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AECN 225 Exam 1

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What is marketing & common properties of it?
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Marketing is the selling of a product. Common properties include Brings Buyers and Sellers together, establishes market prices, Moves product through the market for consumption, Makes products more desirable.
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What is food marketing?
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Performance of all business activites involved in the flow of food products services from the point of initial agricultural production until they are hands of consumers. Begins with production decisions, Competitive and Complimentary, Management decision making, Involvement of input markets
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What is the agricultural marketing system and who are the 3 key players?
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Agricultural Marketing System is all parts of the process that add value to a product, including Farming, Storage, Transportation, Processing, Wholesaling, Marketing, Retailing. 3 Key Players Producers, Marketing Firms and Consumers.
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What is the overall goal of the marketing system?
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Goal to Balance Conflicts. Generate most efficient flow of goods and services from producer to consumer.
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Understand the five basic economic questions that are answered with agricultural marketing.
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Agricultural Marketing is Arena for organizing and facilitating business activities and for answering basic economy questions. Answer What to produce, How much to produce, Who should procure it, How to produce, How to efficiently distribute production
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Understand what markets do
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Markets Facilitate Exchange, Create value, Contribute to efficiency, Assist in efficient allocation of resources
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Be able to identify and describe and give an example of the 4 types of Utility
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Utility is Form Utility the value added to a basic commodities when they are converted into finished products (wheat bread, corn feed), Place Utility is transporting a good to a space that adds more value, Time Utility (The value added to products by changing their time of availability to users through storage operations) Possession utility (The value added to products by transferring title from sellers to buyers; also referred to as ownership utility)
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What is the value added process?
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Value added is Process of creating or refining the utilities of a product and increasing its value or satisfaction to the consumer. Each change in a product should “add value” in a food marketing channel
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How has the marketing bill changed and what are we paying for now?
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Marketing bill is 6X larger than the value of farm output. We pay for extra processing every business who touches food as it moves from farm to the consumer’s mouth is part of the food marketing channel.
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Understand the difference between macro-marketing and micromarketing
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Macro “Big Picture” All business activities involved in the forward flow of goods and services from producer to consumer. Micro individual decision maker. Performance of business activities that direct the forward flow of goods and services to customers, accomplishing the farmer/firm’s objectives.
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Understand the Macro approaches to study food marketing and their uses
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Functional Approach (understand the three functions)
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Functional – what gets done 3 Functions Exchange Functions (Buying and Selling) Physical Functions (Storage, Processing, Transportation) Facilitating (Financing, Risk bearing, Standardization, Intellectual property, Market intelligence gathering)
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Uses – Effect not only cost of marketing food but the value of food products to consumers, Eliminate “middleman” but not marketing functions, Marketing functions can be performed by anyone or anywhere in the food system Institutional Approach (understand the different marketing middlemen) Institutional- who does what Individuals or business concerns – Specialize in performing various marketing functions involved in purchase and sale of goods as they move from producer to consumer
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Merchant middlemen-
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Take title to the products they handle (retailers) sell to retailers, other wholesalers, industrial users (wholesalers)
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Agent Middlemen –
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Act only as representatives of their clients, income from fees and commission. Commission men- take over physical handling of product, arrange for terms of sale, collect, deduct their fee and remit the balance to the seller. Brokers- Do not have physical control or ownership of product. Follow direction of buyers and sellers, have less influence in price negotiations. Speculative Middlemen- Buy and sell products, major purpose of profiting from price movements, traders, scalpers and spreaders.
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Processors and Manufacturers-
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Add time, form, place and possession utility to raw farm products
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Facilitative Organizations-
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Aid various middlemen in performing their tasks
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Institutional Approach
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aids in understanding of why specialized middlemen exist in food industry.
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3 reasons middlemen exist
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1. Division of labor and specialization, economies of scale, Reduce market search and transaction costs
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Behavioral Systems Approach (4 types of problems)
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Behavioral- why different Input-output system, Power System, Communications system, Behavioral system for adapting to change
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Understand the Micro approaches to study food marketing and their uses Process by which firms develop and implement programs to assist in satisfying customers and making a profit. “Find Wants and Fill Them” Product differentiation, Marketing Segments
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What is the marketing management approach?
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How to make a profit.
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Marketing mix vs. marketing strategy
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Marketing Mix- Price, Product, promotion and place Marketing Strategy- Firms choices of target markets and marketing mix
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How does it apply to farmers?
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Direct flow of commodities from their farms in ways that best serve their objectives Effective micro marketing (purebred livestock breeders) Collective action (checkoff programs, cooperatives) “managers” perception
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What is Micro procurement and difference compared to micro marketing
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Micro Procurement is performance of business activities that direct the flow of agricultural commodities to a firm to satisfy its objectives. Organized set of activities. One firms marketing program is another firm’s procurement program
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What is efficiency?
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Measured as ratio of output to input.
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Marketing inputs-
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Resources necessary to perform the marketing functions
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Marketing outputs-
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Utilities that provide satisfaction to consumers
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2 Ways to increase marketing efficiency
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operational efficiency, pricing efficiency
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Understand consumer sovereignty, issues with it and the three conditions Consumer Sovereignty- Satisfy customer at a profit 3 Conditions 1. Real alternatives to choose from 2. Reliable and accurate information, 3. Prices reflect all private and social costs of producing and marketing products
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What does the statement: “Market first, then produce the product”, mean?
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Promote product see if demand then produce
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What are the farm marketing decisions?
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Choosing intermediates – selling price how to promote products, farm marketing decisions, what to sell and how much distance economize of size specialization increasing, selling price, how to promote products, choosing intermediaries
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Why do we have geographic concentration of production?
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Climate, land, technology, varying costs of production, location, climate, technology
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In understanding “what to produce and market”, what are characteristics of product that might drive the decision?
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Raw material, bulky, perishability, storable vs. Non-storable, quality variation
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Understands farmer’s decisions in regarding “how much to produce” and what might impact it.
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Due to biological lags, decisions made on expected rather than realized prices. Production decisions may be made months or years before price is known. Realized price affected by time of sale, size of crop, possible shifts in demand.
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Understand difference between commodities and differentiated products
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Commodity – economic good that can be legally produced and sold by almost anyone. Differentiated product – economic good that belongs to a single seller and may be patented, copyrighted or trademarked
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Understand the control of agribusinesses
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Factors that impact location, structure of agribusiness markets, concentration of firms
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Factors that impact location –
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Firms at beginning of market channel located in production areas – Location of processors: Tends to be supply oriented if commodity is perishable or cheaper to transport after processing. May be market oriented otherwise, Firms at the consumer end of the market channel (wholesalers, retailers) located in consumption areas. Structure of Agribusinesses Markets (Numbers of buyers and sellers, Relative size, degree of product differentiation, ease of entry) Concentration of firms (concentration rations indicate percentage of industry salaries or purchase controlled by the few largest firms. Measurements provided by Census bureau 4 firm concentration above 50% considered concentrated industry. Rising concentration in food processing- trend toward conglomerate food processors.
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Discuss and understand 5 influences of food preferences
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Functional & physiological values of food, Socio-psychological values of food, Economic values of food, Availability of food, Consumers’ knowledge and information about foods
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Understand food consumptions patterns overtime
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Some items increased some others Increased vegetables, fruit decreased meat
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Understand demographics and how they have impacted food preferences
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Population, Age and Education, Immigartion, Mobility-Urbanization, Location
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How does household’s consumption impact food preferences?
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Small vs. large family, head of households, appliances
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How does income impact food consumption?
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Effective food demand – Needs and ability and willingness to satisfy those needs with income. Income elasticity – Responsiveness of food consumption to an increase in income.
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What is the increasing income effect?
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Don’t buy more pounds of food, reduction in consumer’s share of income spent on food, broadening of product bundle of attributes most valued, rises in convenience foods
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Commodity Processor
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– takes a raw agricultural commodity from a producer and processes into something more acceptable to consumers and food manufactures
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Food Manufactuer-
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mix raw agricultural commodities and processed food together to make a product that does not resemble the ingredients.
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What is the goal of the processor as a coordinator?
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Goal: to keep organization running with flow-through that is profitable. Profitable operation requires careful management of volume and margin
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Understand adequate volume and processor’s margin
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Adequate Volume
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Costs are minimized when a firm and its plants operate at nearly full capacity
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Processor’s margin-
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what he obtains for his services
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Procurement in the Spot (Current Cash) Market –
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Processor achieves advantage by better timing of purchases, anticipating when farmers are anxious to sell. Requires monitoring of both private and public sources of market intelligence.
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Procurement Contracts-
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Reduce both flexibility and uncertainties, may give processor “outs” in case of strikes “acts of God” and so forth. May allow for price discounts or even refusal of delivery if commodity quality does not meet contract specifications. May or may not fix price.
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Procurement by Production Contract-
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Agreement between tow business entities to produce a good. Put processor in the business of production. Processors select producers largely based on geographical location
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Procurement by Labor Contract-
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Agreement between employer and employee to carry out specific tasks. Processor is producer; assumes production risks as well as profits and losses. Production in one’s own facilitates by one’s own employees, representing complete vertical integration.
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Procurement from a Bargaining Cooperative-
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Processor bargains with cooperative over price and quantity. Prices paid by all producers likely to be same. Processors may feel cooperative hinders communication with individual producers. Producers favor cooperatives because of quantity sales, higher prices and more efficient market timing.
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Livestock Procurement-
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Most livestock procured through non-cash methods. Decisions of packer in organizing total procurement based on several factors: How hard is operation relative to nearby competitors? Are his purchases large enough to affect marketing price? To what extent are supplies available through other producers?
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Pork Procurement-
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Methods have evolved rapidly. Focus on economies of size motivated rapid expansion, management efficiencies, use of production contracts. Processors have integrated vertically.
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Cattle Procurement-
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System involves a staff of cattle buyers, Packers maintain excellent communication system to keep buyers informed. Market information published as Yellow Sheet and Meat Sheet and by AMS division of USDA. Packers buy on carcass grade and yield.
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Vegetable Procurement-
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Value to be attributed to raw product depends on market factors that are difficult to anticipate. Vegetable processor makes annual price determination. Little direct competition in negotiation of contracts; processor typically procures within 50-mile radius of plant. Processor buys on grade and yield. Wheat Corn,
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Soybean Procurement-
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Grain and soybean channels have considerable vertical integration. Limited organization of processors. Inventory management: On-track buying, back-to-back trading. Use of basis pricing and basis trading. Consider convenience yield in determine inventories
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Processor Procurement- Alternatives for procurement systems that lead ot difference. Between independence of farmers, extent of capital investment and risk assumed by processors, roles of marketing agencies and market news.
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Marketing Mix:
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attention to a set of activities including product design promotion, channel organization and pricing.
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Product Strategies Goal:
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transform an undifferentiated low profit commodity into differentiated, branded, high value -added, profitable product. Emphasize quality, convenience, packaging, nutrition, price
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Promotion-
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communication of good, positive aspects of the marketer and product to potential customers. Includes Advertising, Personal Selling, Free Samples, displays
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Place-
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Marketing manager tries to develop best conduit to customers
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Price-
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important part of marketing mix; can be perceived as indicator of quality. Processor typically cannot control the retail price but can influence it. Factors include product newness and uniqueness, costs, desired margins sales and projections
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Understand branding –
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Name, term, symbol or design that identifies the seller and differentiates the product from those of competitors.
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Product-
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Convenience sells, Packaging: protective, attractive, easy to open and reseal, sized correctly. Highly differentiated successfully branded products mostly highly processed dry groceries.
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General idea of the five pricing strategies
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Gourmet strategy High quality – high price Value Pricing lower price- quality appeal, not everyone wants the highest quality product Psychological pricing Strategy higher price- status advertising PackagingPrice discounts (2 for 1)
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General idea about what new products are
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Innovative items, completely different. Distance products new to a firm, product line extensions, product improvements. Estimated 20% of sales are from new products. Estimates of new product success vary
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Understand chain vs. independent vs. affiliate wholesale-retail
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Chain 11 stores or more under one ownership, Independent 1-10 stores under one owne]rship, Affiliate- Independent retailer associated with a wholesale. Voluntary affiliate vs. cooperative affiliate
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Understand differences/similarities between private label brands and processor (national) brands
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Private Brands- give retailer higher margins and consumers lower prices, Private brands still less popular, Retailers believe private brands can develop consumer loyalty to store.
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Understand the retail market structure
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Retail structure concentrated at local level. Consumers tend to shop for food within three miles of home. In most Mas, a few chairs have over half of market. Entry by new stores not easy
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Understand the four ways retailers compete for customers
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1, New Formats – Growth of Convince Stores, Growth of Super Stores, Growth of Combination Stores 2. Location, merchandising, atmosphere – Non-price competition, New services better service. 3. Promotion – Advertising helps create store’s image. In-store promotions often paid for by company providing product; slotting fees charged. Promotional devices less popular today. Pricing – Variable price merchandising, Price specializing, Everyday low pricing
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What is the food service industry?
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Public eating places – Restaurants, fast-food, bars, amusement, venues, clubs. Institutional food sector- Referred to as HRI (hotels, restaurants, institutions) Schools, colleges, military service, hospitals, prisons, etc. Food Service industry has steadily eroded market share of food retailers
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What is franchising
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Franchise (owner of trade name and concept) licenses franchisees to operate under name and format. Franchisees typically pay royalty fees. Multi-unit franchisees growing more popular