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1. Discuss the product life cycle (PLC) of cheese and butter and the issues that need to be addressed by the marketers of these two products. In addressing this question you must include a discussion on the marketing strategies that could be used by dairy producers at each stage of the PLC.

2. Using the information provided in Exhibit 4 and 5,elaborate and interpret a portfolio matrix for the dairy producer DP A. In responding to this question it is recommended only milk sales for 2008-09 and 2009-10 periods are used.

3. How do the major supermarket pricing strategies affect the attractiveness of the dairy industry? What steps can dairy producers take to best deal with the market power of the major supermarkets?
 

Product life cycle Stages

The case study here is based on the Australian Dairy Milk industry; the report contains many exhibits and insights on the sale of different dairy products. It has been seen that the Australian industry despite facing a tough time in the year 2008 was resilient; however its international demand was falling (Australia, 2017). The case study has 4 questions which need to be answered in the purview of 7 step case analysis framework, which goes as:

  • Situation Analysis
  • Assumption and missing information
  • Statement of Problem
  • Development of alternatives
  • Evaluation of alternatives and recommendation
  • Implementation
  • Evaluation and Control 

The global economic downturn of the year 2008 resulted in decreasing demand and prices for the Australian dairy demands. However, due to the economic momentum in 2010, the dairy farmers are optimistic about the growth of the industry (Rad & Lewis, 2014). The industry has in all 4 main product, milk, cheese, butter and butter, out of the entire produce around 40% is consumed domestically the other goes to international exports(Beggs, Fisher, Jongman & Hemsworth,2015) The relationship between the dairy farmers and the super market is extremely complicated, and it is a matter of time who will win the batter.

Life can be seen as a series of development and changes which results in peak, decline and eventually demise. Similarly, consumer products also go through the four distinct cycles in the entire life, the implication of life cycle stages for managers is to create strategies to maximize the profits of the company (Stark, 2015).

  • Introduction Stage-This is the stage when the product is new and unknown to the customers, people involved in the early age are innovators and some being part of the early adopters. During this stage the strategy has to be proactive in order to win over other customers. Butter and cheese are the products which are already known to the marketers; hence they don’t have to spend much in increasing the awareness of the product. However, they have to use different variant of Cheese which are becoming popular in the market to increase the penetration. In terms of monetary transaction, the revenues and profits are low and negative and the industry has to be buckled up towards the marketing spend(Armstrong, Kotler, Harker & Brennan,2015)
  • Growth stage-At this stage, customers have good awareness about the product and the company earns benefit from the stage. At the same time, the production capacity can be increased of butter and cheese resulting in the economies of scale. In this stage, competition increases and price becomes an important part of the marketing strategy here (Bilir, 2014).
  • Maturity stage-This is the stage of the PLC when the market becomes extremely saturated. This stage is accompanied by reducing production cost which eventually leads to economies of scale and experience. Cheese and Butter are already in the maturity stage, and the industry is in price wars with the supermarkets (Fantake & Jolliet, 2016).
  • Decline stage-This is the last stage of the PLC and is masked by decreasing or stabilized sales. This stage results in lower price margins. At this point the product is discontinued, this is the stage which is most useful for butter and cheese, Form this point they should start the PLC of different variety of cheese and butter to further penetrate the market (Tao & Yu, 2018).

The analysis of Product life cycle for Butter and Cheese of dairy industry of Australia implies that the product is in the maturity stage and before it gets to decline stage it should introduce new variant of butter and cheese to again start the new Product life cycle with new variant.  

As mentioned in the earlier section dairy producers have to adopt various strategies for the optimum utilization of the product life cycle stages

Product Life cycle Stage

Marketing Strategies

Introduction

Rapid skimming-This strategy is launching the product at high price to make maximum profit and high level of promotion.

Slow skimming-This stage is characterized by high price and low promotions.

Rapid penetration-In this strategy the product is launched at a low price followed by aggressive promotion.

Slow penetration-Launch the product at low price and low promotions(Kotabe & Helsen, 2014)

Growth

The following strategies are helpful during the growth stage:

· Improvement in the quality of product

· Addition of new variant in the existing product and add customer support service.

· Entering into new market segments.

· Skimming the price if the profits are still low.

· Increase in the distribution channel to manage the increasing demand (Charter & Tischner, 2017).

Maturity

The following strategies are to be used here:

· Market Modification-Redefining the target market, moving to different segment, tries to win the competitors customers and so on.

· Product Modification-adjusting the product in terms of quality, pricing, packaging, promotion in accordance with the marketing mix(Lockrey, 2015)

Decline

The strategies which the farm producers should adopt here are:

· Reduction in the promotional expenditure.

· Reduction in the number of distribution centres.

· Implementing price cuts.

· Maintain the product and wait for competitor to remove their product from the market(Ottman, 2017)

· Reduction in the price to sell out the entire inventory.

Hence, it is very important and critical to reassess the Product life cycle of the dairy products and change the pricing strategy to better suit the needs of the customer to ensure consistent sale in the dairy items. It has been observed in the case study, how different consumers have been moving to different variety of products of cheese and milk. Health conscious people are moving from high fat milk to low fat milk and so on. Thus, assessing the business market and creating strategies in accordance with the Product life cycle will help Australian farm industry to achieve momentum in the growth.

Marketing Strategies

A portfolio matrix can be understood as a chart which is used to define products in terms of both the growth in their industry and their specific market share. A BCG matrix is used to define the portfolio matrix of any organization (Gito & Kumar, 2014). There are 4 quadrants in Portfolio matrix which define the growth and the specific market share in the industry: 

Stars-Characterised by Best market share and generate most cash in the portfolio.

Question Marks-High growth prospect but low market share consume more cash and bring less return (Westwood, 2016).

Cash Cows-Leaders in the marketplace and consume less cash than they bring to the company.

Dogs-Low market share and low growth rate, considered as cash traps (Oguz & Kaya, 2016).

Based on the above theoretical understanding portfolio matrix of DP A will be studied.

Drinking Milk Sales by type in (Millions)

Regular

Reduced Fat

Non-Fat

Flavoured

UHT

Total

2008-09

1136

569

118

210

196

2229

2009-10

1133

590

119

215

211

2269

The above table shows the change in Percentage of the different product provided my Milk producers

  • The sales in the regular milk category went a slight down by a percentage of .264 from the year 2008-2009. This shows that people consumed less of regular milk.
  • Reduced fat milk sale in the year 2008-09 stood as 569 million, while in the year 2009-10 it was 590 million, this implies an increase of 3.7% from the previous year.
  • There was a slight gain in the sales of Non –fat category of milk, the sale increased from 118 million to 119 million, showing a marginal rise of 1% in the category.
  • The flavoured milk also showed some strength in its sales from the previous year, a rise of 2.38% in the year 2009-10.
  • Highest change was seen in the UHT category, sales rose from 196 million in 2008-09 to 211 million in 2009-10, posting an increase of 7.65% in the year 2009-10.
  • The overall sales in as compared to the year 2008-09 increased by a factor of 1.79 %.
  • The above analysis points that DP should focus more on UHT category, as it has incurred the highest change and also shows a change in the customer taste and preference from regular milk.
  • All the categories apart from Regular milk showed an increase in the sales, hence company has to promote its other category of milk in comparison to regular milk. Although, the highest sales are driven by regular milk.

Dairy Producer’s market share by type of Milk (2009-2010)

Regular

Reduced Fat

Non-Fat

Flavoured

UHT

DP A

15%

25%

45%

20%

10%

DP B

22%

19%

13%

39%

22%

DP C

28%

22%

24%

26%

43%

DP D

35%

34%

18%

15%

25%

The interpretation of the above mentioned table goes as:

  • Dairy producer A has the lowest sales in the category of Regular milk, whereas DP D is the largest seller of regular milk category.
  • Dairy producer A has the second highest sales in the category of reduced fat (25%), behind dairy producer D which is standing tall at 35%.
  • Dairy producer A has seen the maximum surge in its sale in the category of Non-Fat milk, it is ahead of every other producer in this category, and none of the competitors are even near to the dairy producer A. It has a market share of 45% in the non-fat category; closest to it is Dairy producer C with the percentage of 24%.
  • Dairy producer A is standing at third position in the flavoured milk category, the percentage of market share is just 20%, while the leader in the category is Dairy producer B with a market share of 39%.
  • UHT is another category where Dairy producer A is lagging, primarily because of its late entry into the UHT category, however, the company showed maximum sales change from the year 2008-09 to the year 2009-10, still the company stands at 4thposition in comparison.
  • The implication of the above analysis is that, DP A is the market leader in Non-Fat milk, however, UHT category is seeing a rise, thus DP A should focus on increased marketing and promotion in the UHT category to gain a sizable size of the market. 

The interpretation of the above created table goes as:

  • Dairy Producer A has sales of 169.95 million in the category of Regular milk, the market leader being DP D with sales of 396.55 Million
  • DP A has sales of 147.5 Million in the category of reduced fat while the market leader being DP D with sales of 200 million.
  • Dairy producer A is the undisputed market leader in the category of Non fat milk sales, the sales are 53.55 million while the next big numbers are just 28.56 million.
  • In the flavoured category the sales of DP A stands at 43 million, while the market leader being DP B, whose sale stands at 83.85 million.
  • In the UHT category, the sales of DP A are 21.1 million, and the sales of market leader which is DP C, sales stand at 90.73 million. 

The calculation for Relative market share is as follows:

Relative market share of DP A in Regular milk category: (Market share of DP A/Market share of DP D (Highest) =.429

Only one player can have relative market share more than 1 in every category, the entity having market share more than 1 is the market leader.

The analysis can thus be drawn as:

  • Dairy producer D is the market leader in the category of Regular milk.
  • Dairy producer D is the market leader in the category of reduced fat milk.
  • Dairy producer A is the market leader in the Non-Fat milk category.
  • DP B is the market leader in the category of Flavoured milk.
  • DP C is the market leader in the category of UHT milk category.

Based on all the above analysis, Dairy producer A can easily create an Ansoff matrix and according decide on its Star, Cash cow, question mark and star milk category for further marketing and promotion of its milk products.

According to the case study, the relationship between the dairy farmers and the supermarkets is complex in nature. A fear or uncertainty on the future of Australian dairy farm industry is clearly visible from the case study. Plethora of dairy farmers is leaving the farms due to deregulation in the industry. At the same time, the prices offered to the dairy farmers are way less in comparison to what it is being sold at in the supermarkets.  Also, the gaining popularity of the private labels is hampering the dairy farmer’s big time; the supermarkets are reducing the prices of the milk to increase the bulk sale which is hampering the farmers (Richards, Kjaernes & Vik, 2016).

Exhibit 4

Another contentious issue is the rate supermarkets are offering to the dairy farmers, supermarkets in order to win the raging war have reduced the price of milk significantly. A number of supermarkets followed suit against Coles, in a bid to increase the price of the milk. However, nothing has happened since then. According to Coles, it exports most of the milk which is being sold in its store, and this is affecting Australian dollar as well. More so, the supermarkets are offering great discounts to stay atop of the business, for example, Coles is offering 1 litre of milk at $2 and 3 litres of milk at $3, it makes the consumer perceive the rate of the milk is only $1. Over the last four years the price of the milk has not changed even a bit (Atkins & Bowler, 2016). This is seriously squeezing the margins of the dairy farmers, who are uncertain about their future and looking for other alternatives. Recently, Woolworth’s has been appointed. On the consumer front, there are a lot of mixed reviews, most of them are in favour of price wars, as they are benefitting from it immensely, but ultimately it is the farmers who are losing out on the revenue and thus the profit margins. It has been said over and over again that Supermarkets by increasing the price of the milk will not be able to do with the plight of the farmers; in actual it is the big gap in the supply and demand which is hampering the farmers (Issac & Dixon, 2016). However, there are number of steps the farmers can take to prevent their best interest against the giant power of supermarkets

The situation presently in Australia is far than worsened, it is high time that government intervenes and save the dairy farmers from getting into the well of misery. In Australia, the government allows the market forces to determine the price of a commodity; this has to be changed at least for the dairy farmers. A regulation in the Milk industry will ensure that the farmers are being paid a minimum support price for their produce, and ensure that the minimum support price has a good 20-30% margin for the farmers to invest back in business and continue with the steady production of milk.

It definitely is a situation of crisis when a bottle of water in Australia costs more than a bottle of milk, it does implies that something is wrong in the entire cycle, somewhere. Moreover, the supermarkets have been using a lot of exported milk to sell into their stores. Woolworths itself exports milk from France, Italy and other European countries to fulfil the Australian demand. This has to stop, as the Australian dairy is highly competent to produce large quantities of milk, and the support should be extended to them and not spending dollars as export. 

Interpretation

It has been seen that most of the profit is squeezed because of the middle man involved in the cycle; efforts have to be made in the direction of reducing the dependency on the dairy processors for milk, and giving the power in the hands of dairy farmers to sell milk to the supermarkets directly. A recent example of it has been Woolworths has been buying a lot of milk directly from the farmers, this is giving some extra margins to the farmers. If a number of supermarkets get together and start dealing with the farmers on their own accord, definitely the situation will improve.

The production of milk and other related products have improved considerably after the recession; the farmers of Australia are highly competent in producing good quality milk. 60% of the milk they produce goes to export and 40% is catered for the domestic demand. Similarly, Australia has been exporting huge quantities of milk from outside to meet the domestic demand. This has to stop and equilibrium has to be maintained towards improving the condition of dairy farmers. Furthermore, the dairy farmers have to stand together in order to protect their interest against the price wars of the supermarkets.

It has been seen that a lot of Private brands are being sold in Australia, which are speeding up. People are buying private labels of milk without any suspicion because of the low prices. Branded milk on the other hand is quite expensive, although the benefits of branded milk are far better than the private milk labels. Hence, the need as of now is to market and promote the branded milk on the basis of nutritional quality, hygiene, efficiency and effectiveness of the production and high quality. Promoting the branded labels will get the attention of the Australian population and increase their awareness about the brand. People do have high purchasing power parity, and if they are educated on the advantages and differentiation between the branded milk and private labels, also if they know that the farmers are I poor state, there is no two doubt that they will support the farmers and buy branded milk.  

References 

Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2015). Marketing: an introduction. Pearson Education.

Atkins, P., & Bowler, I. (2016). Food in society: economy, culture, geography. Routledge.

Australia, D. (2017). Dairy Situation and Outlook, June 2017: Report to the Australian Dairy Industry. Dairy Australia, 27.

Beggs, D. S., Fisher, A. D., Jongman, E. C., & Hemsworth, P. H. (2015). A survey of Australian dairy farmers to investigate animal welfare risks associated with increasing scale of production. Journal of dairy science, 98(8), 5330-5338.

Bilir, L. K. (2014). Patent laws, product life-cycle lengths, and multinational activity. American Economic Review, 104(7), 1979-2013.

Charter, M., & Tischner, U. (2017). Sustainable product design. In Sustainable solutions (pp. 118-138). Routledge.

Fantke, P., & Jolliet, O. (2016). Integrated approach for characterizing and comparing exposure-based impacts with life cycle impacts. In International Society of Exposure Science 26th Annual Meeting-ISES2016.

Gito, P., & Kumar, C. (2014). Export market? s segmentation performance and marketing of Indian carpet industry: A BCG matrix approach. Pacific Business Review International, 6(11), 1-3.

Isaacs, B., & Dixon, J. (2016). ‘Making it Local’: The Rural Consumer, the Supermarket and Competing Pedagogical Authority. Food Pedagogies, 149.

Kotabe, M., & Helsen, K. (2014). Global marketing management.

Lockrey, S. (2015). A review of life cycle based ecological marketing strategy for new product development in the organizational environment. Journal of Cleaner Production, 95, 1-15.

Oguz, C., & Kaya, S. (2016). Factors affecting milk production in dairy farming enterprises and effectiveness analysis: A case study in Konya Province of Turkey. Cust Agronegocio, 12, 121-136.

Ottman, J. (2017). The new rules of green marketing: Strategies, tools, and inspiration for sustainable branding. Routledge.

Rad, S. J., & Lewis, M. J. (2014). Water utilisation, energy utilisation and waste water management in the dairy industry: a review. International Journal of Dairy Technology, 67(1), 1-20.

Richards, C., Kjærnes, U., & Vik, J. (2016). Food security in welfare capitalism: Comparing social entitlements to food in Australia and Norway. Journal of rural studies, 43, 61-70.

Stark, J. (2015). Product lifecycle management. In Product Lifecycle Management (Volume 1) (pp. 1-29). Springer, Cham.

Tao, J., & Yu, S. (2018). Product Life Cycle Design for Sustainable Value Creation: Methods of Sustainable Product Development in the Context of High Value Engineering. Procedia CIRP, 69, 25-30.

Westwood, J. (2016). How to write a marketing plan. Kogan Page Publishers.

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