Preface: Many examples I will use come from a WSJ article posted below.
As in every other industry, the Food and Tobacco industry operates under the laws of capitalism and the free market. Market price and quantity are for the most part driven by consumer demand and producer supply. The entire industry is comprised of many other subsets of similar products. Throughout these specific subsets, the markets vary. Some markets, such as fresh produce or meats, are in perfect competition with no company or brand dominating the market. Other subsets, such as the soda market, are in an oligopoly, in which Coca Cola and Pepsi Co. dominate the market, together holding more than two-thirds of the market. Possibly more than other industries, the food and tobacco industry is extremely reliant on consumers. If consumers are suddenly receiving a lower income, they will immediately switch to a substitute or even an inferior good. For example, often in bad economic times more people seek low cost food such as hamburger, canned goods, or even fast food. Due to the recent economic events, consumers have showed a decrease in demand for sodas. Using the demand-supply model, when demand decreases, or shifts left, prices fall, this is exactly what Coke has done. This week, Coke will announce 12.5 ounce 89 cent bottles. Although these goods are ‘cheaper’ and thus more appealing to the penny saving customer, the customer is paying a premium on the per ounce price. They also plan to unveil mini cans, which appeal to those trying to save a dime as well as those health conscious customers, will the ‘less than 100 calories’ appeal. This brings us to an integral part of the Food and Tobacco industry; marketing. Perhaps more than any other besides fashion, this industry is all about branding. Coke, Pepsi, Nestle, Kraft, Kellogg, Tyson; all examples of household brand names known not only nationwide but worldwide. Marketing in this industry is much more than the product itself. It’s about associating your product with positive images. From Coca-Cola and Santa to Kellogg’s and Tony the Tiger, this industry controls more of our world than we even know. From cigarettes to cereal and liquor to lemons, the Food and Tobacco industry is one of the most diverse and complicated markets we have. Branding is fundamental and the consumer is the top priority.
How would government subsidies factor into this, if at all? If we are using the supply and demand model, currently what are the determinants of demand and supply that is affecting the market? Are there new suppliers entering the market? What are the changes in technology in this industry that makes one company more competitive than others? Do you know if any company is changing its technology? If so, in what ways? What are the future expectations, in regards to the supplier's point of view? What about input costs and how does this affect supply in the current market? Give an example. What about the tax and subsidies situation in the U.S. and globally?
ReplyDeleteIt is true that the free markets truly drive what corporations provide to individuals. What I do question, however, is titling the soft beverage industry as an "oligopoly." Although Pepsi Co. and The Coca-Cola company do hold a large percentage of the market share, there are plenty of other generic brands which are also in the soda business. This does not account for other beverage brands such as the Jones' Soda company, which is a smaller, yet profitable businesses within the soft drink industry.
ReplyDeleteIn regard to marketing, I couldn't agree with you more, Dylan. It is essential for companies to market their products in a different manner from other corporations. Because Coke and Pepsi have such similar products, they must use advanced marketing techniques to differentiate themselves from the competition. It is truly interesting to see how receptive consumers are to a successful marketing campaign that uses flashy signs, catchy tunes or random sayings to "burn" the product into our minds...
Liang, you also bring up some great points about government subsidies and their effect on the free market system. But to bring us full circle, what effect, if any, do you feel government subsidies have on a corporation's need to market their products. If said companies are receiving taxpayer funds, do they need to vie for competition? I'd argue they do, for they still need to gain increased revenue from consumers.Thoughts?
Dylan, respectfully, I do not agree with your statement about the oligopoly. While there definitely are other companies who are profiting in this field, an oligopoly is a degree in which a few producers dominate the market. While they do not have full control of the market, clearly Coke and Pepsi dominate the market owning a combined 67.1 % of the market. Also, exactly right on the marketing. When companies like these have products that are so similar, they must create a difference between the two weather it is through branding, marketing, or public relations, despite the fact that the products themselves are extremely similar.
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