APIS Volume 3, Number 3, March 1985

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• Generic Promotion--Can it Work?

GENERIC PROMOTION--CAN IT WORK?

[Editor's note 5/11/1997--Much of this information is still valid. The evaluation of the National Honey Board's activities are part of its yearly activity]

Dr. Ronald Ward of the University of Florida's Food and Resource Economics Department recently gave a presentation on generic honey promotion to the Annual meeting of the American Beekeeping Federation in Tampa, Florida. I am sharing some of his comments here to aid those in the beekeeping Industry who will be asked to attend hearings and vote on the Honey, Research, Promotion and Consumer Information Act:

Two kinds of advertising are possible: brand and generic. Generic advertising is urging consumers to buy any kind of honey and is primarily intended to precipitate and remind. Brand advertising is urging consumers to buy a certain brand name and is used to persuade and reinforce. Precipitation and reminder are more likely to increase total industry sales, while persuasion and reinforcement are usually associated with maintaining or increasing market share.

Advertising through federal programs is either done with funds generated by marketing orders or research and promotion acts. The latter kind is proposed for honey. It is national in scope and is primarily directed toward promotion. Currently research and promotion acts exist for eggs, potatoes, wheat for food, cotton, lamb, wool, mohair and dairy. The beef and floral industries have voted against these so-called "check off" programs. Generic advertising is a secondary activity of marketing orders. Since 1970, twenty-one orders support some kind of generic promotion. The twenty-one fruit and vegetable orders in 1982 spent $8.4 million on generic promotion and about $1 million on research.

In 1982, about $44 million was spent on domestic generic promotion, nearly $9 million on research through Federal programs, and $19 million was spent by USDA on overseas market development. Commodity groups at the state level also spent over $91 million for promotions and $10 on research. In 1982, U.S. food and fiber commodity groups spent about $84 million on generic messages in consumer-oriented media. Of the total, 81% went to network and local television and radio, 17% was spent on magazines and newspapers, and the rest on billboards and other media. However, generic expenditures still represent less than 2.5 % of all advertising on foods and beverages in consumer-targeted media in 1982.

Effectiveness of generic advertising is variable. A number of economic studies have measured the success of citrus, milk, potatoes, cotton, eggs, and others. A recent study of generic promotion of fluid milk shows that in 1979, the rate of return to milk advertising was 314 % ; in 1981, the rate declined to 231 % ; and by 1983, the rate equalled 166 % . Consumption increased by 4.47 % over what would have existed without promotions. In contrast, studies of the total and generic advertising of potatoes show a positive response to potatoe advertising, but failed to show the separate effect of generic efforts.

Although it is not possible to directly evaluate new programs with exactly the same types of analysis, commodity and market characterisitics can be identified which contribute to the success of new generic programs.

These include:

1. Product must be reasonably homogenous.
2. Product must not totally lose its identity in market channels.
3. Product must have clear standards that can be perceived by the consumer and these qualities must be reasonably stable after purchasing.
4. Distribution system and product availability must be acceptable.
5. There must not be an excessively large number of substitutes.
6. Consumption potential must exist, the market cannot be saturated.
7. There are a variety of potential uses for the commodity among consumers.
8. Producers must have common objectives.
9. There must not be an exess of competing advertising among brand names.
10. Industry structure must not be monopolized by a few firms.

Some limiting factors might include:

1. Geographic distribution of production and relative size of producers.
2. Unlimited barriers to entry of honey into the marketplace (e.g. increased imports or a large number of small producers not subject to assessment) can reduce long-range effectiveness.
3. Possible existing supply response to rising prices; potential for stimulating imports.

Unique characteristics of the honey industry which might lead to successful generic promotional programs include:

1. Declining per capita honey consumption points to the need for programs to reverse the trend, the main reason for considering the Research and Promotion Act. Although the negative trend in consumption could possibly reduce effectiveness of new advertising programs, the market is not saturated and there exists room for expansion.
2. As a product group, honey can be considered homogeneous. This should contribute to generic promotion success, but existence of and control over grades and standards is essential.
3. Lighter and milder honeys are marketed for table use, whereas darker ones are sold for industrial use. This may provide a good division for differentiating advertising messages and identifying target audiences.
4. Degree of substitution directly effects expanding honey demand. The more substitutes available, the more difficult it becomes to increase consumption. The growth in substitute sweeteners is a formidable problem in new honey use. It appears the darker honeys are more susceptible to competition from substitutes, and less payoff from advertising directed toward the commercial sector would be expected.
5. Table honey does not lose its identity while moving through market channels, a distinct advantage in generic advertising.
6. In comparison to other products like milk and orange juice, special storage costs on honey are nil, an important attribute when considering candidates for promotion.
7. Much of the successes with milk and orange juice is due to percieved health attributes of the commodities. Honey might also be promoted on this basis with the proper studies to back up claims.
8. Because today's consumers are looking for convenience foods, advertising programs have been particularly successful in this class of products. Honey could also be promoted on this basis.
9. Honey is an "experience good," one the consumer can try without incurring much cost. Many commodities are promoted on this basis. However, standards must be high and quality consistent, if repeated consumption is to be achieved.

If generic advertising succeeds in shifting demand for honey, then other problems may arise over time:

1. Although citrus advertising has been effective, a share of the expanded demand has been supplied by increased imports. The same is probable for honey. Unlike citrus, however, imported honey is subject to the "check off" assessment.
2. Early honey imports were primarily of a darker industrial grade, but since the 1970s this has shifted to lighter grades. Long-range benefits of promotion are always affected by added supply. Gains to domestic producers will depend on relative prices for domestic versus imported supplies. If relative prices widen, imports are going to gain a larger share of increased demand.
3. The Act assesses only those producers or importers handling 6000 pounds or more of honey per year. This could give rise to growth of smaller producers who would not be taxed because demand shifts lead to a disproportionate gain to those not paying tax.
4. Effects of eventual disposition of U.S. government honey stocks is also a vital consideration, as is potential abuse of the refund provision of the Act.

Dr. Ward summarized his presentation by stating that honey appears to be a good candidate for generic promotion and that some reasonable success can be expected with the appropriate administrative structure. However, low barriers to entry resulting in increased honey imports or numbers of small-scale beekeepers handling less than 6000 pounds may partially offset price gains desired by the industry.

Although a great many persons in the industry are excited about the prospects of the Act, many questions brought up by Dr. Ward and others remain. Unfortunately, there is no way to begin to finding answers until the Act is implemented. Each eligible voter will have to take the facts in hand and decide as he/she sees fit.

Obviously, there are some potential problems with the Act and certain provisions are not agreeable to all. However, it is presently the "only game in town," and detractors have provided few alternatives. The Act is also amenable to change or revocation, if determined not to be working in the best interests of the industry. Passage of the Act would be one way to inform legislators that the industry is trying to do something to help itself.

A final consideration is implementation of the Act. In the end, its success or failure will in large part rest on the job done by industry persons involved in administering the Act, the Honey Board. Its character is defined in the legislation. The December, 1984 issue of APISdetails the makeup of the Board and how it's chosen.

Sincerely,

Malcolm T. Sanford
Bldg 970, Box 110620
University of Florida
Gainesville, FL 32611-0620
Phone (352) 392-1801, Ext. 143 FAX: (352)-392-0190
http://www.ifas.ufl.edu/~entweb/apis/apis.htm
INTERNET Address: MTS@GNV.IFAS.UFL.EDU
©1985 M.T. Sanford "All Rights Reserved