Ag Marketing & Sales: Chapter 5

What are the 2 large segments of consumers that the U.S. food market might be categorized by?
1. At-home market
2. Away-from-home market
Define: At-home market
A market buying at retail
Define: Away-from-home market
A restaurant and fast-food market
Define: Farm Value
The share of consumer expenditures on food going to farmers
Define: Marketing Bill
The share of consumer expenditures on food going to agribusinesses
Farm and Agribusiness shares of the market
– The relative shares vary from year to year; generally, the farm value in recent years has been 1/4th or less of the entire share.
– The agribusiness share has obviously grown relative to the farmers share.
– The agribusiness share of consumer dollars spent in food service is much larger than the share in food stores because of the larger costs required to process and serves foods in restaurants and other eating places.
Define: Metropolitan Area (MA)
– Includes at least 1 city or urbanized area of at least 50,000 people and has a total population of at least 100,000.
– About 3 or every 4 Americans live in a metropolitan area.
Define: Consolidated Metropolitan Area (CMA)
– This consists of the 20 largest metropolitan areas, each has a total population of at least 1 million, and each includes 2 or more primary metropolitan areas (PMA).
Locations of Markets
– The final markets for food are where the people are. Although people are scattered coast to coast, the fact that there are great differences in density is important.
– MA’s are heavily concentrated east of the Mississippi River and along the Gulf and West coasts, though most states contain at least 1 MA.
– The markets are even more concentrated from the point of view of food management and handling than suggested by the data on MA’s. That is
What kind of MA’s are the larger wholesalers of food located in?
The Larger ones
Where does the food for the smaller urban and rural areas funnel through?
The Larger MA’s
Define: Consumer Decision making
The process of valuing the attributes of products relative to perceived costs in selecting one over another – is hardly systematic, but the process can be described as going through a series of stages.
What are the 5 stages of the consumer decision making process?
1. Recognition of need
2. Search for information
3. Evaluation of product alternatives
4. Purchasing
5. Post-purchase Evaluation
Define: Maslow’s Hierarchy of needs
A list of physical and psychological needs that influence personal choices; ranking physiological safety first, followed by love and belonging, esteem, and self-actualization.
Define: Product Needs
The underlying needs that influence consumer’s recognition of more specific needs to which they can relate specific products and services.
Habit patterns can be disrupted by 3 changes, what are they?
1. A change in the consumers emphasis on particular psychological needs as influenced by changes in age, income, regional residence, family status, education, employment, social status, and cultural norms.
2. A change in habitually consumed products, such as their availability, price, quality, and condition for sale.
3. A change in the consumers perceptions of consumed products and competing products as influenced by advertising, promotion, attitudes of one’s friends, and even chance events.
Define: Market Segmentation
Is the process of identifying and focusing on target submarkets.
-These reflect differences in consumers’ perceived product needs.
Define: Engels Law
A pattern of declining percentage of income spent on food as income rises was first observed in 1857 by a German statistician.
– Generally, the percentage of disposable income spent on food expenditures and incomes has been remarkably accurate for many years and in many nations.
Define: Product Positioning
A sellers strategy of placing a product into a target market in a desired position relative to competitors.
What results when a consumption increase is accompanied by stable or rising prices?
– A demand increase (shift to the right) is probably involved, and a small supply increase is also possible.
What results when a consumption increase is accompanied by falling prices?
– This is more likely to represent a supply increase.
– It represents a change in the amount demanded but not a change in demand (no shift in the demand curve).
What are the 5 demand curve shifters?
1. Shifts in population.
2. Shifts in income.
3. Shifts in supplies and prices of competing products.
4. Shifts in consumer perception and preferences.
5. Shifts in exports due to international consumer wants and preferences.
Demand curve shifters (1-5)
– The first 3 demand shifters are readily measurable, though with regard to item 3, it is often difficult to determine the exact list of products that should be regarded as competing.
– Measurements of consumer perceptions and preferences are difficult to obtain and frequently not directly available.
– Growth of population has been the biggest shifter of demand curves in the past decades.
– The 3rd shifter of demand for a particular commodity or product involves changes in the relative prices of related items and the availability of new, competing items.
Change in consumer perceptions and preferences
– These perceptions and preferences are difficult to measure.
– They can be due to:
-change in lifestyle
-change in health & nutrition
-change in lifestyle
-change in life cycle
-change in food preservatives, additives, new flavors, colors, and processed food.

– They can have positive and negative effects on demand. The Effect will depend on availability of substitute products. No substitutes means no effect.

Demand curves shifters should not be confused with what?
They should not be confused with movements along the demand curve caused by shifts in supply

Example: A short crop of apples may drive the market price up $2 per bushel. That upward movement in price does not represent a rise in demand. Nor does the decline in per capita consumption of apples represent a fall in demand. The rise in demand is the result of the short crop of apples).

Define: Income Elasticity of Demand
– The relationship between a percentage change in income and the quantity demanded of a commodity or specific product.

– The %∆ in quantity demanded, due to a 1% increase in income.

What is the formula for Elasticity of Demand?
Ey = (∆Q/Q) / (∆Y/Y)

– where Y is income

Income Elasticity of Demand (cont.)
– As incomes rise, consumers tend to buy more of certain products.

– The income elasticities of these commodities are positive, and a few even exceed unity. However consumers may turn away from some products as they become more affluent.

– Income elasticities are likely to be larger for differentiated products than for commodities.

What does it mean if income elasticity exceeds unity?
That is, a 50% increase in income is associated with a more than 50% increase of sales.
Define: Cross-Elasticities of Demand
Can be used to measure the relationship between a change in the sales of one commodity and a change in the price of a competing commodity.
– The concept is a very sensible one. However, measurement of cross-elastities is difficult.
If Cross-Elasticity of Demand is positive?
The products are substitutes
If Cross-Elasticity of Demand is negative?
The products are compliments
What does technology and innovations provide for cross-elasticities of demand?
Brings new products, new services, new cost-cutting methods of production and marketing, and new competition for old products