Bang for the Buck
May 1, 2005
Bang for the Buck
By Lynn Petrak
Value-added products span all segments, as processors deliver on promises of taste and convenience.
Everyone wants more for their money. After decades of buying commodity-style products, consumers are expecting — and receiving — greater benefits out of the dairy foods and beverages they purchase.
Providing value-added products to the consumer, based on attributes ranging from convenience to flavor to fun, has become a priority for many processors. “Across every product line we have, our goal always is to win consumer preference,” says Suzanne Ginestro, brand manager for Oakland, Calif.-based Dreyer’s Grand Ice Cream Inc. “We want to make people happy and love their experience, and you do that by giving them value so they will do it again and again.”
The term “value added” has been a major buzzword over the past several years, but it also is has become somewhat ubiquitous. “It has been sort of bantered around,” acknowledges Bill Haines, dairy industry consultant and former vice president of innovation for Rosemont, Ill.-based Dairy Management Inc. (DMI).
Although the concept of value-added goods and services is rooted in economics, Haines says, the term has a distinct definition among food and beverage manufacturers. “The value of a product is directly proportional to the benefits that the product offers and is inversely proportional to the price,” he explains. “To increase the value of a product, you can add more benefits or decrease the price. In fact, that is what marketing is all about.”
Likewise, Tom Nagle, vice president of marketing for the International Dairy Foods Association (IDFA), Washington, D.C., draws a distinction between traditional products like gallons of fluid milk and single-serve flavored milks sold in reclosable plastic bottles. “It is the fundamental difference between offering the consumer a pure commodity for which price is the only differentiator and offering them a value proposition that delivers higher margin profitability and consumer satisfaction,” he says.
Where the concept gets tricky is the determination of the actual value to the end user. “It’s much more difficult today,” Haines says. “For one thing, you have a greater degree of diversity in the marketplace, from shifting age demographics to ethnic diversity. And you also have more difficulty communicating your value because of the fragmentation of the media.”
Given such marketplace complexity, delivering value often means presenting the products clearly but differently to various groups of buyers. In other words, it is back to the long-discussed topic of target marketing. “It has been proven by Frank Perdue selling raw chicken, for example, that you can add value in any number of ways,” Nagle says. “You can do it based on any number of measures that consumers care about, whether it is formula, taste, packaging or brand.”
For each measure, then, value can be supplied through customized products, Haines says. “If you look at successful firms — Dell Computers, for instance — they have the ability to maximize benefits right down to the individual user,” he says, adding that while such an example is extreme, there is a lesson for grocery product marketers. “Overall, there seems to be a trend for much more specialized and customized products.”
That theory is translating into action at the processor level. Many dairy manufacturers adhere to the philosophy that consumers can and should be gauged in different ways, resulting in tailored products and respective merchandising efforts.
Andreas Ostermyr, senior vice president of marketing for The Dannon Co., Tarrytown, N.Y., says Dannon’s product line reflects a general commitment to quality and price but has been strengthened by specialized products. “Dannon’s mission is to offer value with every product we sell with regard to price point, taste and nutrition,” he says. “While products can capture brand and category share through better nutrition, [consumers] will only buy again if the brand delivers on taste and value.”
Focusing on certain customer groups while keeping in mind a spectrum of demands has also been top of mind for Oregon’s Tillamook County Creamery Association. “While we haven’t done research on the topic of value-added products specifically, we have found through consumer brand research that quality, taste and consistency are very important to our customers,” reports marketing director Kathy Holstad.
Aim For the Right Target
The rise of targeted, tailored dairy products has been a significant change over the past decade, evident in every category to some degree or another. “The dairy industry, up until recently, has focused on increasing value by decreasing cost, but we are seeing more of a trend on the benefits side,” Haines says. “The simplest one to cite in the past 10 years is the introduction of a reclosable container for single-serve milk, which did add a benefit to consumers.”
In fact, finding new ways to add value to an entrenched product like fluid milk has been a priority of many industry-funded efforts. “Over the last decade, school milk has come as close to a commodity as any product, but the whole premise of what DMI and MilkPEP (Milk Processor Education Program) are promoting in schools is value added now, in vending and a la carte programs,” Nagle says. “We are able to show that when you improve product presentation and form — all of which add value to the consumer — you see improved sales.”
In the case of school milk, Nagle says, the ultimate value is perceived by students as well as operators. “What does ‘value added’ mean to a school foodservice director? It means a more satisfied consumer,’ he says.
The success of single-serve milk belies the fact, however, that going the value-added route isn’t always automatic. “One of the things the milk industry has struggled with is that as you add value, you have to retrain the retailer that milk has a value-added proposition,” Nagle says. “They have a commodity mindset they’ve established over the years, so getting them to think about milk in a new way can be difficult.”
Beyond fluid milk, there are several examples of industry innovations driven by the desire to add value to “regular” products. In the yogurt segment, for example, the advent of kid-friendly yogurts with all kinds of colors, mix-in ingredients and package designs is a significant trend that has now resulted in further fragmentation into baby yogurts and teenage or “tween” yogurts. Yogurt manufacturers also have sought to add value to adult consumers, with the development of health-oriented products in formats appealing to adults, from reduced-carbohydrate and lowfat smoothies to probiotic-enhanced products.
Yogurt designed around specific consumer benefits continues to hit the shelf. Among the more recent entries: Healthy Heart cholesterol- reducing yogurt from the Yoplait brand of Minneapolis-based General Mills and a new line of baby yogurt from the Horizon Organic brand of Dallas-based Dean Foods Co.
Dannon’s latest offerings can be considered value added as well, Ostermyr says. “Two great examples are Danimals® DoubleCalD, which boasts twice the calcium of other leading kids’ yogurts and vitamin D, and Light ‘n Fit® with Fiber, which is the only light yogurt on the market with added fiber,” he reports.
Similarly, the cheese category has been marked by a surge of value-added varieties, touting different flavor, packaging and health attributes. “Along with yogurt, the cheese industry is just replete with examples of adding value through benefits. Just go to the rack and look at all the shredded cheeses,” Haines says, adding that customization is increasing for this segment as well. “Now you’ll see one cheese for pizzas, one for Hispanic foods.”
Indeed, convenience has been a major driver of value-added cheeses. Tillamook’s sliced and shredded varieties have been well received by consumers who want the taste of aged cheese but appreciate ease of use, Holstad says. “Based on the fact that our fastest-growing SKUs are our sliced and shredded products, convenience is still a top priority for consumers,” she says.
Convenience means different things to some customers, though, so the cheese category includes products that are easy to open as well as simple to incorporate into recipes or to eat as snacks on the go. Sargento Foods, Plymouth, Wis., has developed several customized products that address the range of demands, many of them launched in the past year alone. Sargento recently introduced Bistro Blends flavored shreds, duo packs of pre-sliced cheeses and kid-friendly Cracker Snacks in the shape of stars, moons and sunbursts. Echoing other cheese industry trends, Sargento has also keyed into the desire for combination packs, with its line of Cheese Dips, shelf-stable snacks that pair cheese dips with pretzels, tortilla chips or bagel chips.
According to Nagle, cheese and ice cream are similar categories in that the growth of value-added varieties has been driven by competition. “Ice cream and cheese have a more traditional value-added proposition, because these guys constantly fight to maintain a value edge over private label or commodity brands,” he says, adding that private label manufacturers are having to keeping up with brand-led innovations.
Meanwhile, within the ice cream category, value-added items have centered on quality and flavor. The emergence of premium and superpremium varieties, along with the parallel evolution of “healthy” options, have been perceived by consumers as better and better for you, respectively.
Dreyers, for its part, continues to keep busy with value-added SKUs. The company’s new line of Dibs frozen ice cream snacks — bite-sized chocolate coated pieces of ice cream available in package formats for both supermarkets and convenience stores — ties into consumers’ concurrent desires for taste, convenience and portion control, says Ginestro. “Dibs are much more munchable — you just pop them into your mouth,” she explains, noting that the line was the result of extensive market research. “This is a whole new way to eat ice cream and there is a lot of value to that.”
As with virtually all value-added products, Dibs ice cream snacks are sold at a slightly higher price point ($3.99 suggested retail for 60-count grocery packages) than other ice cream novelties. Marketers and industry observers agree that consumers have proven they are willing to pay more for products that supply extra benefits, but just how much depends on different factors.
For Nagle, that means going back to the consumer and getting inside their proverbial heads. “It’s hard to go to someone and say, ‘We’d like to give you this product, but charge you more.’ It does require an understanding of price-sensitive areas,” he says, adding a caveat: “There is a long history of food and beverage companies coming up with value propositions that resonate with manufacturers but don’t work with consumers. That speaks to the importance of getting to the consumer first.”
Lynn Petrak is a freelance journalist based in the Chicago area.$OMN_arttitle="Bang for the Buck";?>