Overview of Current Marketing Strategy

CHR markets frozen beef quarters, halves, individual cuts, processed beefproducts (jerky, meat sticks), and ready-to-heat entrees. The reason that CHRdirect markets is that they take pride in the fact that all cattle are born and raisedon family-owned operations, then fed on the open range until they are finishedin a small, noncommercial feedlot maintained on one of the five ranches. Bylimiting exposure to stress and reducing susceptibility to disease, CHR is able toeliminate the use of all feedlot antibiotics and hormones in order to provide anall-natural product. Once finished, each animal is shipped a short distance to alocal, USDA-inspected processing plant where the beef is processed and agedfor fourteen days.There is continued sales growth (50% annually), but as local markets becomesaturated with natural beef, CHR hopes to refine their product position, pricingstrategies, and promotional materials. Historically, CHR marketing and salesactivities were small scale and personal, reflecting the direct connections madewith consumers through farmers markets.

Competitive Analysis

Steve Kossler encouraged the other CHR owners to determine who theirprimary competition was; the owners arrived at the following list:(a) Generic, unbranded beef marketed through convenient, large-scalesupermarkets. This is the least perfect substitute for CHR beef, but stillrepresents the highest market share since 89% of consumers primarilyshop at supermarkets (figure 2a).(b) Branded beef products, with some combination of genetic, quality,production practice, or production location claims. Examples includeColeman, Maverick, Laura’s Lean, Oregon Country, and Certified AngusBeef.(c) Beef direct marketed by other producers, representing a small but growingshare of total sales, with about 20% of all consumers buying at least somemeat directly from producers, farmers markets, or the Internet (figure 2b).In 2004, CHR’s customer base included 200 loyal customers (spendingapproximately $1,000 per year), five institutional customers (spending $2,500per year), 250 frequent buyers (spending $300 per year) and 1,000 occasional

buyers (spending $100–200 per year). These buyers represented the majorityof the $425,000 meat sales at the retail store and farmers markets in 2004.Other sales came from customers who were passing through town for travelor family visits and hunters that used the Market’s wild game processingfacilities.

Market Analysis

After designing and administering the consumer survey, CSU researchersassisted CHR in analyzing the data to determine their potential consumers and marketing strategies. Market segmentation methods were used to determinepotential target segments with profiles based on the characteristics of existingcustomers as well as potential beef consumers who were most likely to beinterested in differentiated beef products with attributes similar to what CHRcould produce. The consumer profile information was used to determine themarket growth potential of each segment and to develop marketing messagesthat would be most effective when communicating with each consumersegment. The challenge was for the owners to use this market analysis toformulate a strategic marketing plan that would facilitate continued salesgrowth for CHR, including more differentiation, branding, and promotionalactivities.Almost every market has some major and distinctive consumer segments,commonly defined by price and quality issues. However, past market researchby the CSU team (Thilmany et al.) found that there is one dominant factorunderlying the differences among consumer responses, and three otherimportant elements described by a number of variables in the survey. The firstfactor could be defined as attitudes/concerns about a wide variety of productattributes related to production practices, such as the use of antibiotics,hormones, humane treatment of animals and potential impacts of livestock onthe environment, wildlife, and water. The other elements that helpeddistinguish segments were their willingness to pay (price sensitivity) andconsumers’ perceived importance of attributes that directly related to thequality of the meat (tenderness, color, or convenience).

Consumer Segmentation and Profiles

Beyond understanding the general motivations of buyers, the CSU teamthought it would be helpful to CHR if they defined consumers with similarpurchasing behaviors, characteristics, and product needs, especially thoseconsumers who were interested in meat products consistent with CHR’sproduct position. CSU identified and named five clusters based on how theconsumer segments varied in terms of their demographics, buying behavior,and attitudes about the importance of specific meat product attributes. The firstcluster, 12% or 52 of the 412 surveyed Coloradans, was labeled High-IncomeProfessional Quality Seekers. The second cluster was labeled Health andSocially Conscious Urban Parents (13% of all consumers). The third cluster waslabeled Moderate Consumers, and was the biggest cluster with 123 respondents(30% of the consumers). The fourth was named Empathetic Value Seekers (23%),and the last cluster was called the Price Conscious Singles (92 or 22%).The sample was primarily female (over 70%), but the High-IncomeProfessional Quality Seekers (Quality Seekers) were significantly more male,and Health and Socially Conscious Urban Parents (Health Conscious) andEmpathetic Value Seekers contained a higher proportion of females than otherclusters. The mean age of the sample was around forty-seven years, but theQuality Seekers and Health Conscious consumers were significantly younger
than the sample average (in their early forties). There were no notabledifferences in ethnicity among the clusters. Figure 3 illustrates differences inhousehold income across clusters. All consumer clusters, except for PriceConscious Singles, were within the third income category ($40,000–59,900).Although demographics were important in the market segmentation analysis,they were only one element of the consumer profiles. Psychographicscharacteristics (attitudes, beliefs, and lifestyle choices) were also helpful inpredicting consumer preferences for differentiated meat products. The share ofeach cluster that reported they had previously purchased natural beef is shownin figure 4. This consumer characteristic is an important indicator of aconsumer’s willingness to buy alternative meat products, such as CHR’s meats.Not surprisingly, a large share, approximately 64% of Health Consciousconsumers had previously purchased natural beef. Roughly one-third of theother clusters, except for Price Conscious Singles, indicated they had previouslypurchased natural beef.CHR may choose to target consumers who prefer to shop in less traditionalfood marketing channels; however traditional supermarkets are still thedominant primary food shopping location (see figures 2(a) and (b)). Consumersprovided ratings of the importance of various factors when choosing where toshop for meat (table 2). Some interesting differences existed across clusters; forexample, Quality Seekers rated superior products (taste and flavor) as relativelymore important, Health Conscious consumers were most concerned with safety,and Empathetic Value Seekers were more willing than the average to supportlocal producers

Product Positioning

In addition to identifying potential customers, CHR wanted to assess theircurrent product position. The nature of the questions asked in the consumersurvey was heavily influenced by product attributes that CHR had alreadyadopted or was considering as a future production process or through becoming involved in a meat certification program. Considering the list of USDA-Certifiedand USDA Process-Verified beef programs that are currently administeredthrough the USDA, AMS, CHR’s positions seems to mirror the differentiationstrategies that many U.S. beef companies are currently using. In order todetermine the potential of these and other marketing claims in the Coloradomarket, consumers were asked to rate (1 to 5, with 5 being extremely importantto the consumer) how important different production practices or meatcharacteristics were to them. Consumers could rate any number of attributes asextremely important or not important. Table 3 provides the share of therespondents who indicated each level of importance for the individual of theattributes.The farthest right hand column for each production attribute category infigures 5(a) and (b) contains the average ratings given by consumers for theproduct attributes (the weighted average of numbers presented in table 3). Thetallest columns represent attributes that consumers rated of higher importance(mean attribute rating above 3). For example, BSE-tested meat, no antibiotics, nogrowth hormones, humane treatment, natural, traceable from farm to consumer,and labeled with country of origin received average ratings above 3. Thereappears to be general consumer interest in a wide array of production practicesand marketing claims, even if the feasibility of some of these claims isquestionable (e.g., BSE-tested, country-of-origin labeling).It is interesting to compare which attributes are most important for eachconsumer segment. CHR can use this information to target market to consumerswith the most compatible profiles. Health Conscious consumers ratedalternative production practices, such as natural, no antibiotics, no growthhormones, and humane treatment of animals as very important on average.

Product Pricing Strategies

Several of the owner-managers of CHR struggled with how to price theirproducts. From one perspective, they continued to sell out of their premium cuts(e.g., ribeyes and tenderloins), but they were sitting on significant inventories ofground beef and roasts from the chuck. They also felt some pressure to keeptheir meats affordable for community members who saw CHR as a source ofsafe, high-quality beef. They told the CSU research team that, in addition toconsidering competitors’ prices on the demand side, they must assurethemselves a price that was sufficient to cover their beef production andprocessing costs, as well as the new investments and marketing costs associatedwith their new enterprise (labor, processing, increased management effort).The aggregate sales and costs of good-sold figures for CHR are shown intable 1. On a product-by-product basis, the owners feel they need betterinformation on willingness-to-pay thresholds from their various types ofconsumers in case they decide to price discriminate across channels or cuts ofmeat. Consumers’ willingness to pay for four types of regionally produced,natural beef products (based on CHR’s product lines) was examined using apayment card format method similar to the one shown in table 4. Figure 6displays the mean premium level consumers in each cluster indicated theywould be willing to pay, on average. Each premium level is approximately a10% premium. The average premiums for the full sample range from a little over10% (for value-added entrees) to almost 30% for ground beef.The range of potential prices is even greater when one considers differentmarket segments. Quality Seekers and Health Conscious consumers indicated apremium of over 50% was acceptable for ground beef, while others (ModerateConsumers, Empathetic Value Seekers, and Price Conscious Singles) would noteven pay a 10% premium for the value-added products. These differencessuggest an opportunity to use pricing differentiation or discriminationstrategies, particularly if it helps to sell a larger volume of products that CHRhas excess supply of, such as roasts and ground beef.