Pork and the New Zealand Consumer

Marketing abounds with theories on almost every aspect of why consumers behave the way they do. While many of these theories are elegant, few of them have any predictive capability because they are invariably reliant on poorly defined concepts.

A.S. Ehrenberg of the London School of Economics has used mathematical methods to allow prediction of consumer behaviour, and these same tools allow us to validate the assumption that better quality will lead to increased sales.

There are some terms that need to be clarified:

Penetration, b – the proportion of all potential buyers in a population who buy a brand at least once in a time period.

Purchase frequency, w – the average number of purchase occasions for those who purchase at least once in a time period.

Sales, m = bw

Ehrenberg has derived much of his information from consumer panels who have been held together over long periods of time in both the UK and US, and who are interviewed regularly.

   Buying Habits      Do we buy at regular intervals?

Habitual purchase shows up in the panel data as an individual tendency to buy an individual brand every week or month. This does apply particularly to frequently purchased items such as meat, newspapers and cigarettes.

Nevertheless, most markets still show stationarity, in that the same people buy the same amount, or because the increase in the tendency to buy among some people is matched by a decrease among others. Also it is found that purchase levels return to near normal after price promotions and temporary stockouts.

Because individually and collectively the purchases of a brand in two equal time periods tend toward the same amount, a probabilistic model of purchase can be constructed which describes purchase behaviour. This gives an explanation of how people act rather than why.

Do some people by more regularly then others?

People who are heavy consumers in one period tend to be heavy consumers in any other. There is a habit in the level of consumption.

This suggests some important questions for the Marketing Team as to where their efforts should be directed, suggesting that greater return may be gained by increasing frequency rather than brand penetration.

How does the type of product affect purchase?

The fact that some products have higher penetration and purchase frequencies than others is not an issue, although some products show exceptional repeat purchase frequencies such as beer and cigarettes. While many manufacturers claim high loyalty to their brand, panel data has indicated otherwise. This shows that sole brand loyalty and repeat purchase depend mainly on purchase frequency and slightly on penetration so that a knowledge of these variables is sufficient to predict repeat purchase for any brand.

For the purposes of this discussion we consider pork, beef, lamb, veal, mutton and poultry as brands within the meat category.

Earlier it was noted that repeat purchase proportions depend mainly on the purchase frequency rather than penetration but note that it is the repeat purchase rate that is only slightly affected by penetration. The number of repeat purchasers is of course directly affected by penetration.

Repeat purchase can be used as a diagnostic tool. For example it helps to find out what to do about a heavily advertised new brand that has stationary new sales. Is the advertising ineffective or is the brand failing to create repeat purchasers so that sales are made up of a disproportionate number of triallists who are encouraged by the advertising? Evidence that repeat purchase is normal would favour the former, that they were below the normal level the latter.

There is an empirical regularity that is found in the market – that different brands in the same product category generally have similar purchase frequencies. Differences in brand share are marked mainly by differences in penetration. Thus big brands have large market share mainly because they have higher penetrations than others in the same product field.

The 1992 MRL reports to NZP state that market penetration by pork at that time was 45%.

The comparative purchase frequencies for beef and pork from the MRL panel were:

Table 1: Purchase frequencies, beef and pork

Given the weekly purchase frequencies of 2.1 for beef and 0.5 for pork we can determine the penetration of beef from the following equation:

                                  wX(1-bX) = wY(1-bY)

which gives beef a market penetration of 77%.

This is explained by the Law of Double Jeopardy: that the less popular brands are bought by fewer people and those that do buy these brands buy less often.

It follows from this that the relative constancy of brand purchase frequencies means that sales have to initially grow from increased penetration. Sometimes a gain in frequency may be possible by persuading customers to find new uses for the product.

                                     If the foregoing discussion explains what should be                                      happening then we need to understand why pork is not                                      performing as well as its competitors. It can be argued that                                      that the marketing boards of the competing meats spend                                      more on advertising but these only impacts on those trying the                                      product for the first time or actively switching.

                                    Pork is, and must remain, price competitive. As the offshore                                    market quotas are filled for beef in particular the domestic                                     price falls and pork falls right along with it. In fact most pork                                   is moved in this country as supermarket “specials” i.e.                                    discounted. It is the evolving nature of the market that more                                    and more product will be moved through supermarkets. As                                     far back as 1993 the supermarket groups accounted for 82%                                   of all pork sales. This has meant to some degree that the                                    supermarkets interpretation of consumer needs has dictated                                     direction for the producer.

Figure 1: Retail share of fresh NZ pork

                                  However, the single biggest factor that will reduce repeat                               purchase frequency is dissatisfaction with the product.