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Managing the Food Chain During New Product Introduction: The Case of a High Selenium Food Product

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Eight in ten reported trying to PREVENT a condition through a food purchase; up 10% in one year ... About the marketing channel ... Wheat Marketing Channel ... – PowerPoint PPT presentation

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Title: Managing the Food Chain During New Product Introduction: The Case of a High Selenium Food Product


1
Managing the Food Chain During New Product
Introduction The Case of a High Selenium Food
Product
  • 15th Annual Food and Agribusiness Symposium
  • Cheryl J. Wachenheim
  • Department of Agribusiness and Applied Economics
  • North Dakota State University
  • (701) 231-7452 cwachenh_at_ndsuext.nodak.edu

2
Introduction
  • Assume the role of a consultant to the South
    Dakota Wheat Commission working to evaluate the
    feasibility of marketing high-selenium products.

3
Functional Foods
  • Foods or dietary components that may provide a
    health benefit beyond basic nutrition.
  • International Food Information Council
    Foundation, May, 2004

4
Commodity Products
Regulation
Science Technology
Food Processors Distributors Pillars of
Marketing
New Product Development
Promotion
Distribution
Pricing
Consumer Marketplace Mass Markets
Segmented Markets
5
Functional Food Sales
  • Considerable growth during the past decade
  • Increased offerings in main-stream markets
  • Global sales of 10.9 billion (2002) with
    approximately 10 annual growth.
  • Motivated by consumer interest in nutritional
    content of their food and search for improved
    health through diet.

6
Consumer Trends
  • International Food Information Council Survey,
    2002
  • 93 of adults believe that some foods offer more
    than nutrition, i.e., they are functional
  • 85 want to learn more about these foods
  • Sloan Report, 2003
  • One-third of US households increased use of fiber
    products during the previous year
  • Eight in ten reported trying to PREVENT a
    condition through a food purchase up 10 in one
    year
  • More than half tried to treat or manage an
    existing condition through foods
  • Nine in ten said healthy eating was a better tool
    than medications for illness

7
Functional Food Market
  • It is widely accepted that the future for
    functional foods is assured because of consumers
    interest in how their diets can positively impact
    health.
  • J. Mellentin, November, 2002, Dairy Industries
    International
  • This industry is also loaded with hurdles,
    including a high rate of product failure,
    difficulty in defining the type of food and
    product labeling for functional products, and
    tricky marketing tactics.
  • International Food Ingredients, no. 6, 2003

8
Functional Food Market Segments
  • Medically-driven boomers aged 45 plus
  • Swing segment aged 65 plus
  • 18 - to 34 - year old age category
  • Represent the core of the market due to
    receptivity to functional concepts

Mintel Consumer Research, October, 2003
9
Selenium in the Diet
  • Largely favorable health press in part due to
    12-year epidemiological study.
  • Trace element is an antioxidant that helps
    protect the body from damaging effects of free
    radicals and is a source of metabolites which
    inhibit tumor growth.

10
  • Evidence
  • Some cancer risk inversely correlated with Se
    status.
  • Se can reduce tumor yields in animals.
  • Inorganic and organic forms are efficacious.

Dr. Gerald Combs, Selenium Symposium, November 3,
2004, Grand Forks, North Dakota
11
Dr. Gerald Combs, Selenium Symposium, November 3,
2004, Grand Forks, North Dakota
North Dakota wheat superior source of
Selenium
12
Selenium - Based Functional Foods
  • Today, few in number (excluding dietary
    supplements) despite widespread and largely
    favorable health press

13
The First Sale The TradeWorking Assumptions
  • Organic an option for some producers, some
    product markets
  • Organic food sales growing (Mintel/ERS)
  • 5.3 billion in 2004, about 2 of total foods
  • Forecast to achieve 11.5 billion in 2009
  • Preference among producers / trade for natural as
    opposed to fortified
  • Ease/cost of production, clinical efficacy
  • Preserve promotional edge

14
Public health posture from the trials?
  • Scenario A - favorable trials Public Health
    push for fortification? Implications
  • Market narrows to natural or organic customer
    base
  • Distribution points limited to natural (e.g.,
    Wild Oats, GNC, Whole Foods), and / or FF areas
    of grocers
  • Scenario B, favorable trials No effective public
    health action?
  • Potential for dual market structure to expand
  • Fortified foods proliferate
  • Natural growth speeds, aided by favorable press
  • Scenario C, unfavorable trials
  • Market development slows/stops

15
Scenario-Dependent Options
Biofortification not allowed
Biofortification allowed
Health claims verified
Co-exist as natural niche product
Biofortification delayed
Today
Health claims not verified
16
All in the strategy
  • What is our product? e.g., wheat, bread
  • How is the high-selenium feature of our product
    specified?
  • Guaranteed level of selenium
  • Identity-preserved product

17
About the marketing channel
  • Developing a market for a new functional food is
    likely to be high cost and of substantial risk
  • Few are currently interested so you are starting
    from scratch
  • There are substantial barriers to entry
  • Research, product development, marketing
  • FDA approval for health claims
  • Rapid, accurate test for selenium level shows
    promise but not yet commercialized.
  • The marketing channel needs educating

18
Questions
  • 1. Outline the marketing channel for wheat.
  • Identify the key functions and the decision
    makers / participants.
  • Include constraints faced (particularly in that
    they will affect industry coordination and
    information flows, and align incentives of
    various participants).
  • Identify potential partnerships.
  • 2. Identify specific products within the
    marketing channel (e.g., wheat versus bread).
    What factors affect the decision regarding
    product development?

19
Questions
  • 3. A high-selenium product can be brought to
    market with a guaranteed level of selenium (based
    on testing) or simply grown on high-selenium
    soils (based on identity preservation).
  • What type of channel relationships are necessary
    for each?
  • What option is most appropriate?
  • 4. What additional information is necessary to
    decide whether it will be profitable to bring a
    high-selenium product to market?
  • 5. What are the risks associated with introducing
    and marketing a high-selenium product?

20
Some instructor notes
21
Partnerships will be important
  • Who is well-positioned for partnership?
  • Check-off groups are an option to provide
    coordination of production issues, generate
    market data, assist with trade partnerships,
    interact with scientific communities
  • What will define the partnership?
  • Can that / those partnership(s) be developed now?

22
Wheat Marketing Channel
  • Selenium is currently not a preferred wheat
    characteristic (opportunity cost idea)
  • Issues
  • Defining your product and consumer
  • Testing
  • Storage
  • Transportation
  • Blending

23
Wheat Marketing Channel
  • SJH Company, Inc. recommended the following
    steps
  • Implement identity preservation of selenium wheat
  • Obtain FDA health claim approval
  • Develop a brand concept
  • Develop a marketing strategy
  • Develop a business plan
  • Find a sound business partner

24
Issues Information needs
  • Testing
  • Cost
  • Need (number of tests, point of testing)
  • Accuracy
  • Labeling (what are the rules? what will the
    market accommodate?)

25
Market research needs
  • Will be product specific
  • Value of high-selenium attribute (including
    stacked with other traits)
  • Value of natural source of selenium
  • Effectiveness within existing marketing channels,
    of marketing and promotion strategies
  • Push versus pull marketing strategies
  • Products of particular interest and with
    particular economic promise.

26
According to SJH Company, Inc.
  • Key success factors (selected and paraphrased)
  • Avoid focus on prevention of specific disease
    promotion and rather focus on overall health /
    well - being
  • Use an extensive marketing campaign to
    communicate / educate your market
  • Rely on science, but do so simply
  • Work on FDA approval for health claim
  • Secure broad and dependable channels for product
    placement / distribution

27
Take home messages
  • We need to change the way we do business, but
    models exist for us to follow.
  • This is a high cost / high risk venture. Share
    the cost / risk.
  • There is money available -- use it
  • Incorporate educating the marketing channel
  • Keep an eye on competition from outside and
    within the marketing channel
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