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Lobster marketing strategy Issues and options

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Lobster marketing strategy Issues and options Presentation to Lobster Council of Canada Charlottetown, July 6, 2010 By Gardner Pinfold Revenue Management Limited – PowerPoint PPT presentation

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Title: Lobster marketing strategy Issues and options


1
Lobster marketing strategy Issues and options
  • Presentation to Lobster Council of
    Canada Charlottetown, July 6, 2010
  • By
  • Gardner Pinfold
  • Revenue Management Limited
  • Market Research Associates

2
Why we are here
  • Gain common understanding of situation - factors
    affecting industry performance
  • Discuss marketing strategy -
  • opportunities and actions
  • Examine marketability constraints -
  • challenges and options
  • Identify next steps in the process -
  • what, how, when, where

3
Overall industry objectives
  • Build value throughout the value chain
  • Produce for highest valued markets market
    segments
  • Extract greater share of final product value

4
The industry picture not pretty
  • Revenue down by 200 million since 2006
  • Lobster supply up by 25 since 2003
  • US worth 40 less in 2010 vs. 2002
  • Global recession drives down lobster prices
  • Wholesale prices down by 40 since 2003
  • Shore prices down by 35 since 2003
  • Industry engaged mainly in opportunistic selling
  • Lobster has become price-volume business
  • Industry working on narrow to negative margins

5
Industry revenues down 20
6
Supply up 25 since 2003
7
Foreign currency worth less
8
U.S. down 40 since 2003
9
Prices reflect currency shifts
10
Harvester revenue 70-75 of export price
11
Harvesters share rises as industry revenue drops
12
Price sensitive to supply
13
Export value to US declines
14
Key markets retreat from live
15
Wide fluctuations in frozen markets
16
Industry structure wasteful destructive
competition
  • Competitive fishing - excessive capacity/race to
    maximize catch/short season/gluts/poor quality
  • Port market - industry structure guarantees
    uniform shore price regardless of quantity
    quality
  • Insecure supply - induces investment in capacity
    to meet seasonal peaks and volume-driven pricing
    to maximize capacity utilization. Difficult to
    plan when supply unstable price unknown
  • Industry fragmentation - shippers/processors lack
    market power/knowledge and bargain away margins
    to larger and more powerful distributors/customers
  • Selling not marketing - many companies diminish
    the value of the product by selling
    opportunistically out of desperation. Very few
    have the size and resources to market
    effectively.

17
Salmon consolidation moves industry from volume
to market driven
18

Summary of Industry Strengths and Opportunities for Creating and Extracting Value
Resource Plentiful resource dependable supply. Effective resource management by DFO ensures dependable supply. Canada dominates the world supply of lobster the world superpower of lobster
The inherent quality of the resource has the potential to support higher prices/margins.
Seasonal alignment with Maine maintains price and volumes
Image Lobster continues to have a premium food image among consumers despite low price cues
Canada has a positive image among international markets. International image of US is less positive
Transport New Gateway refrigerated cargo facility is the largest north of Miami, and sits next to a runway to fill a void in the Atlantic Canada supply chain.
Aqualife seafreight is a transportation option that addresses carbon footprint issues and freight cost. Effectiveness and competitiveness remain to be determined
Location Proximity to large US market offers existing market regions that are familiar with lobster and new markets for development
Access to US is easier than other countries no tariffs, same language and business environment
Innovation PEI Processors are working with a product development expert to identify new products
PEI government is funding product development and process efficiencies for that province. This could form the basis for inter-provincial diffusion of innovation to assist the Atlantic industry if cooperation can be developed.
Exposure Selling activity increased in 2009 to decrease inventories. Low prices increased exposure to the product for more consumers
19

Barriers to Creating and Extracting Value
Economy Recent and current recession fear is influencing purchasing and spending at all levels of the value chain
Exchange rates have declined relative to the Canadian dollar, stripping value out of exports
Conserver economies such as the emerging middle class in China have savings rates of 38 low incomes and no social safety net , while consumer economies such as the US have savings rates of 3.6 but are not spending on luxury items due to a focus on basics
Existing Markets Destructive internal competition is placing Canada at an extreme disadvantage in existing markets which now know that they can wait for a lower price
Low prices of Canadian lobster products displayed beside lobster from other countries, such as South America and Australia, position Canadian product as lower quality
Over-reliance on US market - more diversification needed to spread risk and create opportunity
Emerging Markets China prefers to control the purchase, so will be focused on achieving low prices. This places Canada in the position of committing/diverting supply to a lower margin, volume opportunity
There is a long time frame to develop consumption in the emerging middle class in these markets due to low incomes, entrenched traditions and lack of distribution systems.
Competition China is a low cost lobster processor that is flooding the EU with low priced product. Against these products, Canada can expect to struggle without a clear image for quality. Low quality popsicles in the EU and low prices in Japan due to Canadians undercutting each other are positioning Canada at a POS disadvantage.
Maine is aggressively promoting its lobster domestically and internationally. Maine lobster is known internationally. Maine will attain MSC before Canada. This will provide a quality cue that will further compete with Canada
France is creating an interdisciplinary coalition of supply chain participants to supermarkets to generate more value for the industry and a marketing campaign around Buy Local and quality local product
Australia is actively focusing on quality branding and supply management to build demand and to support prices.
Canada is not perceived to be promoting itself sufficiently the greater focus is on price vs quality
20

Barriers to Creating and Extracting Value
Consumers Middle income consumers are highly price sensitive, with high unemployment and are trading down to lower priced food items. Food security is a dominant concern which reduces demand for luxury foods
Local foods movements are creating a preference for foods caught or produced locally support for local producers as well as low carbon footprint and traceability/transparency are evident.
Food Service Celebrity chefs in the US are rejecting Canadian seafood due to misinformation about the seal hunt. This issue has also arisen in the UK.
The raw lobster format is too expensive despite labor and storage advantages
Chefs see frozen lobster as lower quality than live/fresh - taste difference and image difference
Live lobster is time consuming, labor intensive and space consuming. Mortality and shrink contribute to high margins on lobster menus. Aversion to shrink has caused potentially unsafe cooking of deads in both retail and food service
Issues among food service staff with killing lobsters
Retail Focus on margin growth vs volume - retail buyers are rewarded for increasing the margins - the related loss of volume/revenue is picked up elsewhere in the store.
Consolidation increases their power to set prices to a fragmented lobster industry
A greater focus on buying direct is causing underutilized importers to buy for re-export, with less emphasis on quality or origin.
Supermarket lobster is being used as a loss leader which entrenches a low price point - several instances where lobster is sold for less than cost during promotions
French packaging legislation is becoming more stringent with focused nutritional labeling on the front of the package and a minimum 3MM font changes to current packaging. There is also expected to be an extension of allergy labeling place of origin major ingredients.
Possible CO2 environmental labeling data (package content, goods and impact on natural resources through lifecycle to recycling). ADEME calculations of CO2 footprints include GHG emissions at various stages - currently CO2 labeling is voluntary. Issue is that CO2 footprint can vary through seasons and storage
21

Barriers to Creating and Extracting Value
Government Canadian governments are reluctant to propose changes, given disparate interests and the belief that change needs to be initiated by industry. DFO takes narrow view Industryharvesting. Many industry participants believe the industry needs external regulation to create change. Creates a leadership vacuum and a potential stalemate to moving forward.
The value of funding for trade missions and initiatives with uncertain or unequal benefit are areas of disagreement within the industry.
Logistics Despite proximity to Halifax International Airport, Air Canada is not perceived as helpful to exporters in Canada and their foreign importers regarding scheduling, pricing or handling
Flight times out of Logan Airport (Boston) are more accommodating to the needs of food service suppliers who frequently need emergency shipments later in the day.
FedEx rates have almost doubled in the past 5 years and schedules are not flexible for emergency shipments. Pick-up from FedEx requires that all other shipments be loaded onto their trucks before lobster can be accessed, later in the morning of the following day.
Trucking lobster to USA airports requires extra time in transit as well as the time to season the lobster in water before loading them for air transit. Quality issues are a factor with the need to go through the US
Air freight rates in the US are lower than in Canada
Industry Issues A few large firms have the budgets to open markets and invest in product development and process development that raise the level of the industry. But, unequal cost structures cause the market leaders to be undermined, followed by the subsequent undermining of the Canadian industry in markets that force prices down due to low cost operators that enable this behavior.
The Canadian industry is fragmented creating a weakened and unbalanced trading position with powerful, consolidated customers. Low barriers to entry make make industry consolidation difficult.
Effects of fragmentation make the needed cooperation and collaboration difficult due to lack of trust, destructive competition that competes away the long term value for the industry, the perception that autonomy control , quality inconsistencies.
Fragmentation, distrust and insecurity generate weakness and poor decision-making. Panic to buy and panic to sell forces prices to the bottom. Inability to plan
The industry believes it doesnt have the ability to lead change due to real and perceived resistance to change.
22

Barriers to Creating and Extracting Value
Industry Issues Currently, an estimated 10-15 of global buyers are quality buyers. This leaves 85-90 of buyers who are looking for the lowest price and are undermining the opportunity for higher margin sales. This erodes the focus on quality at each level of the value chain
Skepticism about the value of generic marketing
Variable provincial regulations and practices generate an uneven playing field
A price-setting mechanism will only be successful if all provinces agree to participate and a critical mass of participants is required.
Uneven relationship with DFO - industry definition focuses on harvesting fails to recognize and address constraints imposed on shippers and processors
Succession and exit strategies at all levels are uncertain
Access to capital is constrained due to industry instability. Reinvestment capability minimal due to low margins
Lack of industry confidence in the inherent value of the resource low resistance to privateer pricing and trade demands. Volume-driven trumps value-driven decision making.
Lack of timely information entrenches the habit of looking backwards for guidance a backward looking supply- driven industry vs a forward looking, market-driven industry where pre-sell enables market and industry planning, and improved cost/operating controls
Low barriers to entry into processing and shipping serve to reduce the value of businesses. Consolidation for greater power is undermined by new entrants, who may have previously caused industry damage through low balling price - no consequences for irresponsible actions
Unpredictable quality in Fall fishery issues with quality consistency within the resource and among products
Early adoption of eco-certification and traceability are an opportunity to build an image of proactivity as these will be required to enter and remain in markets, but the Canadian lobster industrys lack of a collective commitment, confusion and conflicting views, positions the Canadian industry as a follower vs a leader.
Supply-security with accounts receivable by shippers and processors, and cash sales on the wharf add costs and negative competition.
Loyalty sells for 10 cents a pound - unstable basis for building a sustainable business model
23

Barriers to Creating and Extracting Value
Shippers Inability to provide a timely price to customers - lost business is the result based on customer interviews
The industry norm of matching the price generated by one buyer who may be buying low volume - the lack of confidence to refuse to match- fear of being cut off.
No guarantee of supplycant invest in equipment, build markets, when there is no assurance of product.
Processors Inability to provide a timely price to customers - lost business results based on customer interviews
The industry norm of matching the price generated by one buyer who may be buying low volume - the lack of confidence to refuse to match - fear of being cut off.
No guarantee of supplycant invest in equipment, build markets, when there is no assurance of product.
Increased labour costs resulting from having to process gluts and associated low quality, crisis processing (e.g double freezing) in order to manage the volume
Fear that growth and increased margins will attract competition reinforces survival tactics vs strategic planning. Low margins prevent reinvestment in innovation, product development and process efficiencies
Rigorous food and plant safety standards are costlybut necessary
Buyers Low barriers to entry into the industry as buyers and inconsistent entry criteria across provinces
Not all buyers are aware of the markets ability or inability to support prices - causing unsustainable price points and perceptions of collusion to keep prices low when shippers and processors are subsequently forced to match prices to access supply
Harvesters Unaware they are capturing the largest part of the export price
Holding lobster, to await higher prices, in water that is too warm reduces quality and price potential.
Strong resistance to the subject of supply management prevents consideration of the subject. Lack of understanding of supply/demand dynamics. New season gluts have a downward impact on the value of the full season
Harvesters who are investing in quality are paid the same as harvesters who are not investing in quality - reduces incentive to be quality-focused and to make investments in quality practices
24
MARKETING STRATEGY
INDUSTRY MARKET- ABILITY
25
Strategic Options
Status Quo
Balanced System
Marketing Only
Marketing 6 Ps
Marketability RACE
Market Focus
  • Develop New Markets
  • Branding for Recognition
  • Generic Marketing for Demand
  • Uncertain basis for supporting
  • brand claims and demand

26
Where Are We on the Marketing Ladder?
STRATEGIC MARKETING FOCUS Globalization
increases competition 6Ps - people, product,
price, place/channels, place/markets, positioning
CUSTOMER FOCUS More competition - The customer
has a choice. How can WE be that choice? 5Ps-
people, product, price place, positioning/promotio
n
SALES FOCUS volume is the measure of success 4
ps product, price, place and promotion
PRODUCTION FOCUS sell what you have
27
What Challenges Is Marketing Facing Today?
  • Consumer shift driven by necessity
  • Consumers are looking for ways to trade down
    without losing quality
  • Consumers are trading out of fresh and moving to
    frozen or canned
  • Consumers seeking value by
  • Buying less per trip
  • Buying more frequently
  • Seeking deals/coupons/promotions
  • Consumers are buying select items to stock up on
    specials
  • Consumers are changing retail formats
  • Consumers are visiting restaurants less and
    supermarkets more

Source Perishables Group 2009
28
Consumer Shifts Occur Over Time and
Geographically
Economic-demographic shifts in China and India
2000s, emerging middle class, more
consumption, similar to Western world 10-40 years
ago (BUY MORE, BUY DIFFERENT
Demographic Boom 1946-1964 population explosion
in Western world, increases consumption needs
and potential
Cultural Effect 1970-2000more freedom of
choice, more consumption, more options among
more peoplemore demand
Global Economic Recession late 2000s, new
normal and new normalizer for all countries (BUY
LESS, BUY HIGHER VALUE)
Environmental Attitude Shift 2000s, consideration
of consumption effectsgreater discrimination
Consumption Shifts late 2000s, more meaning,
more discrimination re consumption in NA and EU
(BUY LESS,BUY BETTER)
There will be a need to BALANCE emerging
Consumer economies with existing Conserver
economies
29
Marketing Objective Balancing the Moving Parts
That Connect the Industry and the Market
MARKETING STRATEGY
Demand
Price
Supply
Quality
INDUSTRY MARKETABILITY
30
The Impacts of Unbalanced Marketing and
Market-ability
Australia focuses on branding and supply
management Australian tails sell for 45.99
pound in USA and Japan
AUSTRALIAN MARKETING STRATEGY
INDUSTRY MARKETABILITY
Maine lobster is actively branded and meat is
selling at 29.99/pound in USA. But lack of
consistency in India, for example, has eroded
their position. Domestic strength and export
weakness.
MAINE MARKETING STRATEGY
INDUSTRY MARKETABILITY
Canadian lobster is selling in Japan lower
than wholesale. EU markets wait for lowest
prices to be offered. US says Canada is the
world lobster Superpower..
CANADIAN MARKETING STRATEGY
INDUSTRY MARKETABILITY
31
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32
Marketing Strategy
Building Blocks
Positioning Strategy
People Strategy
Place/Markets Strategy
Place/Channels Strategy
Product Strategy
Pricing Strategy
33
Marketing is a System of Strategic Decisions and
Priorities
Marketing Options
Positioning Communication Strategy
People Strategy
Place/Markets Strategy
Place/Channels Strategy
Logistics
Effort on Rescue v New Development Markets
Affluent 10 x 4/year (premium, lower price
Sensitivity)
  • Messages
  • Canada Brand
  • Generic
  • Health
  • Portion Sizes
  • Convenience
  • News

Value Chain Control
Retail v Food Service
Multi-channeling
Middle Class Mainstream X 1/year (price/commodity
buyers, high price sensitivity )
Product Strategy
Pricing Strategy
Existing v Emerging Markets
Quality Grading
  • Media
  • Social/digital
  • Print.
  • Electronic
  • POS
  • Packaging
  • Targets
  • Industry
  • Trade
  • Consumers

Long term v short term thinking
Same v New
Innovation v Invention
Marketing for a Premium v Selling for Volume
Canners v Markets
Live v Frozen v Prepared
Relational v Transactional Selling
Price maker v price taker status
34
Effective Marketing Strategy starts with
Market-Ability
POSITIONING
R A C E
PEOPLE
PRICE
PRODUCT
PLACE/CHANNELS
PLACE/MARKETS
35
Marketing Actions RACE Actions that answer the
Question What do we need to DO differently to
leverage strengths, minimize weaknesses, create
opportunities and eliminate barriers?
REDUCE Redirect Decrease Minimize Weaknesses ADD Expand Increase Enhance Strengths CREATE Re-create Develop New Start Opportunities ELIMINATE Remove Stop Terminate Barriers
36
Putting It All Together
Reduce Add Create Eliminate
People
Positioning
Price
Product
Place /Channels
Place /Markets
Weaknesses Strengths Opportunities Barriers
d
d
d
37
Reduce Weaknesses Add to Strengths Create Opportunities Eliminate Barriers
People Harvesters Buyers Processors Shippers Customers Consumers Narrow the focus on the struggling middle class target market the low price, low margin market Increase focus on High Target Market to take the focus off price as a barrier. Focus on informing all harvesters about costs in the industry beyond the wharf and the connection between controlling consistency of quality and supply, in order to build stability of price and demand Create effective and transparent industry information dissemination channels (vertical and horizontal) to support understanding, trust and cooperation. Eliminate negative perceptions that undermine trust (such as conspiracy theories) with transparency Eliminate inconsistent lobster handling practices with education
Positioning Reduce opportunities for misinformed news issues, such as sealing, that arise in the absence of alternative imagery and knowledge of Canada. Reverse the slide into commodity status with a quality focus Reduce the current quantity focus that defines the Canadian lobster sales model Add a strong quality focus that will redefine the Canadian position and product in the marketplace Add Quality options- Canada Gold and Silver (aspirational and accessible), to clarify the difference between price points and to position for quality pricing Add new communication channels (social media) to introduce and support branding. Create generic consumer focused marketing, to generate demand for quality that pulls quality through the industry from wharf to shelf (Pull marketing) Create a compelling value proposition that drives more consumers to ask for and about quality distinctions Create an open for business climate in the industry Eliminate Canadas country/supplier anonymity with a clear commitment to traceability
38
Reduce Weaknesses Add to Strengths Create Opportunities Eliminate Barriers
Price Reduce focus on transactional, low margin volume selling, Reduce price volatility which causes retailers and food service to de-list Increase relational selling, marketing for a premium. throughout the supply chain This is a focus on increasing margins to enable re-investment and build a sustainable ROI Increase speed of price provision to buyers to increase capacity to plan Build and implement a price-setting mechanism focused on quality, stability, efficiency and unity. Include an industry- minimum price mechanism as a base for incremental quality to incent harvesters to uniform quality practices. Eliminate price-taker status, Price Matching Undercutting, Counter-productive competition, Short term focus
Product Reduce supply to support higher prices and rebuild from commodity status then manage supply to the markets developed . Reduce the supply of low quality products that are negative cues for processed. Reduce the tendency to oversupply a product that works to avoid flooding Reduce the incidence of inconsistent quality product from Canada that sets the stage for low pricing. Match processing capacity to the catch through consolidation (reduces OH and labor supply costs) Increase consumer exposure with new lobster products to increase choice and frequency. Increase the distinction between canners and markets to create two clear products and price points, and to leverage that Canners are uniquely Canadian- smaller, good quality and taste. Build an innovation vs invention focus - collaborate on value added formats to diversify risks and costs. Focus on both in-shell product development, and meat products, such as claws /knuckles. Work with McCains or other value-added companies to develop the next chicken wing product using lobster Create a live and processed product deployment plan that aligns with market goals Less live to existing markets to increase price divert live to new markets to generate interest (Asia) develop processed, convenience formats for existing markets already familiar with lobster Eliminate product origin confusion with packaging and live product markings. Eliminate gluts that affect prices through out the season, increase costs and threaten quality Eliminate competitive fishing that drives up harvesting costs and results in unpredictable supply
39
Reduce Weaknesses Add to Strengths Create Opportunities Eliminate Barriers
Place /Channels Reduce reliance on powerful buyers by expanding the customer network Add new value chain strategies to increase control, generate new growth areas and options for extracting more value Digital channels Value chain control, work-arounds Multichanneling Commit to disciplined cooperation to create a dominant market presence consistent with Canadas dominant supply status. Another term for this is connected autonomy that recognizes separate entities working together on selected initiatives Eliminate channel weakness resulting from industry fragmentation and negative competition
Place /Markets Temporarily redirect supply from low value markets to rebuild quality image and demand Add emerging markets Add new regions in existing markets (second tier) for a balanced market portfolio Focus on selected markets to build depth Eliminate jumping from market to market
40
Where To Start?
Marketing Options
Positioning Communication Strategy
People Strategy
Place/Markets Strategy
Place/Channels Strategy
Logistics
Effort on Rescue v New Development Markets
Affluent 10 x 4/year (premium, lower price
Sensitivity)
  • Messages
  • Canada Brand
  • Generic
  • Health
  • Portion Sizes
  • Convenience
  • News

Value Chain Control
Retail v Food Service
Multi-channeling
Middle Class Mainstream X 1/year (price/commodity
buyers, high price sensitivity )
Product Strategy
Pricing Strategy
Existing v Emerging Markets
Quality Grading
  • Media
  • Social/digital
  • Print.
  • Electronic
  • POS
  • Packaging
  • Targets
  • Industry
  • Trade
  • Consumers

Long term v short term thinking
Same v New Products
Innovation v Invention
Marketing for a Premium v Selling for Volume
Canners v Markets
Live v Frozen v Prepared
Relational v Transactional Selling
Price maker v price taker status
41
Barrier 1 - nothing that matters is predictable
  • Supply
  • Size, timing and quality of landings are unknown
    and impossible to predict with current management
  • Competitive fishing creates pressure to maximize
    catch leading to short seasons, gluts, poor
    quality
  • Shippers/processors have no supply security
    difficult to develop production plans to respond
    to customer needs
  • Price
  • Shore price set after season starts reflects
    market power of distributors customers
  • Industry structure results in race to the top at
    the wharf and race to the bottom in the market
  • Price rules in the market because lobster is a
    commodity and players are volume sellers

42
Barrier 2 Industry structure creates/reinforces
Barrier 1
  • Harvesting excess capacity competitive fishing
    result in high volumes short seasons
  • Shipping ease of entry intensifies shore
    competition nullifies effectiveness of price to
    influence quality quantity
  • Processing over-capacity creates pressure to
    cover overheads, driving volume buying and
    forcing up shore prices
  • Shippers and processors volume-driven sellers
    prone to undercutting to meet cash flow needs
  • Volume focus intensifies competitive environment
    and undermines investment in market development
  • Industry fragmentation many sellers with volume
    focus and limited knowledge mean distributors and
    customers rule the market and extract the value

43
Where to start? Marketability is the foundation
of marketing
  • Barrier 1 options
  • Supply (quantity/quality)
  • Lower trap limits
  • Trip limits
  • Quotas (IQ)
  • Fleet rationalization (ITQ)
  • Adjust season (quality)
  • Price (shore)
  • Negotiate (CB)
  • Arbitrate (FO)
  • Collaborate
  • Formula (PM)
  • Auction
  • Barrier 2 options
  • Harvesting capacity provide fleets with the
    tools to adjust
  • Shipping develop/impose stringent quality
    standards. Regulate entry.
  • Processing eliminate all direct indirect
    financial support to plants. Restrict entry.
  • Industry fragmentation allow vertical
    integration provide a basis for consolidation
    collaborative/joint marketing to limit
    destructive competition.
  • Do nothing let the Barrier 1 options take
    effect.
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