Marketing Your Value-Added Dairy Products

This article originally appeared in the May 25, 2018 issue of Progressive Dairyman.  Per capita consumption of dairy products updated from original publication.

A 2017 Penn State Extension survey revealed four primary motivators for starting a value-added enterprise –maintaining a small family operation, improving profitability, having an interest or passion for processed dairy products, and/or providing a business opportunity for current and future generations. While launching a value-added dairy enterprise can be an appealing strategy to achieve one or more of these goals, it requires significant planning.

In the same survey, marketing was identified as the second most challenging aspect of operating an artisan or farmstead dairy processing enterprise (edged out only by knowledge and fulfillment of government regulations).  Marketing is the cornerstone of all successful businesses, and farmstead dairy processors must stay up-to-date on marketing factors including consumer trends, the competition, market outlets and pricing.

Successful marketing is built upon a solid marketing strategy. Your marketing strategy is the product of your marketing research and marketing mix.  Market research includes understanding how the industry is performing and changing as well as your potential consumers, or target market. Keep in mind that your target market may be end users (consumers) or intermediate buyers. If you're marketing to intermediate buyers, such as restaurants, you not only need to understand them, but also the customers that they serve.

Without a well-identified and receptive target market, a value-added enterprise is likely to struggle. Knowing who will be interested in your products requires an understanding of people's location, values, needs, behaviors, and economic status. Ensure that you can identify a customer base that will purchase your product prior to beginning production.

A broad view of the dairy landscape shows that consumption of dairy products is on the increase (see Figure 1). Per capita consumption of butter, cheese, and yogurt in the U.S. has steadily increased over the past ten years (USDA ERS, 2018). And while fluid milk consumption has decreased, flavored milk sales are on the rise (Mintel, 2017). Also keep in mind that there are multiple varieties of dairy products (for example spoonable vs. drinkable yogurt), so delving beyond initial layer of data is important.

Figure 1. Per Capita Consumption of Dairy Products 2005 - 2017

Data Source: USDA ERS (Note: Cheese consumption is the sum of American & Other)

By definition, value-added requires that you differentiate your product from others available to the consumer. Your marketing mix, also referred to as the Four P's (product, place, price, and promotion) can do this for you. Let's take a look at each "P."

The key to your marketing mix is your product. Your product is a bundle of characteristics - quality, features, brand name, packaging and design, and product-related services that you may provide the customer such as recipes or pairings. Taste is probably the most important element of your product to consumers, and can be more important than price when they make a purchase decision. 

Every product has a life cycle. Beginning with its introduction, a product moves into an early growth stage, followed by maturity and finally decline (and perhaps exit). Therefore, product innovation is essential. The easiest example to illustrate this is flavors. Consider the number of different flavored cheddar cheeses – habanero, tomato basil, garlic & herb, buffalo wing – the list goes on.  Food trends change and you want to be prepared to move with them. That pumpkin pie flavored Gouda might be unique, but if it's not selling and customers are asking about cheeses flavored with Indian spices, you need to reconsider what you're making.

Your target market will also influence your product mix – the number and types of products you make and sell. Using cheese as an example, a farmstead processor making several types of cheese – for instance, cheddar, Gouda, brie, Havarti – has breadth to their product mix. Depth is achieved if you offer several selections – flavor, size, form – within a product type. A business that offers both depth and breadth in its products has increased pricing options.

A final aspect related to product is the quantity that you produce. Coordination of supply with demand is essential. You need to meet demand for your product while not over producing.  While some dairy products, such as some types of cheese can be stored until it can be sold, you will have already incurred the expenses for producing and storing it. Other dairy products have more limited shelf lives, necessitating calculated planning of production quantities.

How and where will the product be marketed? This is the second P – place. Direct to consumer marketing outlets include on-farm markets, farmers' markets, online stores, Community Supported Agriculture (CSA) programs, and home delivery. Wholesale markets include grocery stores, specialty shops, or restaurants. Distribution options or requirements also need to be considered when considering the market outlets available.

Figure 2.

Distribution Options

• Self-distribution
• Packers, brokers
• Co-operative
• Non-profit

Market Channel Options

• Food service
• Retail stores
• Specialty stores
• Non-profit
• Direct to consumer

Smaller, direct to consumer markets are often an attractive first option while you refine production processes, hone product recipes, and work up to full capacity. Starting in smaller markets offers the advantage of being able to gather customer feedback on products.

Having thoroughly researched your target customer market will also assist you in determining the most effective market outlets for your product. For instance, market research company Mintel reported in their 2016 cheese report that younger consumers, age 18-34, had a higher rate of purchasing cheese from non-traditional locations such as farmers' markets and online supermarkets (e.g. PeaPod, Amazon Fresh). Fourteen percent of consumers in this age group purchased cheese from a farmers' market compared to only four percent of consumers over age 55.

The third P is price. Setting prices for your products is both an art and a science. Most importantly, you must know and understand your cost of production. From there you can adjust based on product characteristics, a specific pricing strategy, customer price sensitivity, customer values, and other factors. Price contributes to the perception of your product, that is, when consumers see a product price it sends signals to them about quality, match with the market outlet, expectations for assistance, etc. Keeping accurate and complete records accounting for all steps – production, packaging, storage, promotion, transportation/distribution, and sales – will assist you in setting a price and making adjustments as necessary.

Promotion is the final piece to the marketing puzzle. How will you let your target market know that you have a product they want? Promotion goes beyond just advertising: think about social media engagement, community involvement, customer service, hosting special events and more. One promotional tactic is sampling, something that 51% of cheese consumers say it's important to do before purchasing (Mintel, 2014). If the product is going to be marketed directly from the farm, another aspect to consider is the overall appearance and presentation of the farm along with the location.

A value-added dairy processing enterprise can be rewarding and profitable with advance planning. By spending time on research and planning a marketing strategy, you'll be well positioned to achieve your goals.

References

Mintel. (2014). Cheese - US - October 2014

Mintel. (2016). Cheese - US - October 2016

Mintel. (2017). Dairy Milk – US – October 2017.

U.S. Department of Agriculture ERS (2018). Dairy Products: Per Capita Consumption, United States (annual).