Malaysia Organic Certification Standard

Published Date: 02 Nov 2017

Chapter 2

Literature Review

2.1Introduction

In this review of literature, the history of the organic food industry will be discussed in an effort to establish a basic pertinent to the subsequent information. The size and scope of the industry will also be discussed to better understand its dynamic nature. This review will include strategies that can influence and motivate consumers to buy organic foods.

In this chapter, we will also try to identify and understand the relevant marketing concept which helps the researchers to develop or select appropriate marketing strategies to target the organic foods market in Ipoh area. We will go through all 7 elements of marketing Mix which is product, price, promotion, place, people, process, and physical environment to determine which of them are relevant and then figure out how we can fine tune a proper mix which can deliver added value to the consumers without sacrificing much of profit margin.

Book review, organic news article, internet sources and magazines that touch on relevant topics are being reviewed in this chapter. Keywords used for the secondary data are "organic foods market", "organic foods history", and "organic foods industry".

2.2 Marketing Mix

Marketing Mix is a conceptual model which helps a company to better meet the requirement and needs of its customer by looking through a list of elements that add values to the customers. It is very famous marketing model that is used widely by marketer in real world. All the elements in marketing mix are controllable variables of a company that interrelate to each others. To be successful, these elements must be matched closely to the specific needs of the company’s target market.

Based on Medha Behera, there are two concepts for marketing mix which is 4P’s and 7Ps. 4Ps is the most basic fundamentals marketing mix which include of price, product, promotion and place. 7P’s is a further extension of 4P’s that adds elements of people, process, and physical evidence. Every element of the marketing mix can satisfy consumers in their ways (peter & Donnelly, 2007).

It is not necessary to use all 7P’s elements marketing mix need in order to come up with a good marketing strategic. Some of the elements might be more important in certain industry compared to others. Persistence excellence in specific elements not only attracts customers but also strengthen the market position of a company or its brand name.

2.3 Product

Product is defined as physical tangible goods or intangible goods offered to the customer. Product strategy is an important element of marketing mix since it is the most important reason of customers’ purchase and greatly affects company’s sale and survival ability.

Product strategy is an important element for organic foods developer since the competitors are increasing. When placing a product into the market, many factors and decisions have to be focused and forecasted.

In the case of organic foods, the product strategy covers the foods quality, packing, nutritional information and organic certificate labelling, quality, ingredient, and effect of slimming body and so on. For example the organic foods must have nice packing and attached certificate of organic proven by union.

2.3.1 Malaysia Organic Certification Standard

MS 1529: 2001 is a standard developed by the Working Group on Organic Foods which comprise of representatives from the Department of Agriculture (DOA), Ministry of Health, Malaysian Palm Oil Board MPOB), Malaysian Palm Oil Association (MPOA), Malaysian Agricultural Research and Development Institute (MARDI), Centre for Environment Technology and Development Malaysia (CETDEM) as well as a few organic product producers and SIRIM Berhad.C:\Users\PC 101\Desktop\Organik Malaysia.jpg

Graph 2.1

This standard is established to coordinates or standardizes a set of requirements needed for food products to be recognized as organic foods and carry the authentic organic labeling. The set of requirement cover production process at farms, preparation, storage, logistics, labeling and marketing stages. To guide farmers seeking for organic standard, this standard also provides a list of accepted inputs for soil fertilizing and status, pest and disease control, food additives and processing aids. (Anon 2011)

2.3.2 Organic Food Products Vs Conventional Food Products

Although the superior attributes associated with organic foods may be difficult to identify by visual inspection, consumers purchase organic products because they believe these products can bring them better health compared to conventionally grown alternatives (Vindigni et. al, 2002). Interest in consuming organic products may relate to food safety concerns especially in recent days where news about hazardous production and handling process spurs around wildly. As a result of irresponsibility of manufacturer, toxins like dioxins, Salmonella, and other chemical residuals are found in the foods product and threaten the safety of consumers (Padel and Foster, 2005). Food safety issues have driven consumers to search for safer foods with guaranteed quality and attributes (Lockie et al., 2004).

Organic products have value if they are perceived as potentially free of some underlying factors leading to food poisoning or safety issues. A research in 2001 found that non-materialistic values such as environmentally friendly, quality of life, self-satisfaction, support to small farmers, animal rights, and others are all potentially contributing to the value placed on organic foods (Magnusson et al., 2001).

In a research conducted by Lea and Worsley (2005), it is further proven that consumers perceive organic as a healthier choice with more nutrient contents rather than conventional foods. Research by Williams and Hammit (2001) produced similar results where consumers think that organic foods are contributive to personal well being. To our surprise, there are even researches which found that organic foods are tastier than conventional food products (Baker et al., 2004; Fotopoulos et al., 2003).

2.4 Price

In term of the marketing mix, pricing is one of the important elements because it is the only P’s which directly determine the turnover of the organization. In addition, it also determines the purchase of the customers as a price too high might discourage purchase, vice versa. To get it right, the supply and demand relationship must be reflected by the pricing.

The picture below shows out some pricing strategies that are commonly used by company to sell its product.

Pricing strategies

Graph 2.2: Pricing strategies

2.4.1 Penetration Pricing

This is a pricing strategy that charges a low initial price for a new product in order to attract customers and build market share. Charging of initial low price on a product will help secure market acceptance. Once the product achieves some market recognition, marketers will then increase the price of the products accordingly.

This strategy works best when a good and service experiences highly elastic demand. This allows a new product to reach the mass market quickly and capture a large share prior to entry by competitors. Penetration pricing strategy can only be practiced when company achieve economies of scale otherwise it would be too costly.

2.4.2 Optional Pricing

Optional pricing is a pricing strategy that a company uses to increase the amount of customers spending once they start to buy the products or services. It is achieved by separating the sales complementary products and core product instead of selling them in one package. Optional product will increase the overall price of the product or service as extra margin could be gained from them. The product that is using optional pricing strategy is hand phone accessories.

2.4.3 Premium Pricing

Normally, premium pricing is used when the product is special and distinct from other product or the product might be limited product where there are limited pieces of them in the World. Alternatively, this strategy can also be used for luxury product or high value goods such like expensive watch, boats, airplanes, and some of limited product. Basically this strategy is used when the product’s value is recognized by market as being a premium or luxury goods.

2.4.4 Economy Pricing

Economy pricing is marketers sell their products with low price which mean the product to the customers are in the low price. In this strategy, the cost of marketing and manufacturing of products are always kept at a minimum. This pricing strategy is widely practiced by supermarkets on daily use product such like daily product or household products.

2.4.5 Psychological Pricing

Psychological pricing is use when the marketer wants consumers purchase the product to respond on an emotional rather than rational basis. This can influence consumers buying decision when they purchase a products or services. It studies the psychology of people and tries to create the illusion or perception that the goods or services being offered are more appealing.

To satisfy the customers psychologically, companies like to charge odd numbers of cents for its products instead of whole number pricing. For example: packing organic vegetable selling at the price of RM4.99 instead of RM5.00 per pack. Customers will experience a psychological illusion and think that they have saved some money which they have indeed done so but in negligible amount.

2.4.6 Bundle Pricing

Bundle pricing is the offering of two or more products together in a single package at a reduced price. This strategy can offer savings to both the buyer and to the seller in which it saves the cost of marketing both products separately.

Customers are gaining incentives to purchase the package as they can get more in lower prices, even though the cost to the seller may not really be that much. In fact, marketer usually planned to bundle products with high margin together so that it could reduce the cost to them.

2.4.7 Skimming Pricing

Skimming pricing is also known as market-plus pricing. This occurs when a marketer charging a higher price on its products compare to the prices of competing products. The benefits of using skimming pricing are that it allows a manufactures recover its research and development cost in a short time. It also allows a firm to maximize revenue from a new product before competitors enter the field. This strategy only applies on the company who has a substantial competitive advantage such like Panasonic, Sony and Plasma. In addition to that, the products must also be new and innovative enough to have a high perceived value to the customers.

2.5 Promotion

Promotion is the business of communicating with the customers. It will provide information that will help the customers in making a decision to purchase a product and service. Promotion can always influence customer’s purchase decision. Promotion strategies are usually used to make the consumer aware of the existence of a product or service of the company or to boost the sales figure. A promotional strategy can be categorized as the graph below:-

Graph 2.3: Promotion strategies

2.5.1 Sales promotion

Sales promotion is a key factor & strategy for marketers in charge of planning the promotional mix. Sales promotion refers to numerous kinds of incentives & techniques directed towards consumers & traders with the intention to produce immediate or short term positive effects on sales. Sales promotion also helps in stimulating trial or purchase by final customers or others in the channel. A marketer can increase the value of its product by offering an extra incentive to purchase a product or brand.

Sales promotion can help a company increase their sales in short- term only as extended promotion in the long run will adversely affect the company’s margin. When applied properly, sales promotion can save the cost of the company in television and magazine advertisement. Sales promotion not only can boost up the sales of the product, but it also can make the consumers to repurchase the product.

Role of sales promotion:-

To popularize goods and services of the producer among the potential consumers & to motivate them towards larger purchases.

To motivate the existing customers for maximum purchase.

To increase goodwill of the firm.

To educate customers, dealers and salesmen about the techniques of sales promotion.

To simplify the efforts of sales force & motivate them for larger purchase.

To stimulate maximum sales on special occasions such as Chinese New Year, Hari Raya Festivals & other such occasions.

To search for a new market & to introduce new products in to the market.

To counteract competition.

To facilitate coordination & proper link between advertising and personal selling.

To promote larger sales in certain specified segments of market.

To present a counter promotional program against the competitors.

To develop patronage habits among customers.

To prove the product better in quality & users.

2.5.1.1 Free Gift

When consumers purchase a product, they will get a free gift from the company. For example: the house wife who bought the organic food up to RM 50.00 will get a child toy or daily product such like chopstick, spoon, plate and so on. And this free gift can attract the house wife buy more or repurchase which eventually cause increase sales to the company.

2.5.1.2 Discount

Discounts are an important type of marketing promotion in which you allow shoppers to save money on specific products or product groups. Discounts are a significant part of your online merchandising strategy. You can use discounts to introduce new products, retain existing customers, or drive revenue growth. For example, Jusco always gives a discount for their member on Jusco day or J card day.

2.5.1.3 Coupons and vouchers

Coupons and voucher are tickets given to customers. It enables them to claim for deduction of the price on a product or service and is used to increase the sales of the product. Coupons and voucher can often be seen in the internet or newspapers, the consumer can cut coupons out from the newspapers or print it out from the internet to purchase goods at cheaper prices.

2.5.2 Personal selling

Personal selling is one to one promotions of products and usually involves a sales person. It is an effective way to manage personal customer relationships and could be conducted through face-to-face interaction, telephone, or video conferencing. Personal selling is highly interactive because it got lots of communication between the buyer and seller. Buyer can ask multiple questions about the feature, function and more details about the product. However, personal selling is costly because it cannot reach too many customers. In other words, it is not efficient where the customers reached per dollar spent are the lowest among all promotions.

2.5.3 Public Relation

Public relation is management of firm’s communications and relationships with its various publics. These publics include customers, suppliers, stockholders, employee, the government, public and society. It involves building a favourable image for the company or business as well as developing positive relationship with the media public. Public relation has high credibility since the message seems to be coming from a third party such as magazine, newspaper, and article. It can be conducted at minimal cost if the publicity is achieved through the right media. However, it may have the risk of losing control because what other people write or say about the product are uncontrollable.

2.5.4 Advertising

Advertising can be defined as "A nonperson communication of information usually paid for and usually persuasive in nature about products, services or ideas by identified sponsors through the various media" (Richard F. Taflinger,1996). In short, advertising create awareness of the company product. Advertising media includes newspaper, internet, radio, television, and so on. The major difference between advertising and public relation is that the company paid for the media and have great control of what is being published.

Advertising is more powerful in transferring information and massage to the huge number of consumer. Although advertising is good for building awareness, its impersonal nature and non-interactive attributes could not get customers to make a final purchase decision. However, repetition on brand through mass media helps build customer trust and product positioning.

2.6 Place

Place is another important element of marketing mix. Place or distribution determines where and how the product moved from the manufacturer and reached to the consumer. The marketers must distribute the product to the consumer at the right place and at the right time. There are few types of channels that involve marketing intermediaries, graph is show in below:-

Graph 2.4 Type of marketing intermediaries

There are 3 common distributions strategies that company always use. The distribution strategies are next page:-

2.6.1 Intensive Distribution

Intensive distribution is a method of distribution where product is given maximum exposure through positioning in as many outlets as possible. Therefore, consumers can purchase the product in everywhere they go such like supermarket, bank, post offices, KFC and MCD.

The more accessible is the product, the better for the business and convenient for the consumer. This enables them to buy products with minimal efforts. Usually, it is use to distribute low priced or impulse products. Hence, a retailer’s location is the key to attract customers.

2.6.2 Selective Distribution

Selective distribution is a strategy that companies choose a specific geographical area to handle its product line. This will decrease the availability of the product or service to the customers. Selective distribution helps to control price cutting and reduce the total of marketing cost.

Besides that, it can have better market coverage than exclusive distribution. The companies that use selective distribution can select the retailer that have capability of carrying full product line and provide the required service.

Selective distribution may not cover the market adequately because it only chooses a small number of retailer outlets to distribute products. It is also difficult for the companies to select the retailers that can match their requirement and goals. Sometimes, the marketer may misjudge a certain retailer and chose the incapable one.

2.6.3 Exclusive Distribution

Exclusive distribution is a strategy that distributes a product for sale only in one outlet. The product is usually high price and requires the intermediary to place much detail in its sell. It restricts the distribution of the product to certain area. For example, branded organic foods seller cannot come to Ipoh to grab Ipoh customer due to its exclusive distribution. Through exclusive distribution, retailers may enjoy the power of monopoly since there is no other competitor who has the distribution power and license to distribute the same product. Hence, competition can be minimized and ensure maximum revenue for the retailer.

This strategy can be used on the product which its consumers are willing pay effort in reaching the products by themselves. Using this strategy, marketer can better ensure the quality of service and delivering new products to customers.

2.7 People

People are one of the most important elements of any service industry or when production and service is inseparable. In these situations, quality of service plays a greater role to the company. To ensure quality of service, capable human resource is indispensible. When a company hire and train their staffs, they would represent their company to the market.

In order to obtain competitive advantage, recruiting potential staff, and training them appropriately in the delivery of their service is necessary. Consumer perception of the service and expectation are based on the employees they interact with. Hence, staffs should have the appropriate interpersonal skills, attitude, and service knowledge to provide satisfying service to the consumer. The employees in organic foods shop must have be well-trained and knowledgeable of the nutrition in the organic foods so that they can provide clear and prompt explanation to the valuable customer.

2.8 Process

Process is other element of the extended 7P’s. In marketing term, process refers to the system that is used to assist the organization in delivering the service. It involves the participation of customer when a service is acquired.

Since process is more focus on customer, then it should be made feasible so that it can better suit all the different needs of individual by providing non-standard service. Non-standard service means that the service is not fixed and could be customized by customers according to their preference. It can be transcended into core competence of company, leading to differentiation in the market.

In order to provide a better service, employment of new technology is necessary. Besides that, code of the process must be established to limit the differences in the service. The staffs should know the limit of what can be done and what cannot be. They must also be always in the shoes of the company when making decision.

2.9 Physical Evidence

Physical evidence is the element of the service which allows the consumer to make judgments on the organization. Normally, consumer’s perceptions change based on their rating on the surrounding environment in which the products or service is being purchased. For example: a customer walks into the organic retailer shop, the expectations of the customer are that shop are clean and the employee always have a smiling face on them.

2.10 Summary

While all the elements have their own function, they are interdependence each other and help the marketer develop up the business, especially in marketing new products. The marketer needs to fully utilize the strategies to increase the market demand and build it up the business opportunity, such searching benefit sought after by the consumers and then come up with what they expect or something even better.

Product strategy is a main element of the overall marketing strategy. The product itself leads decisions that a business makes to reach marketplace success. Decision-makers evaluate the product attributes, industry and competitors. The information is then used to develop a product strategy designed to achieve market demand, revenue and create a business opportunity.

There are four types of promotion strategy including advertising, public relations, sales promotion, and personal selling. The advertising is used for transfer information about the product or service of the company to potential consumers. Public relations are used for building up the company reputation and establish close relationship with the public. Sales promotion is the provision of incentives for the consumer to purchase. Personal selling is the promotion of products or services in person.

Distribution strategy concentrates on approach to reach the product to the target market. The distribution intensity of products or services depends on their nature. Generic products normally adopt intensive distribution whereas highly technical and specific products require exclusive distribution to attend customer needs.

For services with characteristics of intangibility, perishability, and inseparability, people can prevail over the nature of services, bringing satisfaction to customers. This can be achieved by providing training to employee and set standard of services to reduce variability.

Process should be the improve productivity and services by using advance technology. More advance technology can increase the speed of production to generate more productivity and accuracy of the service.

Physical evidence is used to make the customer feel best and trust about the product, like the labeling organic sticker approve by the world organic union, this will make confidence for consumer.