Premier’s ABN AMRO Business Studies, Economics Scholarship
Marketing strategy for growth in
business markets/
US meat supply chain from production
to retailing
Patrick B Fagan
TAFE NSW–New England Institute, Armidale Campus
Sponsored by
My intention for this study tour was to attend an executive program in Marketing
Strategy for Growth in Business Markets at Penn State University from 7 to 12
November 2004. The remainder of the six-week period in the United States was spent
studying the US meat supply chain. I concentrated my tour in the Northeast region of
the United States due to its high population and consumption of meat product. At the
conclusion of my study tour I spent
12 days on a beef producing property to learn about the production of beef cattle at the
stud level.
Chosen study course
My chosen course of study in the United States as part of the 2004 Premier’s ABN
AMRO Business Studies, Economics Scholarship was to enrol in the Penn State
University Executive Programs course, Marketing Strategy for Growth in Business
Markets. The course was held from 7 to 12 November 2004 at University Park,
Pennsylvania. The cost of this course was US$5500, which equated to A$7412.81.
The course was based on the Value Delivery Model, which incorporates the following
strategies:

build value understanding;

strategy formulation-segmentation, targeting and positioning;

design customer value;

communicate and deliver value; and

new offering development.
I found the course to be an excellent presentation of business-to-business marketing. I
was very impressed with the presenters that delivered the five above-mentioned topics.
Overview
It was estimated by the latest AMR Research prediction that business-to-business
purchases in the United States for 2004 would total nearly $6 trillion. To compare this
figure, Jupiter Research estimates that US consumers will spend only $269 billion in
2005.
Today there are shorter product life cycles and intense pressures of global competition,
which no longer allow the luxury of a ‘build it and they will come’ approach.
Significant learning
Build value understanding/design customer value, George E
Cressman

Value is the key term in business marketing.

Profitable growth is founded on your ability to deliver value customers can only get
from you at a competitive advantage.
A problem: Over time we have trained both our customers and our sales force to ignore
value and buy only on price.
Best practices for your customers

Understand how the products and services that you sell generate value for customers
(revenues or cost savings), noting particularly the differences between the value
delivered by you and by the competition.

Sell value delivered, not features and grow markets, by educating more customers on
the value that you deliver.

Segment your market for pricing by offering different product/service bundles at
different price levels to reflect differences in the value that you deliver.
Best practices for your competition

Identify current/potential competitive advantages and capabilities that leverage those
advantages.

Target customers that best value your capabilities and focus your resource
investments to those customers for profitable growth.

Anticipate and plan for changes in competitor and customer behaviour that could
threaten your competitive position in your target segments.

Collect and communicate competitive information to allow management of
competitive threats and minimise the impact of competitive confrontations.

Evaluate your competitive success by your ability to grow profits, not market share.
The value based selling challenge—the five Cs
See manual for detail.
Economic value estimation (EVE)

Determine the price of the competitive alternative.

Determine the $ value to customer of your product’s unique benefits.

Subtract the cost the customer incurs with using your product.

The net figure is the total economic value of your product.
Implement fences into your product offering that allow the customer to pay a
higher/lower price for your product depending upon the amount of value contained in
your product. Adding fences produces a more durable segmentation of your customers.
Strategy formulation—segmentation, targeting and positioning for
growth, Dr Gary L Lilien
Segmentation

Different customers have different needs and respond to different value
propositions.

Customers need to be segmented depending upon the value they demand from your
offering.

In business markets, segmentation may deal with much smaller customer
populations. A segment may be as small as an individual customer or firm.
Targeting

Once a segment is identified, how do we allocate finite resources to produce optimal
profitability in business markets?

Business marketers must set priorities for assigning sales, resources and developing
distribution channels.
Using choice-based segmentation for database marketing (table format)

column 1: customer;

column 2: purchase probability (A);

average purchase volume (B);

margin (C); and

customer profitability = A x B x C.
Applying choice model in customer targeting
Segment on the basis of probability of choice:

loyal to us;

loyal to a competitor; and

switchables: loseable/winable customers.
Positioning

Positioning involves designing an offering so that market segment buyers perceive it
in a distinct and valued way relative to competition.

A well conceived and executed positioning associated with a brand name over time
can build strong ‘brand equity’.
Positioning can be achieved in three general ways:

uniqueness - the only offering with X;

differences - how the offering is different (direct or implied comparison) on Y from
competition; and

similarities - comparison to leading competitor or other points of reference.
Communicate and deliver value, Dr Ralph Olivia
Gross’s First Law: It is almost impossible to communicate anything to anyone. ‘Good’
communication is 10 times more effective than ‘bad’ communication.
Integrated market communications (IMC):

customer-focused; it starts with the audience;

strategic management of LT and ST goals;

a phased array of communications activities;

to produce specific behaviours, for instance, buy or pre-buy;

among specific groups of individuals; and

to achieve desired business results (predictable ROI).
From Don Schultz, 15 September 2004

‘Integrated Market Communications (IMC) is a strategic business process used to
plan, develop, execute and evaluate coordinated, measurable persuasive brand
communications programs over time with consumers, customers, prospects
employees, associates and other targeted, relevant internal and external audiences.’

‘The goal is to generate both ST financial returns and build LT brand and
shareholder value.’
IMC eight-step planning framework
Focus on target audience. Have a deep understanding of:

building a unique value proposition (UVP);

establishing communications objectives;

building a behavioural timeline;

selecting and orchestrating media;

developing message/ ‘creative’ approach;

executing a plan/budget; and

measuring results.
New offering development, Dr Robert J Thomas

Clarify your business growth strategy. Are your offerings existing/new? Are your
customers existing/new?

A new offering could be a new product, a new service, a new process or a hybrid of
all these.

A new offering takes various forms: idea, concept, prototype, final offering or a
marketing campaign to launch a new product.
Growth Opportunities

A new offering to a customer does not necessarily mean that it represents a growth
opportunity for the business.

New offering growth opportunities must be validated with market analysis.

A business growth opportunity is a market of sufficient size and growth potential to
sustain a profitable marketing program over a planning horizon.
Market opportunity analysis

Define the relevant market.

Understand consumer and stakeholder needs and value.

Market segment to increase new product acceptance.

Formulate market metrics.

Develop market opportunity sizing model.
Market attractiveness criteria

market opportunity

customer acceptance

competitiveness

stakeholders

environment
Prepare organisation for growth

Conduct organisational audit of capabilities and competencies.

Recognise threats and opportunities for new offering success.

Assign and support ‘new offering champions’ (leaders) and teams.

Design a new product development (NPD) process to fit your organisation.
Conclusion of the Penn State Executive Program
I have gained valuable knowledge of strategic business marketing from this program and
was supplied with a wealth of valuable learning materials. These are freely available to
anyone within the DET who wishes to have a copy, although they are protected by
copyright or reproduction.
I also received a number of reference books that have been detailed in the bibliography
of this report.
Many of the models that were delivered can be implemented into the business marketing
of rural products. I would also like to mention that these models would be very
applicable to the marketing of TAFE courses both to individuals and corporations.
Study tour of the US meat supply chain
Focus of the tour
Prior to and following the executive program undertaken at Penn State University, I
travelled to a number of organisations involved in the meat supply chain in the United
States. These visits ranged from producers through to retailers of meat product, so that
the entire supply chain was covered. I was particularly interested in Australian product in
the United States and how the future of Australian meat was viewed by US meat
suppliers.
The most effective way to present my findings is to summarise the findings from the
various levels in the supply chain, starting at the production level.
Production
I spent 12 days on farm in Ohio at the Summit Crest Angus Stud. This operation is very
extensive, with properties also in Nebraska and Iowa. The following is a summary of
livestock sales for the Summit Crest Angus Stud:

female sale, 31/10/04, 120 head (including cows and calves), average $7810/lot;

bull sale @ Nebraska, 300 head, 100 two year olds, average $2850, 200 one year olds,
average $3100;

bull sale @ Iowa, 100 head, 15 two year olds, average $2200, 85 one year olds,
average $2480

80 private treaty bulls sold, average $2250;

300 head fat steers sold @ Nebraska, average 1260 lb @ 62.5 per cent, dress per cent
@ $1.45/lb dress wt; and

cull cows sold, average weight 1350 lbs @ $0.40–$0.50/lb.
All females are artificially inseminated with 75 per cent calving; the remainder are joined
using the sires. Photos have been taken of these sires.
An ET program is also in place both for breeding and sale.
One of the successful sires, High Prime, has been cloned and two weaner clones are now
on the ground. USDA is still stalling on the decision to allow cloned sires into the food
chain, but it is expected to be cleared by February 2005.
I met with Dr John Stika from Certified Angus Beef (CAB), which was founded in 1978
by Fred Johnson (owner of Summit Crest Farms) and three other breeders. CAB beef
comprises 8 per cent of the total beef produced in United States. CAB uses eight
specifications to grade eligible beef.
The target market for CAB is 35- to 50-year-old housewives with an annual family
income of $50,000. Their strategy is to establish a demand pull from the end user
through the retailer.
Brand extension occurred in 2004 with CAB Natural, targeted to same market segment.
CAB Natural contains:

no supplementary hormones;

no antibiotics; and

no animal by-products.
A new product was the dried steak strip.
Imported meat product
While in Philadelphia I had a meeting with Dan Wackerman from the John A Steer
Company (JA Steer), an ocean cargo broking firm. They are specialists in importing meat
product and provided excellent information, as they know what is coming in and how
close to quota it is. I learnt about the tariff placed on over-quota product, which is
presently 26.4c/kg.
There is a big trend in the US to move to 40 foot containers. Can we load a 40 foot?
Talk was January 2005 for free trade on beef. The 4.4c/kg presently paid by the importer
will cease. In the short term that is all we will benefit. Once 95 per cent of the quota is
reached, this duty is payable up-front instead of 10 working days.
I discovered prepared and cooked food falls into another chapter (Chapter 16) and not
only are the duty taxes less, but the quota is nonexistent. This may present a potential
market for more Australian product to be imported into the United States.
Most imported product is INCO term CIF.
There is a move towards DDP delivery duty paid so that the 4.4c/kg leans more to the
importer than the exporter!
Recent quota figures, two weeks in arrears, were 76 per cent quota fulfilled. The quota
was 378,214 metric tons for 1 January to 31 December 2004.
The Uruguay quota was 20,000 tons, but they have delivered over 40,000 tons after
paying the 26.4c/kg duty. This indicates the low cost of production for Uruguay product,
as they can afford to pay the duty.
I met with Frank Vannelli from Hamburg Sud, Philadelphia office. There is a move in
the United States to move all freight to the 40 foot container. Hamburg Sud has altered
their cargo vessels to accommodate the larger containers. Some sites in Australia are
limited in handling the 40 foot container, but this is improving.
Containers are individually powered by the vessel allowing for individual temperatures to
be set, including frozen product. The voyage takes 17 to 18 days to the west coast.
Through the Panama to the east coast takes 30 days.
Pallets are not popular due to contamination, and wood splinters and are not allowed for
McDonald’s product. Slip sheeting is a method of solving this manual workload. Meat
exporters from Australia take a view that pallets are wasting meat areas in the container.
The cost to ship a 20 foot container to the United States is in the range of US$3000. The
average vessel is able to hold 1800 20 foot containers.
Inspection can occur at the port or elsewhere (Mullica Hill). Upon arrival of cargo,
Hamburg Sud notifies the broker of arrival; cargo is then cleared by customs and
inspected for any infestation, such as snails. Once cleared, the broker settles any
outstanding freight and terminal charges and inspection fees incurred. Once paid, the
cargo is free for collection but needs to be reinspected by the USDA before use.
All rates are quoted in US dollars. In the ST exchange rate fluctuation does not affect the
D & S of imported/exported goods.
Inspection House
When I met with the Mullica Hill Group of Companies I discovered a level in the supply
that was new to me.
Fred and Sam Sorbella are the directors of this massive storage/cold storage facility.
They operate an inspection house., offering a service which involves unpacking,
randomly selecting and present to USDA inspector’s imported meat which requires
compulsory random inspection before distribution into the market. The infrastructure
growth in the last 15 years has been huge.
Fred has an excellent business idea that is based around a 6000 apple tree enterprise
which involves a very innovative idea of offering three trees to individual investors, who
are free to use the grounds and the fruit for their own use.
Meat processing
I met with Bob Chudy from American Food Service, a meat patty producer for some of
the big hamburger chains. He had a very technical mix of what goes into a patty based on
whether it was cooked or not. Uncooked, of course, needs to be red in appearance. Bob
uses a lot of Australian product for his grinding operation.
The company has an automated system in which the hand never touches the product,
which is packaged up and snap frozen for delivery. I have some excellent tape of Bob
explaining the operation and some comment regarding South American beef imports.
I met with Ken Shafer from Keystone foods. They supply 40 per cent of McDonalds,
who is their exclusive customer. Keystone supplies 4750 Mc Donald’s outlets via 14
distribution centres from their plant in North Baltimore. A high tech computer program
is used to run the grinding operation. Three inputs are used:

lean trim 80 to 90 per cent chemical lean (cl);

fatter trim 50 per cent cl; and

frozen product, mostly 80 per cent cl.
Rigorous testing of the trim determines the average cl, then it is mixed so that the batch
is 76 per cent cl. Getting the fat right on 24.6 per cent means huge savings in price of
input.
They have 800,000 lbs/day output, with a net batch weight of 2400 lb. With 10 lines
operating, there is a potential to produce over 900,000 lb per day. Production forecast for
2005 is 246 million pounds of patties.
Meat is processed on a daily basis from 4 a.m. to 1.30 a.m., and then the entire plant is
washed and cleaned for the next day’s production. Initial grinding occurs on individual
inputs. The mince is then blended so that the cl lean is at 76.4 per cent cl. A final mince
is then done through a 1/8 inch plate. It is minced into tubs and then dropped into the
patty machine, which forms the patty and blast freezes. It is then manually packed into
boxes and then boxes are loaded onto pallets by robotics and automatically shrinkwrapped. There are 2 sizes, 0.1 lb and ¼ lb.
There is extensive use of metal detectors; once detected the metal is separated from the
meat, which is then reprocessed. Reworked meat is limited to 7 per cent of the batch.
The batch’s speed is dependent upon having the loading bins filled. The third-generation
computer system could handle 1 million pounds per day, but storage is limited. There are
five freezing tunnels which accommodate 10 lines. Regular size patties are in the freezing
tunnel less than one minute, the ¼ pounder less than 1.5 minutes. The lines produce 12
patties per stroke at 80 strokes per minute.
I also met Sam Phillips, an Australian employed at the Boston Lamb and Veal Company
and with Ray Capowzi, the head of Boston Lamb and Veal. I had a tour of the facility
where lamb carcases and boxes are broken, done and packaged for the retail market.
Approx 700 lambs per week are broken down into the major cuts: square cut shoulders,
semi-boneless legs, and boneless legs with the chump on. Racks and loins are also made.
Presently the price for racks and legs are up, but the loins are way down. Seasonality
plays a big role in lamb exports to the United States. When the demand goes down in the
summer in Australia, they are in demand in the United States, so it makes sense to export
them into the United States.
Distribution
I met with Brookes Provision, which is a wholesaler with cold storage in two locations
close to Philadelphia. They also distribute dry goods as well. They then supply product to
three main targets:

smaller wholesalers that serve catering businesses;

larger wholesalers that have the product delivered by Brooks’ large truck fleet; and

a small number of larger restaurants etc that buy from the door at Brooks.
They have a very motivated staff. I met with both buyers and sellers in the business and
also had a great discussion with their financial controller (got some good interview on
tape). The mince buyer from Brookes was for more bullish about the future of Australian
manufactured beef.
I drove out to the other cold storage in New Jersey. It is a 100 acre block with plenty of
freeway access and still is close to Philadelphia.
Conclusion
My study tour of the meat industry was very interesting and I have a range of teaching
aids that are available to teachers, including:

video footage of a dairy farm in California and the Summit Crest Angus stud in
Ohio;

digital photos of most of the above mentioned sites; and

detailed notes that I have prepared from audio recordings made with most of my
hosts.
Please feel free to request any of the above at your convenience.
Bibliography
Penn State Executive Programs 2004. Marketing strategy for growth in business markets, Penn
State University.
Pete Pande and Larry Holpp 2002. What is six sigma? McGraw Hill.
Gary Lilien and Arvind Rangaswamy 2004. Marketing engineering, 2nd edn, Trafford.
Adam Brandenburger and Barry Naleburger 1997. Co-opetition, Currency Doubleday.