2.5 Intrinsic factors affecting small-scale food processing enterprises
2.5.2 Overview of market-related aspects important for small-scale food processing enterprises
2.5.2 Overview of market-related aspects important for small-scale food processing
Identifying a customer group ↓
Determine what the consumer wants that can be provided by the enterprise
↓ Keep improving
Make something to meet the needs of the the product customers better than the competitors
↓
Inform the customers about the product
Figure 2.2 Marketing process (Griffith, 2002a, p8)
An important element of understanding the market is to understand the competition, in order to develop strategies during the planning phase of an enterprise (Fellows et al., 1996). The case study of the bakery in Botswana that was established with funding from the United States Embassy’s small project fund demonstrates that, although competition is good, it can be detrimental to a small food processing enterprise, should the enterprise not have contingency plans in place to counteract the competition. The group of women received training in baking from a Roman Catholic Mission in Serowe and further training on management and accounting skills from a volunteer who was recruited to manage the enterprise. Although the sales of bread increased five-fold in the first eight months, problems started to occur, such as lack of appropriate equipment; limited space for expansion and high input costs due to the remoteness of the project. The main cause for declined sales of more that 60% was reported to be due to a large bakery in Gaborone (370km’s from Serowe) that decided to expand their production and distribution. The input costs of the large bakery were lower, resulting in cheaper bread. The bread from the large bakery was mechanically wrapped and looked more attractive than that of the Serowe bakery and the shelf life of the large bakery’s bread was five days compared to the two days of the Serowe bakery’s bread (Carr, 1985). The lessons from this case study are that any enterprise should have contingency plans to overcome competition pressure and the enterprise must ensure that the quality of products can compete with that of the competition.
The entrepreneur needs to know if the competition sells the same product and what the cost of the competitor’s product is. This will enable the small-scale entrepreneur to set the price
below that of the competition (Fellows et al., 1996; Kindervatter, 1992). The process of setting sales prices is very important. If the price is set too high, not enough products will be sold. If it is too low, not enough money will be made to cover production costs (FAO, 1995). If customers are not prepared to pay the price, it will be necessary to reconsider the operational costs to see if it is possible to reduce costs without lowering the quality of the product (FAO, 1995).
The potato drying pilot enterprise in Peru (Wheatley at al., 1995) demonstrated that if planning, including financial planning, is not done effectively, or if warning signs such as initial indications that production costs will be too high, are not taken into consideration, the enterprise will end in failure. In this case, initial studies indicated that the processed product would be too expensive for the target market, namely the poor community of Peru.
Scientists dismissed these findings and continued to implement the pilot enterprise. After six months the pilot enterprise was in trouble, the product’s taste was unacceptable to consumers and more expensive than similar products made from wheat. Where a potential market for a hundred and thirteen tons per month was estimated, just over eight tons per month were sold during 1988. The lessons learned from this case study are that estimated costs and cash flows must be realistic and that availability and cost of raw material can have a negative affect on enterprise profit. Since the local farmers could not supply sufficient quantities of raw material, the entrepreneur had to purchase raw material from wholesalers, which increased the operational costs.
A fully fledged market study may be too costly and time-consuming for the small-scale food processing enterprises (Fellows, 1997). Market research is a comprehensive investigation of the market, which may include analysing key competitors and developing a target market profile (Bygrave, 1994). Agar (1999) suggests that customer research, where the emphasis is on the customer, is more important than market research, in that the entrepreneur will get to understand what the customer wants to adapt his or her product to suite the needs of the customer. Most successful entrepreneurs engage in some type of customer survey, that may include talking to neighbours or friends, reading newspapers, listening to the radio, having discussions with customers and doing basic sensory testing, to get some idea of what potential customers like or do not like (Hill, 2000).
In planning a food processing enterprise, customer surveys could include sensory testing at a shopping centre or any target group, where customers are requested to taste food products in order to establish the customers’ acceptability of the product (van Oirschot and Tomlins, 2002). The number of assessors to be questioned is determined by the purpose of the testing, Investigative testing can be done with as few as 50 respondents (van Oirschot and Tomlins, 2002). Sensory testing has strict rules regarding controlled environments, controlled representative samples and clear questionnaires, making experienced panel leaders and trained assessors a necessity (van Oirschot and Tomlins, 2002). Specific steps have been taken to adapt sensory testing to suit customers of Third World countries, such as using symbols instead of words (Coetzee, 2002). Table 2.6 explains the difference between traditional and adaptive method of sensory testing.
Table 2.6 Differences between traditional and adaptive methods of sensory testing (Coetzee, 2002 p21)
Traditional sensory testing Sensory testing adapted for Third World countries
• Samples served individually • Samples served to a group
• Panellist seated in booths • Panellists stand in queues
• Groups instructed prior to evaluation
• Demonstration of evaluation given by researcher prior to evaluation
• Group attention • Assessors given individual attention
• Use 3 digit numbering system • Use symbols such as smiling faces to indicate preferences.
• Pencils provided to mark preference • Stickers provided for score sheet to mark preference.
• Pre-prepared samples • Direct serving of samples
• Various number of samples for various evaluations
• No more than two samples per test.
A case study described by Carr (1985) demonstrates that investigating the consumer needs and adapting the enterprise product to suit the needs of the consumer is of great value for an enterprise. In this case study of a group of village women who started their enterprise by selling mango puree, the sales dropped dramatically after the successful first year. They examined the causes for the drop of sales and found three main problems. The size of the jars that were used were too big; the glass jars were very expensive, raising the price of the
final product too high for the consumer and mango puree was not a traditional product, and thus not popular in that community. The women decided to change the product of the enterprise. The women received technical training and started producing jam, candy and a biscuit filled with mango puree, which became very popular. Changing their product to suit the needs of the consumer helped the group generate more income to improve their livelihoods.
A pilot processing plant was set up in India by Compatible Technology Inc. and the Society for Development of Appropriate Technology, with the objective of providing farmers with an alternative outlet for their surplus potatoes. The initial idea was to promote dried potato slices as a rehydrated vegetable. Market testing revealed that the dried potato slices would not succeed because the consumers are used to dried potato chunks and did not like the flat slices. The pilot enterprise then tried to introduce powdered potatoes for household use, but, because consumers were not familiar with powdered potatoes, they did not want to buy the product, especially since the packaging was of poor quality and not accepted by retailers. The powdered potatoes were eventually sold to enterprises that reprocessed the powdered potato into snacks (Wheatley et al., 1995). This case study highlights the importance of market research to determine the correct product to fulfil the consumer’s needs.
Once a product is selected it is necessary to identify a marketing strategy in order to inform the consumer to know that the product is available (Bygrave, 1994). All products need to be promoted, whether a new product to be introduced into the market or an existing product to be promoted to increase demand (Fellows et al., 1996). Promotion is more than just advertising. Promoting an enterprise can use different tools to communicate with the customer. Four major promotional tools are identified by Bygrave (1994) namely sales promotion, advertising, publicity and personal selling. Table 2.7 explains the four promotion tools in more detail.
Table 2.7 Explanation of promotional tools (Bygrave, 1994 p102)
Sales promotion Advertising Publicity Personal selling Communicating
through a range of non-personal, non- media vehicles such as:
• free samples, gifts
• games
• contests
• signs and displays.
Communicating through non-personal paid media such as:
• paid
• advertisements
• billboard
• advertisements
• packaging
• logos
• direct mail
• advertisements
Communication
through personal or non-personal media that are not necessarily paid to deliver the message, such as:
• Print and broadcast news stories
• Annual reports
• Speeches by employees
Communication
directly with customers through personal paid personnel
• One-on-one sales
• Telemarketing
The effectiveness of each of the promotional tools to reach the customers varies.
Advertising reaches a larger audience than personal selling for a given total cost. Personal selling can reach a specific target audience and the entrepreneur can build a relationship with the customer. The potential entrepreneur will have to decide on a promotional mix best suited for his or her enterprise (Bygrave, 1994).
Small-scale extraction of sunflower seed oil was described by Hammonds et al. (1989) in Zambia. This enterprise demonstrates the power of word-of-mouth as an advertising tool.
An oil extraction plant was set up at the Tobacco Board outstation in Mililima. When the oil was ready for marketing, workers at the Tobacco Board tasted the oil and the news about the oil spread quickly throughout the local villages. Within a few days, people were queuing to buy the oil. Distribution and packaging did not cost anything, as the customers collected the oil at the processing plant with their own containers. No additional advertising was necessary. This case study demonstrates that the cheapest form of promotion is recommendations from satisfied customers, since the group did not have to pay for any promotion such as posters (Fellows et al., 1996).
Small enterprises mostly sell products directly to final users, without using marketing agents, because they normally produce a small number of goods and need a relatively
small number of people to sell their products to. Selling products directly helps keep costs down. Receiving cash settlements immediately also assists the small enterprise to finance capital requirements for the next production cycle (Harper, 1984a).
A crucial element of promoting processed food is that the product must be safe and of high quality (FAO, 1997). Table 2.4 confirms that one of the constraints faced by small-scale food processing enterprises is the lack of quality products and a perception by the customer that products made by small-scale food enterprises are not of good quality (Senik, 1995;
Yu, 2002).