (Source: AIB International-b, 2010) From the charts we can understand the sales potential of the different kinds of breakfast foods which is growing at a very fast pace. Principle and importance of market segmentation strategy In order to create segments in the consumer products and services markets, market information is used depending on various criteria. They are considered to be segment bases and are inclusive of such profiles as location of the markets and the exact composition of the same. Behavioral criteria include aspects like where, when and how the market behaves in a particular manner. Some of the demographic and geo-demographic which may be used to measure or obtain the data are tabulated as under. Figure 7: Consumer criteria for market segmentation (Source: Ries & Trout, 1972, p.10) The breakfast food market could be segmented based on the lifestyle criteria under the psychological aspect of segmentation. It is seen that consumers’ choice of breakfast food largely depends on the lifestyle that he leads. Some consumers are tended towards leading a healthy lifestyle which would be based on strict nutrition requirements. Others might have an easy going lifestyle in which he might not be under strict guidelines of nutritional requirements and consumption. Another category of consumers might have affinity towards consuming junk which would necessarily have a great taste but might not cater to the nutritional requirements. Thus the breakfast food sector could segment the market on the above three aspects. Based on the above criteria companies are seen to produce breakfast products which might be high in nutrition, tasty or even easy to digest (Ries & Trout, 1972, p.10). Markets might also be segmented according to the demographics. People belonging to different age groups would have different breakfast preferences. Children are found to be frequent consumers of milky and chocolate based products or such food which comes in different flavors, tastes and colors. Considering the able aspects companies like Kellogg’s have come up with cornflakes containing different flavors like chocolate, strawberry, vanilla, etc. On the other hand, the youth aged between 15 to 25 years are likely to consume breakfast items like bread and butter. However, they are also found to be conscious of their looks and try to remain slim by maintaining their calorie intake (Pirker, 2009, p.103). Marketers like ‘Amul’ and ‘Nutrilite’ noting the trend have produced butter supplements like margarine, and other spreads which are calorie free. Lastly the generation aged above 25 years is found to have fast lives and prefer to consume breakfasts which are easy and fast to consume. This has made marketers to come up with different kinds of breads having various mineral contents, which can be consumed fast and readily. Also women are found to be having various bone ailments prefer to consume diets having calcium consumption. ‘Quaker’ is one such company which produces products containing calcium especially for the women. Other aspects like socio economic factors and geographical locations also influence consumers’ preference for diets. People located in the temperate climates consume more of hot beverages like tea and coffee. Whereas, people located in the tropical climates prefer to have cold fruit juices and drinks. Various companies like Tropicana and Real have emerged lately to cater to this user requirement. Behavioral patterns of the population also provide insight into the way marketers might want to segment the market. For example, media usage would decide how the product awareness might reach the consumers. Housewives are found to be tended towards the various television channels and less towards the internet. Thus marketers wanting to launch a breakfast product strictly for the housewives would prefer to advertize by television broadcasting. On the other hand, products meant for the youth would be primarily made available through the electronic media like the internet. Thus it is apparent that these are some of the behavioral patterns which could influence marketers to segment the market (Gitlow, 2006, p.459). Conclusions It is apparent from the project that market segmentation has evolved as an important concept which is used by marketers to design and develop their marketing strategies. It is seen that researchers are of the opinion that segmentation could be profitable only if the attributes and qualities of the individual segments are maintained in the long run. If the segment characteristics keep changing then segmentation would not yield the result which was aimed at. The effectiveness of segmentation could only be realized after segmentation was complete, and they were yielding the desired responses successfully. In this regards, analysis of the breakfast market have shown immense insight into the segmentation strategies and prospects. A thorough analysis of the breakfast food market has revealed that there has been a changing trend in fast food items towards healthy items. This has been most prominently visible in the breakfast food sector. Marketers have considered the trend and have accordingly changed their strategies towards producing healthier breakfast food. Various market segmentation criteria have also be noted. Some of the behavioral, psychological and profile aspects of consumers have revealed a picture which depicts a clear variety of criteria on which markets could be segmented. Some of the prominent ones are people’s lifestyle, personality, perceptions and motives, which marketers have noticed and developed and produced items catering to the above requirements. Criteria like demographics, locations, socio economic conditions and extent of media usage are also some other criteria which have been considered by marketers while undertaking market segmentation strategies. These criteria have helped them to decide their advertizing and business development strategies too.   References Rexam. (2004). CONSUMER PACKAGING REPORT 2004. [Pdf]. Available at: http://www.rexam.com/files/pdf/Rexam_Consumer_Packaging_Report_2004.pdf. [Accessed on: August 31st 2011]. Agriculture and Agri-Food Canada. (2010). Consumer Trend Report. [Pdf]. Available at: http://www.ats.agr.gc.ca/inter/5527-eng.pdf. [Accessed on: August 31st 2011]. Fast Food FACTS. (No date). Overview of fast food market. [Pdf]. Available at: http://fastfoodmarketing.org/media/FastFoodFACTS_Report_Results.pdf. 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