Marketing Principles and Practices of the Beer Sector - Coursework Example

THE BEER SECTOR Table of Contents 0THE BEER SECTOR 3 1 Introduction 3 2 Marketing 3 3 Pricing 4 4 Use of Information Technology 5 1.5 Craft Beer 6 1.6 Social and Environmental Issues 6 1.7.0 Consumer Decision-Making Process 7 1.7.1 Howard and Sheth Model 7 1.7.2 Nicosia Model 9 1.7.3 Engel, Kollat and Blackwell (EKB) Model 10 1.8.0 Conclusion 12 2.0Bibliography 13 Cohen, G. 2014, Relevant marketing consumer behavior theories, Viewed 7 October 2014, < http://smallbusiness.chron.com/relevant-marketing-consumer-behavior-theories-20800.html> 13 Zielinski, J. & Robertson, T. S. 1982, Consumer behavior theory: excesses and limitations, Association for consumer research, Pennsylvania, Viewed 7 October 2014, 13 < http://www.acrwebsite.org/search/view-conference-proceedings.aspx?Id=5891> 13 1.0 THE BEER SECTOR 1.1 Introduction Beer is an alcoholic drink produced from a fermentation process that mostly involves barley, hop, water and yeast. Additional ingredients may be included to achieve specific styles, colors and flavors. Beer is the commonest largely consumed intoxicating drink and the third drink in overall following tea and water. However, due to intense advertisement, beer has become very popular on television and other media devices. Beer selling occurs in hotels, bars, restaurants and through many vendors. Today, more than ninety million people in USA consume beer (Ascher 2012). In USA, the leading top ten brewers take more than ninety-five percent of the market depicting a very high degree of concentration of the sector. Anheuser-Busch is the absolute leader followed by Miller with Coors sealing the list of the best three. The other remaining players consist of the small brewers and the old timers who have been constantly losing their share to the major brewers. The small brewers have been growing rapidly over the years but their market share is still small (Ascher 2012). The three top brewers are a strong barrier to the growth and expansion of small brewers. They retain their dominance in the market through excellent diversification and segmentation of their product lines and brands. They also have huge, adequately funded and well-organized programs for marketing their products. Above all, they have dedicated and proficient delivery networks. They therefore have all proper incentives to influence a positive attitude towards their products and outwit the small players in the sector. Consequently, competition is mostly between these large players and this may finally result to a monopoly (Ascher 2012). 1.2 Marketing The strategies used for marketing are very elaborative, inventive and costly. The design of the product, the taste and the alcoholic concentration coupled with the advertisement, price fixing and packing targets a specific group of consumers. For example, a Spanish name will target Latinos, crimson packaging will target females and beers with low calorie will target consumers’ weight concerns. The big players like Anheuser-Busch produce a complete row of products and introduces fresh brands to reach new customers as well as attracting consumers away from other players in the sector. As of the viewpoint of the customer choice, this has lead to a high fragmentation of the USA beer market with thousands of brands available for consumers. Branding is therefore an important marketing strategy for the leading brewers in the country (Jain n.d.). After branding, what follows is classifying the brands into different classes with each class having a different price. Different classes compete around the different prices even those produced by the same brewer. The brewer therefore evaluates both the level of competition within the brands he produces and the overall competition with the other brewers. A product promotion program can therefore target a specific class or brand which has recorded a fall in its demand in the market (Howard & Ogilivie 2011). 1.3 Pricing For the brands, price is a very important characteristic. Higher price of a given brand to consumers means higher quality and status and lower price means lower quality and status. For example, craft beer and other brands consumed on basis of prestige will sale at a higher price than the other brands. In addition, Budweiser, which belong to the premium class sales at the best price and is more profitable than the other brands that have the same cost of production. Another clear example that demonstrates the significance of the role of pricing in shaping the behavior of consumers is the introduction of Lowenbrau by Miller’s in the 1970s. Lowenbrau had a foreign hoard but its price was below that of the import class of excellent premium to challenge A-B’s Michelob. Miller, when advertizing, emphasized the German name to give the impression that it was an imported brand though brewed in the United States. Lowenbrau could thus beat Michelob substantially in the market prompting A-B to sue Miller for deceiving packaging as well as advertizing. Finally, Miller had to change his brand name to bring out the true picture of being a USA product (Ascher 2012). Again, A-B increased the price of the sub premium brand by nearly three percent in the year 2011 to eliminate the gap between the premium and the sub premium brands. This was a means of influencing consumers to shift to the premium brand. As a result, its revenue and profits increased which finally led to an increase in the value of its shares. This finally affected smaller brewers and some forced to close down business (Ascher 2012). Discounting does not seem to be an excellent strategy. Reducing the price may increase the sales but may result to revenue losses for both the brewer and the distributor. In case the prices remain, low for a long time it may damage the image of the brand and thus becomes very difficult to go back to its original prices (Manthiou 2012). Conclusively, both the price and the consumer preferences play a vital role in the competition between the brands. Other factors that describe the relationship between the brewing companies and the consumers include differentiation, consumer testes, consumer preferences, brand loyalty as well as advertisement. 1.4 Use of Information Technology A good number of brewers use modern information and communication technology to control distribution. When they get back information quickly and accurately from distributors, wholesalers and retailers on the sales of their products, they can adjust their operations and produce to match consumer desires. They will also be able to make appropriate deliveries and keep low inventories and hence saving on the cost of maintaining inventory. For example, BudNET is the channel of information used by Anheuser-Busch. Through the system, the distributers can track A-B full range of competing products on daily basis. In addition, it can also modify the products store after a store, for example, where bottles sell better than cans (Ascher 2012). 1.5 Craft Beer This is another area, where companies are demonstrating very high skills of customer attraction in the beer sector. Many small brewers are insisting on quality, tastes and freshness as a means of enhancing their marketing capabilities. Generally, this is a small portion of the market capturing around six percent of the total market but its value is high because of their relatively high prices. Here, craft brewers, though operating on small scale, compete with each other and by the conventional brands as well as by the craft beer produced by the large brewers. The small brewers find a lot of difficulty in making their products available to consumers because distributors are always interested in dealing with large volumes of products. To make the matter worse, state rules and regulations require brewers to sell their products through distributors. However, despite the relatively small market share that craft brewers control, the giant companies are looking close into the possibility of future growth of these brewers that will cut into their share. The growth of these brewers is because of the current generation, which comprise of the age between twenty-one and thirty years of age (Povich 2014). 1.6 Social and Environmental Issues The major brewing companies like Millers have started programs with the aim of addressing juvenile drinking, abuse of alcohol, environmental and other social issues. Part of the revenues obtained from the sale of alcohol provides the funding for these programs. The brewers therefore, as a means of accomplishing their aim of protecting individuals and the environment at large, promotes and advertize the need for drinking responsibly, preventing the sale of alcohol to minors as well as using preferred drivers. Additionally, they have undertaken heavy expenditures to establish equipment for reducing pollution and reduce wastage in the use of water for the production of alcohol. Brewers also have programs to prevent roadside and inside city litter by recycling the beer cans and bottles. All these programs respond to demands from non-government organizations and the members of the congress. However, companies that take responsibilities of their actions gain good public image, which in turn produce positive effects on the company. 1.7.0 Consumer Decision-Making Process Consumer decision-making process involves all the steps taken by consumers to determine what to purchase and use. The study of how consumer decide is vital for any organization so as it can produce goods that will sale. The knowledge of how consumer decides will help establish why consumers prefer certain brands than others and why sometimes they shift from one brand to another. The theories explaining the consumer decision making process attempt to answer the important questions involved; what are the consumer drivers in the market. What influence consumers to purchase? What influence them to shift to another product? What makes consumers to continue buying the product? Consumer decision making process is a combination of several forces which range from sociology, psychology, social anthropology and economics that all together determine why, when, what and how to buy a particular product from a given range of products (Cohen 2014). 1.7.1 Howard and Sheth Model This is one of the best theories that explain the decision making process of consumers. The model relies on the assumption that the consumer does not have complete information about the market. It explains how the consumer evaluates the information received, arrives at a decision based on discernment and learning inputs and translates those inputs into purchasing decisions (James 2011). The model proposes three stages in arriving at the decision, wide-ranging problem solving, partial problem solving and routine reaction behavior. In the first stage, the consumer has no any information or knowledge about the brand of a particular product. Therefore, the consumer during the first stage will seek information prior to making a decision. In the second stage, the consumer has some information and degree of preference about the market. In this stage, consumer will need some additional information in order to arrive at a decision. In the last stage, the habitual behavior, the consumer has full information and understanding of all the brands of products available in the market (James 2011). The model gives a very clear picture of the behavior of consumers and the performance of firms in the beer sector. Consumers continue to obtain more information about the suitability of craft beer hence its growing demand. Large firms continue to enjoy the largest market share since consumers have full understanding of the products and do not expect to see anything different in other products hence continue to consume beer produced by these firms. Advertisement is the tool for providing information to the consumers to help them decide (James 2011). Figure 1. Howard and Sheth Model of Consumer Decision Making Process Source: Howard (1989). Inputs include the sources that are both significative and symbolic (quality, price, distinctiveness, service and availability), social sources (family, reference groups and social class) as well as information and feedback effects. These factors finally lead to the decision made by the consumer, which finally leads to the outputs. Confidence refers to the point when the consumer has obtained full information and made firm decision hence unwilling to shift to a new brand. However, confidence comes after purchase and satisfaction, which portray the first two stages of decision-making process (James 2011). 1.7.2 Nicosia Model This model establishes connection between the marketing companies and consumers. It explains how the aggressive marketing campaigns affect the decisions made by consumers. The information passed by the firm to the consumer greatly affects the consumer attitude towards the product. The attitudes develop based on the circumstances and evaluate the options before him. If the information provided induces, positive feeling about the product the consumer is most likely going to buy the product and if the facts presented, are not convincing then the consumer is not going to buy the product (James 2011). This model, groups the activities into four principle fields. The first field constitutes the firm and consumer attributes. Depending on the quality and the effectiveness of the information passed to the consumer, a certain attribute will advance and become the input for the second field. The second field constitutes the search information, valuation of the alternatives and product advertisement. If field two yields positive results then it also advances and becomes the input of field three. The third field entails buying the product. The fourth field is the final stage when the consumer uses the product and gives his response, which is the output. The output can therefore be in favor of the product or may act against the product (James 2011). The theory explains well the behavior of the beer sector, as the big firms like Miller have effective and well-funded advertisement programs. This means that high influential information received by consumers and makes them buy the product. The small firms continue to have a small market share because they provide less influential information due to poor funding of their advertisement programs. The high quality brands continue to sale well because the feedback in the fourth stage is positive due to high degree of customer satisfaction (James 2011). 1.7.3 Engel, Kollat and Blackwell (EKB) Model The model clearly explains the decision making process when consumer intends to buy products. The explanation involves a situation where the consumer has several alternatives to weigh before coming up with the final decision. Figure 2: EKB Decision Making Process Model Source: (Fowler, 2004) Consumers here pass seven stages when coming up with the decision to buy or not to buy. During the process, consumers come across a buying center that influences their decision. In the first step, consumers identify a need inside themselves. In the second step the consumers seek for information about the product which may include both external information and information available in their own memory. The availability of external information depends on advertisements that in turn depend on attention, exposure, understanding, acceptance and retention. In addition, attention, understanding and acceptance affect the consumer memory. To continue, the valuation of the available alternatives depends on attitudes, norms and intentions. Finally, the consumer may decide to buy the product, which in turn leads to a result that may be satisfaction or dissatisfaction. The outcome then shapes the consumer attitude towards the product and dictates whether he will continue buying the product or not (James 2011). Again, the model explains the behavior of consumers in the beer sector since the ability of the consumer to comprehend and retain information will depend on the manner in which the information reaches him. Intense advertisement from the giant brewers means that consumers are understanding and retaining most of the information and thus influencing them to buy their products. On the other hand, the small firms cannot carry out proper advertisements hence the information poorly reach consumers and hence cannot effectively understand and retain the information and hence less likely going to buy their products (James 2011). 1.8.0 Conclusion In the beer sector, consumers mostly purchase the brands that they trust and are of high quality. They tend to move for the product that adequately satisfy their needs and are less likely going to shift to other new brands that they are not familiar. Advertisement plays a very significant role in shaping the behavior of consumers in the beer sector as it determines the extent at which consumers will understand the product. 2.0 Bibliography Ascher, B. 2012, Global beer: the road to monopoly, American antitrust institute, viewed 7 October2014, Cohen, G. 2014, Relevant marketing consumer behavior theories, Viewed 7 October 2014, < http://smallbusiness.chron.com/relevant-marketing-consumer-behavior-theories-20800.html> Howard, P. & Ogilivie, G. 2011, Concentration in the U.S. beer industry, , Viewed 7 October 2014 < https://www.msu.edu/~howardp/beer.html > Jain, C. S. n.d., Global competitiveness in the beer industry, Viewed 7 October 2014, James, E. 2011, Consumer buying behavior during a recession: an application to the pc industry with a focus on apple, University of North Carolina, Wilmington, Viewed 7 October 2014, < http://dl.uncw.edu/etd/2011-3/r1/jamese/elizabethjames.pdf> Manthiou, A. 2012, Reason and reaction: the dual route of decision making process on social media usage: the case of hospitality brandfan pages, lowa state university, Viewed 7 October 2014, < http://lib.dr.iastate.edu/cgi/viewcontent.cgi?article=3403&context=etd> Povich, E. S. 2014, Craft beer industry taps profits of big beer, The pew charitable trusts, Philadelphia, Viewed 7 October 2014, < http://www.pewtrusts.org/en/research-and- analysis/blogs/stateline/2014/05/27/craft-beer-industry-taps-profits-of-big-beer> Zielinski, J. & Robertson, T. S. 1982, Consumer behavior theory: excesses and limitations, Association for consumer research, Pennsylvania, Viewed 7 October 2014, < http://www.acrwebsite.org/search/view-conference-proceedings.aspx?Id=5891> Read More