FACTORS EFFECTING ON CONSUMER BUYING

BEHAVIOR OF FULL CREAM MILK POWDER

INDUSTRY IN SRI LANKA

(With special reference to Nestle Lanka NESPRAY Full Cream Milk

Powder)

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Content

Topic Page No

1. Introduction 03

2. Significant of the study 04

3. Literature Review 05

4. Establishment of problem 06

5. Objectives of the report 07

6. Research design 07

7. Limitation of the study 07

8. Time frame 08

9. References 09

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Introduction

In Sri Lanka, full cream milk powder industry has a higher demand when compared to

other industries since the most of Sri Lankans consume milk powder as a major meal of

their life style. Therefore, it has a growing demand. As a result of this huge market share

and growing demand, it has been established a fierce competition and the major

competitive brands are Anchor, Raththi, Lakspray, Milgro, Nespray, and Maliban. Sri

Lankas drink a few glasses of milk daily as a practice.

Consumer buying behavior is the process of decisions and actions of people involved in

buying and using products, the consumer behavior is always said to be multidisciplinary

in nature. It includes study of Psychology, study of Sociology, study of Economy, study

of Anthropology (Baker, 1991). Those acts of individuals are directly involved in

obtaining and using economic goods and services including decision process that

proceeded and determine these acts (Blackwell, 2005).

Sri Lanka is highly dependent on the world market to meet its growing demand for milk

and milk products and the local milk producers and processors supply only 20% of the

demand at present. The rest is met by the imports, mainly milk powder (95% of the

imports) followed by butter, cheese, yoghurt and other milk by-products. The domestic

dairy processing sector is characterized by a government owned company (Milco) which

is operating island wide, a multinational company such as, Fonterra, Nestle, operating

nationally. The only form of trade restriction currently implemented in Sri Lanka is

import tariffs and hence domestic price of full cream milk is largely determined by the

world market prices (Bandara, J.S. 2007).

Milk is a translucent white liquid produced by the mammary glands of mammals. It

provides the primary source of nutrition for young mammals before they are able to digest

other types of food. It contains significant amount of fatterated fat, protein and calcium as

well as vitamin C. Cow’s milk has a PH ranging from 6.4 to 6.8 making it slightly acidic.

Full cream milk powder has vitamins A and D, fat 26% minimum 27% maximum, protein

minimum 24.5% low ash and no anti-biotic (www.wikipedia.lk).

The direction and magnitude of changes occur in dairy market in Sri Lanka are mainly

determined by five key factors. First, they depend on the changes in the world market

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prices which in turn determined by the levels of reductions in export subsidies, domestic

subsidies and import tariffs by the major producers and consumers of dairy products.

Second, they depend on the way that consumers respond to changes in prices, i.e., what

types of strategies they adopt to minimize high-price shocks. Third, they depend on the

structure of full cream milk processing industry. If the milk processing industry is

characterized by imperfectly competitive behavior, either due to concentration of firms or

presence of state trading enterprises, the increase in high import prices will not efficiently

transmit to the farm level. Fourth, they depend on the characteristics of production

structure, resource endowment and resource use efficiency, which in turn are determined

by various socio-economic, demographic and environmental factors, of the dairy farmers.

Fifth, they depend on the domestic policy framework governing the dairy sector in the

country (Bandara, J.S. 2007).

The Nestle brand has been familiar to Sri Lankans over a few decades. This survey is

focused on Nestle Lanka company NESPRAY brand. Food and beverage products in Sri

Lanka are been manufactured and sold by Nestle Lanka PLC. Dairy products, including

sweetened condensed milk, chocolate flavored malted food drink, and ready-to-drink beverages

are primarily offered by it. Noodles, bouillon, and coconut milk powder products are produced

and sold bythe company. Nestle Lanka PLC offers its products under the NESPRAY,

NESTOMALT, CERELAC, MILO, and MAGGI brand names. The company is headquartered in

Colombo, Sri Lanka. Nestle Lanka PLC is a subsidiary of Nestle U.S.A (NESTLE Annual Report,

2008).

Significant of the study

Studying consumer-buying behavior is a very important element for every organization.

This research study is undertaken to indentify factors affecting to consumer buying

behavior of full cream milk powder industry in Sri Lanka. This research is specially

focused on Nestle Company NESPERY brand. Every firm needs be analyzed buying

behavior for many reasons. The firm’s marketing strategy has a great impact on the buyer

reaction to the firm’s success, the marketing concept stresses that a firm should create a

marketing that satisfies customers. Therefore, it is important to understand what, where,

when and how consumer purchases milk powder products and marketers can better

predict how consumers will response to marketing strategies.

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This research is especially focused on Nestle Lanka Company. When considering the

reports of Nestle Lanka, it is reported that sales of NESPREAY have decline figures in

every year. Therefore, this study will give an immense support for the company to

understand the factors affecting on consumer buying behavior of full cream milk poeder

industry in Sri Lanka.

Literature Review

Ramasamy et al. (2005) indicated that the buying behavior is vastly influenced by

awareness and attitude towards the product. Commercial advertisements over television

was said to be the most important source of information, followed by displays in retail

outlets. Consumers do build opinion about a brand on the basis of which various product

features play an important role in decision making process. A large number of

respondents laid emphasis on quality and felt that price is an important factor while the

others attached importance to image of manufacturer.

Most parents acknowledge that their children do influence their buying decisions with

65% agreeing or strongly agreeing that they grave in to their children’s demand, however

parents feel that they do not give in to pester power. Parents wear aware of heath

issuesand state that they regularly purchase healthy foods for their children. However,

many parents admit to buying un- healthy food products for their children as treats

(Turner, J.J et al.2006).

Kumar et al. (1987) examined the factors influencing the buying decision making of 200

respondents for various food products. Country of origin and brand of the products were

cross-tabulated against age, gender and income. Results revealed that the considered

factors were independent of age, education and income. The brand image seemed to be

more important than the origin of the product, since the consumers were attracted by the

brands

Belch and Belch (2007) explain that consumers are considering both an internal

(memory) and an external sources of information include, personal sources, commercial

sources, public sources, personal experience, the relevant internal psychological process

consist of perception.

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Children in the younger age groups are affected more from the advertisements, broadcast

on television and reflect more in their consuming behaviors. Children especially in the

younger age groups are consuming food that has poor nutrients of vitamins, minerals &

proteins and this could carry important development and health risk of the obesity during

childhood (Arnas, Y. A. 2005). A base of loyal customers will be advantageous for an

organization as it reduces the marketing cost of doing business. In addition, loyalty can be

capitalized on through strategies such as brand extension and market penetration. Finally

a large number of loyal customers is an asset for a brand, and has been identified as major

determinant of brand equity (Dekimpe et al., 1997).

Rossiter and Percy( 1987), found that “Brand awareness is widely misunderstood and often

wrongly measured, even by experienced managers” Currim and Schneider, (1991),

indentified that variety of affecting on consumer buying behavior, Further, explained that

customers may brand switch to seek variety. Blattberg and Neslin, (1989);East, (1997);

Chandon, (1995), depicted that purchase patterns are altered by the sales promotions such

as discount, Lack of availability of preferred brand can influence the purchaser to buy a

brand they would not normally purchase (East, 1997; Chandon, 1995).

Establishment of the problem

When examining past studies regarding consumer buying behavior, most of researchers

have undertaken their researches based on the data collected from U.S.A and European

countries. Those identified factors may be irrelevant or mismatching to Sri Lankan

context due to the culture, life style, consumption patterns of the Asian countries have

differed with U.S.A and European countries.

According to Sri Lankan culture, full cream milk powder plays a major role. The

NESPRAY brand is coming under the Nestle Lanka is grabbed small market share for

few decades, and major competitors such as Anchor and Maliban have played a vital role,

while grabbing major market share in full cream milk powder industry. This research is

undertaken to identifythe Factors effecting on consumer buying behavior of full cream

milk industry in Sri Lanka Mainly NESPRAY.

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Objectives of the Study

The aim of this research is to indentify the factors effecting purchase decision of full

cream milk industry in Sri Lanka with the major focus of NESPRAY. Therefore, the

objectives of this research can be enumerated as follows,

To indentify the factors impact on consumer buying behavior of full cream milk

industry.

To indentify the relevant market share and position of NESPRAY when compared

to other competitive brands.

Research design

This is a descriptive research undertaken to indentify the factors affecting on consumer

buying behavior of full cream milk industry in Sri Lanka. The research can be indentified

as a combination of both quantitative and qualitative data. Data would be collected from

selected samples both from final consumers and retailers in then relevant research site.

The sample is selected randomly and the sample size would be 200. The primary data will

be gathered through administrated questionnaires and formal interviews while secondary

data will be collected by using company report / annual reports. The questionnaires are

administered in Galle, Matara, Hambanthota, Colombo and Gampaha Districts. The

collected data would be analyzed with appropriate statistical techniques such as Mean and

Standard Deviation.

Limitation of the study

There will be a couple of limitations related to this research. The main loop hole is, it is

difficult to undertaken this research by covering entire island and respondents are

randomly elected from Galle, Matara, Hambanthota, Colombo and Gampaha Districts. In

addition to that limited time horizon is an issue in this research.

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Time frame

Activity

Week

Sep Oct Nov Dec

1 2 3 4 1 2 3 4 1 2

3 4 1 2 3 4

Literature search *

Make research proposal * *

Questionnaire Design & Preparation * * *

Data Collection * * *

Data preparation & Analysis * * *

Conclusions & Recommendations * * * *

Completing & Handover * * *

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References

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Development Agenda with Special Reference to the Asia Pacific Region: A Brief

Survey, ARTNET Working paper, No. 31.

2) Baldinger, A.L. and Rubinson, J. (1996), Brand loyalty: the link between attitude

and behavior, Journal of Advertising Research, November/December. pp. 22-34.

3) Baker,(1991), Understanding consumer buying behavior, Article of Consumer

Research, pp 41.

4) Birdwell, A.E. (2005), A study of the influence of image congruence on consumer

choice, Journal of Business, 41, 76-88.

5) Central Bank of Sri Lanka 2008, Annual Report, Colombo Sri Lanka.

6) Chernatrony L. de, From Brand Vision to Brand Evaluation, Butterworth

Heinemann ,ISBN- 0-7506 -4614-4 .

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Equilibrium to the Tariff Line: US Dairy in the Doha Development Agenda, Ninth

Annual Conference on Global Economic Conference, Ethiopia, June 15-17, 2006.

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Journal of Marketing Research, Vol. 10, February, pp. 1-9.

9) Hoyer. W.D. (1984), An examination of consumer decision-making for a common

repeat purchase product, Journal of Consumer Research, Vol. II No. 3, pp. 822-9.

10) Mahipala, M.B.P. (2002). Comparison of Milk-Based and Vegetable-Based Cattle

Farming Systems in Up-Country Wet-Zone., M.Sc. (EE) Project Report 12,

Postgraduate Institute of Agriculture, University of Peradeniya, Sri Lanka.

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11) Moll, H.A.J., S.J. Staal and M.N.M. Ibrahim (2007), Smallholder Dairy Production

And Markets: A Comparison of production Systems in Zambia, Kenya and Sri

Lanka Agricultural Systems, 94: 593-603.

12) Ranaweera N.F.C.(2007), Improved market access and small holder dairy farmer

participation for sustainable dairy development: Lessons learned Sri Lanka.

www.aphca.org/reference/dairy/ FAO_milk_report_final_to_RAPA_forweb.pdf

(Accessed on 23 January 2008)

13) Sproles, G.B. and Kendall, E.L. (1986), A methodology for profiling consumer's

decision making style, The Journal of Consumer Affairs, Vol. 20 No. 2, pp. 267-79.

14) Turner J. J., Kelly J. and Mckenna K., (2006), Food For Thought; Parents

perspective of Child Influence, British Food Journal, 108(3).

15) Sri Lanka Institute of Marketing Recommended text book

16) Internet References: www.wikipedia.lk ( Accessed on 2011.09.08)

www.nestle.lk (Accessed on 2011.09.10)