Week 2_concept of foodmarketing

Week 2_concept of foodmarketing - Department of Food and...

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Unformatted text preview: Department of Food and Resource Economics LESE204 Concept of food marketing Department of Food and Resource Economics Marketing of agricultural products LESE204 Definition in dictionary : an integrated process through which companies create value for customers and Agricultural Products Farmers weak build strong customer relationships in order to capture value from customers in return. Because of weak relationship, Traditional approach for the marketing of agricultural products(농산물 유통) has been mainly focused on the flows of products, not the behaviors of company or producers. Marketing channel has been main research target Institution or policy regarding marketing channel has been highlighted. Department of Food and Resource Economics If we based on the processed food LESE204 Definition in dictionary : Strong Processed food Food companies an integrated process through which companies create value for customers and build strong customer relationships in order to capture value from customers in return. Flows of products are important, however Role of food company must be the center of the interest. Behaviors of food company regarding procurement of raw materials, processing, selling, transporting and advertising etc. are the main research targets. Some approaches in the standpoint of Business Management are required. Department of Food and Resource Economics Example of supply chain for a food company LESE204 Supplier Supplier of service Supplier Domestic raw materials Domestic raw materials Supplier Domestic raw materials Imported raw materials Retailer Wholesaler Supplier Retailer Supplier Supplier Retailer Supplier Wholesaler Retailer Food Company Supplier Domestic raw materials Supplier of materials Supplier Retailer Wholesaler Supplier Retailer Supplier C o n s u m e r s Retailer Supplier Supplier Wholesaler Retailer Imported raw materials Business Management : Marketing, supply chain management, advertising etc The business management of food company can be learned in the Dept. of Business management. However, some basic concepts and strategies in business management will be taught in the course of “Food Marketing” Economic approach is more important in the course of “Food Marketing” , since it deals with the outlook of the flow, policy, institution, market, welfare, relationship between agricultural and food industry etc. Department of Food and Resource Economics Academic areas of “Food Marketing” LESE204 Selling as a fresh products Assemblers / wholesalers Retailing F A R M E R S Big Marts Agricultural Products Selling as a raw materials Marketing of agricultural products Market Super chains Food Company Processing Wholesaling Small retailers C O N S U M E R S Imported raw materials Food Supply Chain production/ markets/ marketing of agricultural products Price theory, policy Viewpoint of agricultural Economics Viewpoint of Business management Viewpoint of Economics Business management (Supply chain management) Consumer choice, food consumption, consumer welfare Department of Food and Resource Economics Flows of products and functions of players in “Food Marketing” LESE204 Imported raw materials Domestic raw materials other than agricultural products Export Two main players Farmers Food Company Selling as a raw material Middle men (Wholesalers) Selling as a fresh product Processing (manufacturing) food Other influential players Retailers Super chains Wholesalers/r etailers C O N S U M E R S Big Marts If we focus on the flows, products are in the center of interest. However, if we focus on the functions of the players, interactions between players are important. Thus, investigation of the functions of the players must be included in the area of “Food marketing” Department of Food and Resource Economics Relationship between players and channels LESE204 Farmers Pf1 assemblers Farmers assemblers Farmers Food company Pfa Pfc Farmers Farmers Food company Wholesalers Pf2 cooperatives Middle men (Wholesalers) Farmers Farmers Retailers Retailers Pr1 C O N S U M E R S Pr2 Retailers Super chains Farmers Big Marts Big Marts Competition between channels exist. (Pf1 > ? < Pf2 / Pr1 > ? < Pr2 ) There also exist competition between players at a same stage of marketing channel. (Pfa > ? < Pfc ) And some analysis of marketing costs are required Department of Food and Resource Economics Topic areas in “Food Marketing” LESE204 Price and marketing cost analyses are required Relationship between marketing agencies need to be investigated Imported raw materials Some investigation of the international trade regarding food and raw material is required Domestic raw materials other than agricultural products Farmers Export Some production theory of a firm is required Food Company Selling as a raw material Some investigation of the policy regarding marketing is requiredSelling as a Middle men (Wholesalers) Processing (manufacturing) food Wholesalers/r etailers Retailers fresh product Super chains Some theory of market for food and agricultural products is required C O N S U M E R S Big Marts Some investigations for the institutions such as wholesalers, retailers, super chains, big marts are required Some theory regarding food consumption is required Some theory regarding behaviors of company and market agents are required Department of Food and Resource Economics LESE204 Basic Price analysis: Supply and Demand Department of Food and Resource Economics Demand Curve LESE204 Demand curve: the relationship between the amount of a good that is willing to be purchased at given prices, holding other factors constant. Law of Demand : The quantity demanded and prices have a negative correlation: The demand curve shows downward sloping. P D Q Department of Food and Resource Economics Determinants of Demand LESE204 Income Normal good: the goods that quantity demanded is increased when income gets larger Inferior good: the goods that quantity demanded is decreased when income gets larger Prices of other Goods Prices of substitutes Prices of complements Advertising and consumer tastes Population Consumer expectations Department of Food and Resource Economics Demand function LESE204 A general expression for the demand curve Qd = f(P; Pr, I, Y) Qd = quantity demanded. P = price of a good. Pr = price of other good. Substitute good.( Ps) Complement good( Pc) I = income. Normal good. Inferior good. Y = any other variable affecting demand. Department of Food and Resource Economics Demand function: example LESE204 Demand Function Demand: Q = 20 − 4P Inverse Demand Function: 4P = 20 – Q P = 5 – 0.25Q P change in demand v.s. change in the quantity demanded 5 3 8 20 Q Department of Food and Resource Economics Demand function: example LESE204 Demand Function: change in demand Demand: Q = 20 − 4P+ 2I Inverse Demand Function: 4P = 20 + 2I – Q P = 8 – 0.25Q ( I = 6) P 5 P = 8 – 0.25Q 3 12 20 24 Q Department of Food and Resource Economics Consumer Surplus LESE204 The value consumers get by purchasing a good but do not have to pay for The concept of consumer surplus is useful in the analysis of marketing It is applied to marketing strategies such as value pricing and price discrimination. <value pricing> It sets selling prices on the perceived value to the customer, rather than on the actual cost of the product, the market price, competitors prices, or the historical price Department of Food and Resource Economics Consumer Surplus LESE204 Willingness to pay P1 P2 Surplus for consumers 1~7 P3 P4 P5 P6 P7 = Market price (P) Curve of Willingness to pay = demand curve 2 consumers 1 6 4 3 5 7 Individual consumers pay the market price which is below the their own willingness to pay Department of Food and Resource Economics Market Supply Curve LESE204 The supply curve is the relationship between the amount of a good that will be produced at given prices. Law of Supply The quantity demanded and prices have a positive correlation: The supply curve shows downward sloping. P S Q Department of Food and Resource Economics Supply Shifters LESE204 ■ Input prices ■ Technology or government regulations ■ Number of firms Entry Exit ■ Substitutes in production ■ Taxes Excise tax Ad valorem tax ■ Producer expectations Department of Food and Resource Economics Example: Profit maximization problem of food company LESE204 i PQi Pf Qi Ci (Q i ) Fi PQi Pf Qi : total revenue : Raw material procuring cost t t p C i ( Q i ) C 1i * Dis 1 * Q i C 2 i * Dis 2 * Q i C i ( Q i ) : other costs t C1i * Dis 1 * Qi : transportation cost for raw material t C 2 i * Dis 2 * Qi : transportation cost for the food p Ci (Qi ) : manufacturing cost Fi : fixed cost Adopt new technology Change the wholesalers or retailers Locate a factory in different site Change raw material suppliers Advertising, R & D How does this kind of strategy affect the whole food supply chain? Department of Food and Resource Economics Supply function LESE204 A general expression for the Supply curve Qs = f(P; PR, W, M) Qs = quantity supplied. P = price of a good. PR = price of production substitute W = input prices M = any other variable affecting supply. Department of Food and Resource Economics Producer Surplus LESE204 The producer surplus is the amount that producers benefit by selling at a market price mechanism that is higher than they would be willing to sell for. P S0 P* Q* Q Department of Food and Resource Economics Market Equilibrium LESE204 Demand Function Supply: Q = 4P Inverse Supply Function: Demand: Q = 20 − 4P If a market equilibrium is attained, there is neither shortage nor surplus P surplus 2.5 shortage 10 20 Q Department of Food and Resource Economics Some policy effects LESE204 Price support (price floor) P Pa Q In order to support the price Pa, government needs to purchase the remaining amount(excess) other than the quantity demanded by consumers. Spending budget is required. Department of Food and Resource Economics Some policy effects LESE204 Price ceiling P Pce Q There is excess demand Full Economic Prices ...
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