Market positioning

As identified in the emerging markets literature, companies are often faced with a trade-off between pursuing a global brand strategy that aims for the premium market segment versus the mass market at the lower end of the economic pyramid through large scale and cost-efficient production. Whereas the former brand strategy aims at gaining large profit margins per unit sold, the latter approach aims at earning fewer margins per unit, while becoming profitable by sheer volume sale (Prahalad, C. K.

2003). Because of the institutional voids in developing countries, multinational companies find it difficult to serve anything but the market‟s global tier, and the lack of market research data in general makes it difficult for the companies to understand the customer‟s taste. Moreover the paucity of distribution networks makes it impossible for them to deliver products to customers in the

Table 14

hinterland. On the other hand, market research shows that both options seem achievable in the sub-Saharan African market, which is in line with the LDC literature. Companies that manage to combine the strategies of building strong global brands with product brands for the mass market are likely to gain the greatest benefits of the very diversified income segments in terms of increased revenue and consumer loyalty.

With the current product portfolio, Arla Foods is likely to be able to continue to target higher income segments and maintain a premium price for its value-added product brands. Nonetheless, as the LDC literature, including the BOP literature, notes, higher income segments do not constitute the only growth potential in LDCs {{12 Khanna,Tarun 2005}}.

Local consumers demand locally adapted products at affordable prices. This means that in a SSA context a more diversified brand strategy would allow Arla to tap into the various segments without losing profit value margins or compromising quality levels. Thus, adjusting the price and attributes on certain products provide the opportunity for Arla Foods to tap into consumer segments that comprise the vast majority of the total population in sub-Saharan Africa. Global Ingredients seems to have acknowledged the need for a diversified brand strategy and is introducing products, addressing the markets which Khanna & Palepu (2006) characterise as glocal and local consumers.

These consumers strive for products with global quality standards, but adjusted to local features at slightly less-than-global prices. With this approach, Arla Foods is able to build long-term profitable markets in sub-Saharan Africa within the different market tiers.

Consumer International is currently present in South Africa with a target focus and product portfolio that corresponds to the preferences of high income consumers. However, as 75 per cent of the South African population is actually characterised as BOP consumers, looking into market opportunities within middle/lower income segments seems like a viable business option for Consumer International to develop its business. Using South Africa as a market to test its portfolio of Middle Eastern products, the division is likely to generate important knowledge about the market for lower-middle income segments. First, Arla can acquire knowledge about new consumer groups and increase its business coverage in an existing market and, second, Consumer International is able to address income groups, which have not previously been targeted.

As seen in the theory, foreign companies are likely to brand themselves towards the upper-ends of the consumer markets, while leaving middle and lower segments to local brands. Strong loyalty towards foreign brands can be reflected in price setting, because consumers in developing countries often trust the foreign brands in their marketing message and are therefore also willing to pay a higher price. However, this does not universally apply in a sub-Saharan African dairy context. As pointed out in the chapter of the dairy industry in sub-Saharan Africa, rising incomes do not automatically result in increasing demand for processed food products. Many consumers chose to continue purchasing milk on the informal market even when their income increases, which emphasises the focus on a broad portfolio also adjusted to local needs.

A criterion for profitable market growth in sub-Saharan Africa is the ability to align Arla Foods‟

product portfolio with the needs and preferences of the SSA consumers. As highlighted, economic growth is often perceived to result in increased demand for premium imported goods. Yet, Arla should not believe that sub-Saharan Africa can serve as a new market for mature products originally intended for their home markets. Middle and high-end consumers in these economies are well aware of the latest global trends as a result of easy access to the Internet and media. In addition, the middle class consume both high and low price products.

In order to accommodate the consumption patterns in sub-Saharan Africa, Arla Foods could initially benefit from targeting markets with its existing product portfolio. However, further product development and adaptation seem apparent if Arla Foods is to stay competitive in the long run.

According to theory, product adaptation is almost inevitable when addressing the middle income and BOP market that require products that are affordable, easy to use and reliable. Global Ingredients has experience of selling milk powder across different income segments, which its current product portfolio of different milk powder brands shows.

Consumer market segmentation can be determined and identified by investigating geographic, demographic and psychographic characteristics. According to the theory, a beachhead presence in one or two of the cities is suggested when firms want to take an incremental step-wise entry into the market. Further, the population in sub-Saharan Africa is concentrated around urban areas and tends to have higher levels of disposable income within the various segments. This makes it relevant to start targeting urban areas, as concentrated population groups ease the opportunity of focusing

marketing campaigns and developing more efficient distribution channels, while keeping resources low.

To give an overview of the elaborated points, the summary below outlines the market positioning potentials and challenges in SSA for the business development of Arla Foods based on the identified variables from the analytical framework with focus on the division between internal and external factors. In this way a clear picture of Arla Foods‟ marketing positioning is presented.

Market positioning potentials and challenges in sub-Saharan Africa

Influencing factors Potentials (+) vs.

Challenges (-) Assessment

Segmentation: High, middle,

low income segments

+/-

by earning fewer margins per unit than only gaining profit margins per unit/Relatively little experience of operating in the various segments

Marketing opportunities and constraints in consumption pattern within the segments

-/+

Product portfolio – Adjusted to

local needs and preferences

+/-

Urban consumer focus to combat institutional voids and maximise resources

+ Potential to reach concentrated population with growing purchasing power and efficient selling, advertising and distribution