Tuesday, December 13, 2011

branding of commodities

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“ A brand is not an icon , a slogan, or a mission statement. It is a promise�a promise your company can keep.....................This is the promise you make and keep in every marketing activity, every action, every corporate decision, every customer interaction”.

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-----Kristin Zhivago, “ Business Marketing”



The inimitable nature of the consumer market has necessitated the need for a fundamental and radical change in the strategic aspects of doing business. The biggest challenge facing manufacturers today is how to differentiate their commodity so that their business rises above the commodity market place to enjoy the margins and premium associated with consumer packaged goods markets.

Therefore the key to the success of marketing commodities in today’s market place is an intense focus on creating true economic value for those customers who are willing to pay for it and a brand strategy based on product, delivery or service differentiation.

In this context we have categorized the commodity market as commodities consumed at industrial level (BB) and commodities consumed at retail level (BC).

Branding in the context of industrial buying has been determined on the basis of research conducted by McKinsey which states that consumer’s concerns for on-time delivery, consistency of product performance, level of technical support and service, and relationship with supplier are greater determinants than price while placing order.

Therefore companies which serve different segments of industrial buyers can maximize their sales by slotting prospective customers into a needs-based segmentation scheme.

Analysis of branding of commodities consumed at retail level (BC) shows that manufacturers must effectively differentiate their product offering vis-à-vis competitors as it moves the buying decision away from solely price factors and therefore generates long-term profitability and sustainable advantage in a crowded marketplace.

We have substantiated the above with relevant case studies in commodity markets like Wheat Flour(Atta), Bottled Water, Poultry, Steel and Dairy products.


By definition, commodities are products and services that customers perceive to be exactly the same.

A market becomes a commodity market if the suppliers choose not to differentiate themselves, either through their products/services, or through their brands. Equally, any market can become a branded market if the suppliers choose to differentiate themselves

But companies that sell products such as bulk chemicals, paper, and steel tend to emphasize operations and sales over marketing, striving to unload as much inventory as possible at the prevailing market price. Viewing themselves as commodity producers, they particularly overlook the nonfunctional features of their products�delivery speeds, after-sales service, distribution, Pricing, Customer servicing, Segmentation, Positioning and Communication

What these producers lose out on is the opportunity to increase their gross margins, create consumer demand for their specific items(s), and build valuable Brand Equity by employing the branding practices made successful by consumer packaged goods enterprises. Such “branded raw materials,” while increasing the margins of the producers, also bring greater value to both the manufacturer and the end-user.

The well-know low-calorie sweetener NutraSweet, and later Equal, made commodity marketing history when they turned aspartame into a household name through the pursuit of a branding strategy previously reserved only for consumer packaged goods and retail products.

Branded goods, manufactured with branded ingredients, instill trust, facilitate shopping and purchase, build brand loyalty, steal share from big players, prevent the encroachment of new entrants, and achieve marketplace success.

Branding provides an innovative strategy to overcome the decreasing margins existent in the sale of commodity products, while also creating the sustainable competitive advantage necessary for long-term marketplace success.

When coupled with an intelligent Brand Strategy and a Marketing Plan that guides ongoing marketing activities and expenditures, a business rises above the commodity marketplace to enjoy the margins and advantages typically associated with consumer packaged goods markets

Therefore the issue from a marketing perspective is Is it possible to differentiate a commodity and persuade some buyers to pay a premium for the offering over an extended period of time?

In this scenario, the key to the success of marketing commodities is an intense focus on creating true economic value for those customers who are willing to pay for it and a brand strategy based on product, delivery or service differentiation.

Manufacturers have to segment their buyer market as composed of businesses that want (and are willing to pay for) quite different things. This would in turn help manufacturers focus on the segments whose business they can win and retain most profitably the segments seeking product or service attributes that correspond to their strengths.

In commodity markets, the segmentation should reflect the needs not only of customers, but also of the customers’ customers.

Commodity products can be categorized as

 Industrial or Business to Business commodity products

 Retail or Business to consumer commodity products

Industrial commodities

The McKinsey Quarterly 000 reports that a systematic analysis of the preferences of the manufacturers customers shows that for one of the biggest of them, 70 percent of the purchasing decision was based not on price but on quality and service (Exhibit 1). When the manufacturer undertook a full needs analysis of its main customers by using a process called conjoint analysis along with detailed, qualitative, one-on-one interviews, it discovered three distinct segments.

As Exhibit indicates, about one-fifth of its customer base cared most about technical support and the ability to get hold of a sales representative quickly. A third focused on the suppliers product range and product development strengths. The remaining group�less than half�cared most about price and on-time delivery.

In addition to identifying the needs of each, it focused on other identifiers, such as the kinds of customers its customers served and how its customers businesses operated. As a result, the company was able to slot prospective customers into a needs-based segmentation scheme without having to interview.

But because these complicated algorithms are not typically used by business-to-business (BB) suppliers, those companies divide their world by weak identifiers such as size and geography.

In many BB markets, 5, 15, or even just 10 customers account for 80 percent of sales. By taking them through a conjoint analysis and interviewing their managers in person, BB companies can gather most of the information needed to determine exactly which customers really care only about price and which features other customers would be willing to pay more to get.

In many BB markets, 5, 15, or even just 10 customers account for 80 percent of sales.

Therefore companies which serve different segments of industrial buyers, can maximize their sales by slotting prospective customers into a needs-based segmentation scheme. The strategy to follow is

 Focus on identifiers companies should keep a keen eye on the kinds of customers it’s customers’ served and how it’s customers’ businesses are operated.

 Acquire green premium Effective branding can be achived through alliances with green brands like Greenpeace and the World Wide Fund for nature.

 Making Profits after the sale Value relationships through future potential earnings can be created by regaining the personal touch and relationships with buyers through strategic partnership and customized, anticipatory solutions to business needs.

 Joint Management strategy Cooperate with retailers to manage product categories as strategic business units. Provide functional, process and relationship benefits.

 Increase the value of product development Companies must improve the way they develop and commercialize new products and processes by enabling the company to link value drivers with the creation of external shareholder value.

Case Studies in Industrial Products


Tata Steel has micro-marketing; the drive focuses on customer value management (CVM) of its key customers, retail value management (RVM) of its retailers and distributors, and customer product optimisation.

While TOP in general is primarily based on cost in all areas, TOP in marketing focuses on customer and retail value enhancements. Explained the Aspire chief Whereas for products like Tiscon getting brand value would be the objective, for products like galvanised sheets, our objective would be to get both market share and brand value.

The company expects to derive a saving of around Rs 15-0 crore in the current year from TOP in marketing.


Intel with their “Intel Inside” strategy, branded their microprocessor through computer manufacturers directly to the end-user, turning their microprocessors into a significant selling point for every computer maker who purchased their products. While greatly increasing the value of their microprocessors, Intel’s branding strategy built brand equity valued in 000 at $4.67 billion on sales of $.7 billion.

Case studies in Retail Commodities

In FMCG, among existing categories of commodities marketed by businesses to retail consumers are staple food like atta, salt , milk, dairy products, bottled water, tea, coffee, food grains, edible oil, frozen meat, etc.


India produces about 67mn ton per annum. Branding of atta started with a few local however national level brands like Captain Cook (DCW Products) and Annapurna (HLL), Trupthi (NEPC Agro) and Pisllsbury (Godrej Pillsbury) emerged in the last few years. In FY001, volumes of Annapurna and Captain Cook were 0.17mn ton and 0.1mn ton pa respectively. Potential for branding wheat-flour exists in large metropolitan cities. Dual earning middle class families are the prime target. The most important driving force for these consumers is convenience and saving time. However potential for branded flour is negligible in small towns and rural areas.


Total bottled market has a size of Rs11-1bn of this around Rs7bn is in the hands of organized sector and rest is with unorganized sector. In the organized sector major players are Bisleri (Parle International), Bailey (Parle Agro), Aquafina (PepsiCo), Kinley (Coca-Cola), PureLife (Nestle) .The market for the past three years has been growing at high rates of more than 80%. With changing consumer preferences from carbonated drinks towards bottled water the growth rate is expected to stabilize at 5-0 % for next 4-5 years.


Market size for milk (sold in loose/ packaged form) is estimated to be 6mn MT valued at Rs470bn.Variants of milk products are infant milk food, malted food, condensed milk, processed milk & cheese .Packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-operative Milk Marketing Federation (GCMMF) is the largest player. All other local dairy cooperatives have their local brands (For e.g. Gokul, Warana in Maharashtra, Saras in Rajasthan, Verka in Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu, etc). Other private players include J K Dairy, Heritage Foods, Indiana Dairy, Dairy Specialties, etc.By 005, the value of Indian dairy produce is expected to be Rs 10,00,000 million. Presently the market is valued at around Rs7,00,000mn


In India the poultry is largely related to chickens and to some extent to Ducks. Largely the hen breeding in India is in hands of unorganized sector but with increasing urbanization and increasing health consciousness the concept of organized poultry farming has come up. The industry has progressed by leap sand bounds over past few years with a number of organized players making the entire poultry farms fully automated. The poultry industry overall is growing at a rate of 15-0% per annum.A recent trend has been seen in southern India market where the broiler farm are selling fresh as well as processed meat in branded.The upcoming players in the branded meat business are Venky’s and Godrej(Real good chicken)

Brand Value to Consumers

1. Reassurance A brand is a stamp of authenticity. It adds value by promising ‘replicability’ and helps to establish repeat purchase patterns. In a foreign country, people seek the reassurance of familiar brands, even though they are presumably travelling to find new experiences! This is why tourists and travelers around the world feel comfortable on eating at McDonald’s.

. Value Expression Consumers choose brands that reflect the individual values that they possess as individuals. They do this to communicate the desired signals in the highly social environment they inhabit.


Branding of commodities offers additional value both to the consumers and the producers. Branding leads to commodity differentiation and hence enables consumer preference and product attribute mapping. This translates into greater choice and quality for the consumers To the producers branding provides the opportunity to increase gross margins by increasing the value perception of their product.

The most successful brands will always be those that deliver not only the tangible functional value but also the intangible value that is the implied guarantee of a branded product.The promise of the brand will always be seen as the most valuable benefit because when confronted with two choices of apparently equal benefit, the consumer will always choose the one that feels right.

The way to maximize brand value is to

 Develop a compelling brand proposition

 Have a large segment of loyal customers who value the brand significantly above it’s competitors.

 Deliver the brand consistently through rigorous customer relationship management processes.

 Maximize awareness of and familiarity with the brand.

Trusted brands are not established overnight but are built up as a result of long-term investment in delivering on the brand promise. If a manufacturer can manage this, branding provides an escape from commoditization as it moves the buying decision away from solely price factors and therefore can generate a strong return on investment and long-term sustainable advantage.

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