Consumer Packaged Goods in Australia - Assignment Example

Market Analysis Your name: Institution name: Introduction Consumer packaged goods (CPG) or Fast-moving consumer goods (FMCG) are low cost goods or products that are sold fast, usually in a matter of days. FMCG constitute a large part of consumers’ budget in Australia. Retail trade, in these goods that is their supply has attracted considerable interest from policy-makers, companies and consumers because a well functioning retail industry is important for daily provision of these FMCG’s at low cost and high quality. The retail industry for FMCGs in Australia has drastic transformed itself over the years. New retail formats like hyper/supermarkets and chain stores, have rapidly diffused in almost all major cities and increased their market share at the expense of traditional formats in the last two decades (Magee, 2009). This transformation of FMCG’s has raised concerns about competitive in the FMCG’s sector. Market Research is the compulsory homework of any company in the FMCGs industry. This report will analysis various industries that deal in FMCG’s and recommendation given based on the analysis of the discussion. Question 1 Confectioneries products are food products that are rich in sweetener or sugar content. Confectioneries are products that commonly include sweets, cocoa, toffees, chocolate, sugar syrup and more (Margaret, 2006). Some of the key drivers for the growth of confectionery industry is rising disposal income of consumers and urbanization. Also growing population in Australia is anticipated to impact the growth of the confectionary industry (Cleave, 2012). The market for products like chewing gums, chocolates and energy bars is expected to grow in the future. Key companies in this industry are now entering the Australia market to exploit market opportunities in confectionery industry (Margaret, 2006). The major restraint for confectionary market is good health awareness among consumers (Magee, 2009). Confectionary are products which have high amount of sugar calories and is considered to be te reason for illnesses like diabetes and obesity (Cleave, 2012). Thus, many of manufacturers are now trying to develop sugar-free products with the same taste and with low calories. Figure 1. Observed sales for period 1 and 2 Shopper class Observed period 1 sales Observed period 2 sales Product Share period 1 Product Share period 2 Non buyers 0 112 0 17% Light buyers (bought 1 unit) 106 100 16% 15% Medium buyers (bought 2-3 units) 183 146 27% 22% Heavy buyers (bought 4+ units) 375 305 56% 46% Average 166 166 25% 25% Total 664 663 Figure 2: Table for market share Product Share Market’s total sales or market share is earned by a company over specified time period. Market share is found by taking the business’ sales over the period and then dividing it by the total sales of the business in the same period. Market share metric is employed to give a general idea of the size of a business to its markets and its competitors (Cleave, 2012). The owner of the business can look at product market share decrease or increase because they can be a good sign of the relative competitiveness of certain products (Margaret, 2006). As the total market for a product grows, a business that maintains its product share is growing incomes or revenues at the same rate as the total market. A business that is growing its product share will be rowing its product’s revenues faster than its closes rivals. Increase in product share can allow a business to achieve greater scale in its improve profitability and operations. A company will look to expand its product share, in addition trying to grow its market size by appealing to larger demographic through advertising, or lowering prices (Margaret, 2006). As the market for product grows, many analysts view the increase or maintenance in market share as a sign of business competitiveness. Increases in product share might come from broadening demographic appeal, innovation, simply advertising, or lower prices. Product share is not a perfect proxy of product dominance. The influences of suppliers, competitors, customers in related industries must be taken into account (Cleave, 2012). Although there is no relationship between product share and product dominance the following are general criteria: A company, product, brand that has a combined product share that exceeding 60 per cent has product dominance and product power. A product share of over 35 per cent but less than 60 per cent is an indicator of product strength but not necessarily product dominance. A product share of less than 35 per cent is not an indicator of product dominance or product strength. Mr. Merkel, should start worry about the sell drop among heavy buyer group. Although the average sale remained the same at 166 units for period 1 and period 2, as seen in figure 2. This was contributed by non-buyers increase in sales from zero unit sales in period one to 112 unit of sales in period two. Generally, Mr. Merkel should also worry about the sale drop in other segment (i.e. light buyer and medium buyer segment) because sales in the two segments dropped as well. Implication At the maturity stage, product sales growth starts to slow down and is approaching the point where the product inevitable drop will begin. Defending market share has become chief concern, as managers have to use more and more money on promotion to encourage customers to purchase the product (Cleave, 2012). In addition, more competitors have come into the market to challenge the product at this maturity stage, some of the competitors may offer high quality product at affordable prices (Magee, 2009). This can touch off product price wars, and lower product price means the company will have lower profits, which may cause other companies to drop out of the market for that product. A savvy company will lower their product unit costs at the maturity stage so that they can be able to maximize their profits (Magee, 2009). The money that has been earned from the mature product should then be used in R & D to come up with new ideas on how mature products can be replaced. Cost efficiencies, operations should be streamlined and hard decisions made. From a marketing and promotional standpoint, marketers argued that the right advertisement and promotion can make an impact at maturity stage for than at any other stage (Margaret, 2006). One popular theory that have been brought forward is that there are two marketing strategies that can be utilized at the maturity stage- offensive strategy and defensive strategy (Magee, 2009). Defensive strategies may consist of promotions, cosmetic product changes, special sales, and other means of shoring up market share. This can also mean literally defending the integrity and quality of the product versus the company’s competition (Cleave, 2012). In marketing offensively it means the company should look beyond the current markets and try to gain new customers (Cleave, 2012). The company can do this through re-launching its product is one of the options. Other offensive tactics that the company can use is changing the price of a product to appeal to entirely new customers or finding new applications for a product. In order to increase company sales, Mr. Merkel should consider different approach. First, he should examine the customer portfolio (Magee, 2009). Which services does each segment need? What are the real profit margins? Which segment is growing and which segment shrinking? Understanding customers will allow the company to focus on sales and cut wasteful resources. Question 2 (a) Does the brand that your company is interested in taking over have normal loyalty? Aaker (1991) has defined brand loyalty as a combination of customer switching costs, purchase behavior, brand liking and customer satisfaction. This definition follows on from Jacoby and Chestnut’s (1978) summary of the earlier brand loyalty literature, stating that brand loyalty as not only consumer’s behavioral, but a composite or attitudinal of both (Allsopp and Jarvis, 2003). Brand loyalty will occur when customer repeatedly buy a product produced by the same company instead of alternative produced by a rival company. Brand loyalty among customers is often based on perception. A consumer will be consistently buy the same product because customer perceives the brand to be superior product among the available choices. Figure 3: Number of bottle of wine purchased frequently Figure 4: Market share of wine market The brand the company is interested in has normal loyalty (Kahn et el, 2003). Little Barrel consumers have the tendency to stick with the product brand brand, which has translated to repeat sales (Magee, 2009). As seen in figure 3, Little Barrel recorded the second highest sale at 8559 units, and most of the purchase was done by repeated customers (Jarvis and Hoffman, 2002). This buying behavior process can be conscious, and have been based in trust that the brand will deliver to the customer’s expectation. In addition, majority of Little Barrel consumers are seen not to purchase a substitute brand if their preferred product brand isn’t available (Kotler, 1991). Such customers might travel to multiple shops in search of their preferred product brand and are likely to forgo making a purchase if their product brand cannot be found tan they are to buy a substitute. (b) Are there niche brands in the market? Figure 5: brand penetration vs purchase frequency Niche marketing is a popular concept among practitioners and academics and is accepted as an important tool for marketers (Kahn et el, 2003). Smaller wine brands experience a “double jeopardy” effect, where such wine brands have less penetration and also lower purchase frequencies (Allsopp and Jarvis, 2003). In this context, customers tend to be ‘loyal’ to a repertoire of wine brands with big wine brands just showing higher repeat purchase characteristics. A wine brand achieves greater increases in its market share, through brand penetration, than through buying or purchase frequency (Kotler, 1991). It increases in both of these factors; it is just that more of the growth tends to come from brand penetration than selling more to same people (Jarvis and Hoffman, 2002). This concept is known as double jeopardy effect because it means that brands effectively become bigger because there is an increase in their penetration, brand also become bigger because of purchase frequencies (Kotler, 1991). So a niche wine brand has higher buying or purchase frequency relative to its brand penetration. As seen in figure 5 the wine brand that has niche is B & A, as compared to other brands, the brand is bigger and has bigger purchase frequencies relative to its penetration which is also high compared to other brands. Figure 6: Purchase Frequency vs. Penetration Figure 6 shows that wine brand is not behaving like a typical market. It has a few a niches brands and some of niches brands have high market shares (Kotler, 1991). Figure 6 also shows a degree of change-of-pace wine brands (Jarvis and Hoffman, 2002). This means those brands that have low purchase frequencies relative to their brand penetration (Kotler, 1991). In figure 5, change-of-pace wine brands consists of Moretti wines, Red pig, English spoon, Kilov Wines, and La Noche. (c) When looking to grow the brand, is it more important for the company to focus on selling more to existing customers or attracting new customers? To grow wines brand it important to grow the customer base (Kotler, 1991). Brand sales are generated by the number of customers that buy the product brand (penetration), multiplied by the amount of product that these consumers buy (purchase frequency). From numerous literatures, there is a standard pattern between these two elements (i.e. brand penetration and purchase frequency) (Kotler, 1991). In other words, as product brands increase in market-share, expected purchase frequencies and customer penetrations in line with their market share. This is sown in figure 7 below. Figure 7: Relationship between purchase frequency and penetration As shown in figure 7, wine brands rarely deviate from this line (Kotler, 1991). Figure 7 shows purchase frequencies and standard penetrations in line with their market shares. This inelastic shape of the slope indicates that large amount of sales gains will come from getting more brand penetrations (customers) (Kahn et el, 2003), rather than from getting frequent customers to buy more brands (purchase frequencies). Therefore, to grow a large wine brand, the company needs to grow its customer base. This will simple mean that traditional marketing to increase conviction and awareness (Kahn et el, 2003). Question 3 Figure 8: different chooses when buying a fridge Consumers have been faced with abundance of styles and functions when buying a new fridge (Crist, 2013). The humble of a refrigerator is no longer performs a purely practical function. There are a host of decisions consumers must make before they purchase a fridge. The factors that consumers must consider before buying a fridge are: 1) the price of a fridge; 2) Capacity of a fridge; and 3) the model of a fridge. 1). Price A fridge needs to last long time so the cost of the fridge will amortized over many years, so many customers don’t worry about price much (Wiebe and Baguley, 2013). A fridge can be priced the way you would a smartphone or camera; the fridge will only stay. Most of the respondent choose Bosch fridge despite being expensive. Most of respondent chose Bosch fridge because they were influence by family and friends (Crist, 2013). There are different roles that family members and friends play in purchasing decision (Wiebe and Baguley, 2013). Some important role include: information gatherer, decider, influencer, purchaser, and user (Wiebe and Baguley, 2013). Most of the respondent bought Bosch fridge because some of their family members and friends use that brand. Others relied on the brand itself. When consumers discuss brands and those features such as reliability and dependability, the name Bosch is in may people minds (Wiebe and Baguley, 2013). Bosch fridge is one electronic appliance that meets the needs of every buyer. 2). Capacity Capacity was also a factor that was used to evaluate when shopping for a fridge. Majority of respondent were looking for a fridge that will hold all their groceries (Wiebe and Baguley, 2013). Larger fridges are better, as long as they fit into the kitchen (Crist, 2013). Most of the respondents were looking for total capacity and then look to see how that capacity is divided between the freezer and fresh food compartments (Wiebe and Baguley, 2013). Most of respondent ad families (women), If you eat a lot of fresh food items or produce or fresh food , they were looking for a fridge that had compartment that had enough room to store everything they pick up at the grocery store. If you live out of your fridge, look for a fridge that focuses on more storage capacity in the freezer compartment. Also look for refrigerators with plenty of in-the-door storage, including gallon-sized bins and a dairy center. Some refrigerators keep the dairy compartment a few degrees cooler than the rest of the refrigeration compartment. 3). Brand Fridge brand was not that important factor to Australia consumers. Most of the respondents considered these three things apart from cost and capacity to be important when buying a new fridge: quality of fixture; reliability (Crist, 2013); and value for their money. Most of Australian consumers are quite conscious of their fridge’s running costs such as electricity bill (Crist, 2013). More than two in five respondents indicated they would be more happy to replace their fridge brand, provided they could save money each month on its running costs (Wiebe and Baguley, 2013). Additionally, two in four respondents indicated it was cheaper to replace their fridge brands than to fix it (Wiebe and Baguley, 2013). Other respondents, considers those brands that offer power-saving features such as Vacation mode and Eco which will reduce running cost while the user is away. Almost all the respondents were in agreement that family home is opened all the time, so respondents were going for fridge brand that have intelligent temperature control features which automatically adjusts the temperature of the fridge so that it remains constant whatever the conditions (Crist, 2013). Also look out for fridges with electronic temperature control panels, which allow you to set different temperatures for the separate areas of your fridge, as well as ‘quick cooling’ and ‘quick freeze’ options (Wiebe and Baguley, 2013). References Allsopp, J. and Jarvis, W. (2003) ‘Contrasting the double jeopardy line with a multibrand market’, working paper, University of South Australia. Cleave, P. (2012). "Sugar in Tourism: 'Wrapped in Devonshire Sunshine'". Sugar Heritage and Tourism in Transition. Channel View Publications. pp. 159– 172. Crist, R. (2013). Refrigerator buying.CNET Retrieved from Jarvis, W. and Hoffman, D. (2002) What does a wine tourist look like, The Australian & New Zealand Grapegrower & Winemaker, 467:72-77. Margaret, M. (2006) Nutrition and Dietetics Eighth edition edn. Prentice Hall: Pearson Education Inc.  Magee, E. (2009)."Sugar: What Kinds to Eat and When" WebMD.com (Health & Cooking), Kotler, P. (1991) Marketing management: analysis, implementation, planning and control, Prentice-Hall, USA. Kahn, B., Kalwani, M., and Morrison, D. (2003) Niching versus change-of-pace brands: using purchase frequencies and penetration rates to infer brand positionings', Journal of Marketing Research, 15:384-390. Wiebe, J and Baguley, R. (2013). The Best Refrigerator. Home appliance. Retrieved from Read More