Do you make the best barbeque sauce thisside of the Mississippi River? Do yourfriends and family rave about yourfamous salad dressing? Does your grand-ma’s secret bread recipe put all otherbreads to shame? Maybe you are thinkingof starting your own small-scale food pro-cessing business.

The most critical issue to figure out ishow you will market your new products.Marketing is the key to the success of anybusiness. To get started, develop a writtenmarketing plan with strict timelines andthen follow it. A marketing plan will helpidentify the market and potential demandfor the product. Demand for the productdetermines the quantity of the productconsumers will buy, at a given price, fromthe marketplace. Marketing can besummed up as the 4 P’s: product, place,price and promotion. The following dis-cussion will consider each of the 4 P’s ofmarketing.

ProductThe first step is to check the local HealthDepartment regulations about regulationsrelated to processed food. If the product isa meat item, also check with United StatesDepartment of Agriculture (U.S.D.A.).What are you going to sell? What formwill the product take after processing?Will the product be cooked, dried, frozen,solid or liquid? The answer to these ques-tions will help determine the type ofpackaging needed. What about the recipe?Many new food products are born in ahome kitchen, based on a recipe that pro-duces small quantities.

Two problems must be addressed. Thefirst problem is most home kitchens are

not designed to meet health regulationsrequired of a commercial food processor.Second, recipes may need to be convertedto larger volumes to be more cost effectivefor commercial purposes. Doubling ortripling a recipe does not always result inthe same product. Recipes should beincreased by weight and percentage oftotal ingredients, which may alter the orig-inal recipe. Seek help from a food scientistwhen converting small household recipesto larger, commercial-volume recipes. Staffin the Department of Food Science,Nutrition and Health Promotion atMississippi State University can help withthis process.

Once the product process and formhave been determined, the packaging andlabeling must be designed. Proper packag-ing and labeling of the product will helpensure shelf life but are also importantmarketing tools. Packaging is more thanjust something to hold the product until acustomer buys it. Many times the pack-age’s appearance, shape, and style are thereasons a consumer purchases the productthe first time. The package becomes thesilent salesman when the product is sittingon a store shelf with several other similar,competing products. The package needs tocatch the attention of the consumer.

Of course, the quality of the product isimportant also, as repeat purchases will bemade based on quality after the initialpurchase. However, the package and labelcan become the brand image for the prod-uct and the company. The goal is to createa brand in the mind of the consumer thatwill promote loyalty and encourage repeatpurchases. Package material, color combi-nations, and design are important in themarketing process.

Marketing a Food Product:Marketing Considerations for a Small-Scale Food Processor

Choose color combinations that enhance the prod-uct. For example, a red label on a bottle of red,tomato-based barbeque sauce will not attract attentionas quickly as a yellow label. The two red colors tend toblend together, while the yellow provides contrast. Abox made from 100 percent recycled paper might bethe key to attracting environmentally conscious con-sumers to a new product. Packaging manufacturersand label design companies offer services to theirclients and have the knowledge, skills and equipmentnecessary for correct package identification anddesign.

PlaceThe second “P” in marketing is place--that is, gettingyour product in the consumer’s grocery cart. Placeinvolves distribution from the point of manufacture tothe final consumer. Different levels or stages of distri-bution create opportunities for different markets andstrategies for marketing the product. A simple exam-ple of the flow of goods from manufacture toconsumer is as follows: manufacturer to wholesaler toretailer to final consumer.

One marketing option would be to sell to a whole-sale distributor in the food service industry. The foodservice industry includes businesses like restaurants,hospitals, schools and other large-scale food providers.This requires a different marketing plan than sellingdirectly to a retail store or directly to final consumers.Generally the packaging and labeling requirementsvary, and the margin between processing costs andselling price will shrink. Food service buyers usuallyrequire products in larger size units because they areinvolved in large-scale food production in order tomanage operations. A processor may package a prod-uct in 1-gallon containers to sell to a restaurant butpackage the same product in 10-ounce jars to sell to agrocery store.

Each step in the distribution supply chain offersservices for marketing the product. Wholesale distrib-utors offer the benefit of their sales force to sell theproduct to multiple retail outlets. A manufacturer doesnot necessarily have to hire and manage a dedicatedsales force. The manufacturer can use wholesalers orcontract with food brokers to find buyers. A food bro-ker earns a fee for representing different food productsfor many manufacturers to sell product. Food brokersusually contract to sell food products for a percentageof the total sales they make.

A manufacturer may also market a product toretail outlets without the aid of wholesalers. Thismethod usually requires the manufacturer to have adedicated sales staff to call on retail buyers. Largeretail outlets, such as grocery chains, will generallyhave a central buying office for a region. Most pur-chases are made by the regional buyer and shipped to

all the stores in the region. Specialty retail marketsgenerally require more time and effort by the manu-facturer but usually return a higher margin. Specialtymarkets may include independently owned foodstores and gourmet food shops. Many specialty storesare independently owned, so selling effort involvesmore time dealing with numerous managers, owners,or operators as opposed to calling on one centralbuyer in a region. Lastly, direct sales to final con-sumers can be accomplished in many ways: through afarmers market, a retail outlet at the point of manufac-ture, mail order, or a web site, to name a few.

The place to market a product can be any one ofthe different stages of distribution or a combination ofseveral market channels. A marketing plan shouldhelp identify the market place or combination thatoffers the most potential profitability.

PriceThe third “P” of marketing is price. Many new foodprocessors ask, “How should I price my product?”Price depends on cost of producing and delivering theproduct to the market. The price needs to cover totalcost, return a profit, and be competitive in the marketplace.

Consider the total cost when determining the priceof a product. Total cost is equal to the variable costplus the fixed cost. Variable costs are expenses thatvary proportionally with the amount of product pro-duced. Fixed costs are costs associated with thebusiness that are fixed for a period of time regardlessof the amount of production. Fixed costs include rent,insurance, property taxes, depreciation, and interest ondebt.

Variable costs can be broken down into two cate-gories, cost of goods sold and operating expenses.Cost of goods sold is all expenses related to processingthe product and getting it ready to sell. The cost ofgoods sold figure includes raw ingredients and sup-plies used directly in making the product, labor toprocess the product, direct utilities used in process,and packaging. Operating expenses include office sup-plies, other utilities, advertising, repair andmaintenance, bookkeeping and others. In other words,operating expenses include any variable expenses notdirectly involved in the production of the product butneeded in the daily operation of the business.

Now that the costs have been broken down intocategories, we can explain a few more terms that areused to calculate a selling price based on cost. Grossprofit is sales in dollars less cost of goods sold in dol-lars. The gross profit is the amount available to pay forfixed costs and return a profit. Gross profit can also becalled gross margin, or the percentage of sales avail-able to pay fixed costs and profit. Understanding thecosts involved in production and the term “gross mar-

gin,” the following formula can be used to calculate aprice:

(Selling price per unit) = (cost of goods sold per unit)÷ (100% - % gross margin desired)

For example, if the desired gross margin is 40 percentand the cost of goods sold per unit of production is $1,the formula would result in the following selling price:

Selling price = $1 ÷ (100 - .40)Selling price = $1 ÷ .60Selling price = $1.67

This pricing formula is a good tool for developing aprice schedule to be used when negotiating price witha potential buyer. A schedule of prices can be devel-oped from, say, a 20 percent gross margin up to 45percent at 5 percent increases. Then as price negotia-tions take place, different price points can be offered topotential buyers to encourage larger quantity purchas-es. For example, a customer buying only one to tencases of product would pay the price at 45 percentmargin while a customer purchasing 100 cases mightpay a price based on 20 percent margin.

Failure to account for the total cost is a commonmistake made when setting a selling price. Goodrecordkeeping is the key to knowing the total costinvolved in product production. Building and main-taining a good recordkeeping system will provide therequired information for accurately pricing a productfor market. The price should always be based on costfirst, and then adjustments can be made for other con-siderations. Some other considerations that can affectprice setting are the competition’s price, seasonality ofproduct, volume purchases, specialization, and loca-tion.

PromotionThe fourth “P” of marketing is promotion. What is sogreat about the product? What need does the productfill? How can this product make life better? These arejust a few of the questions that can help build a pro-motion campaign.

Advertising is one way to promote a product.Advertising can be accomplished through a multitudeof media outlets. Radio, television, newsprint, maga-zines, signage, and the Internet are some of the morecommon media outlets used for advertising. However,paying for advertising can be expensive and even costprohibitive for small companies in some situations.Choose the media carefully when deciding to adver-tise. Make certain the media reaches the right audiencefor the product being sold. For example, if the targetmarket includes senior citizens, radio ads on a rock-and-roll radio show would most likely be a waste ofadvertising dollars. Be selective with advertisingexpenditures and target the audience to get the mostfrom the money spent.

Free advertising is great when it is available. Builda relationship with local media people and encouragethem to do information stories about the business orproduct. Keep the media informed of any specialactivities associated with the product or business.Participate in food shows across the region.Mississippi Market, sponsored by the MississippiDevelopment Authority (MDA), is a great food showto attend. Food shows allow a business to expose aproduct to many buyers in one location. Volunteer todo food tastings for retail customers. This is a greatway to get consumers to try the product, and retailersgenerally like any activity that encourages customertraffic. Do not overlook the yellow pages in the phonedirectory, business cards, and vehicle signage.Promotion is all about exposure and brand awareness.Be creative and be visible on repeated occasions inorder to make the customer aware of the product.

This is only a short discussion about marketing afood product. Hopefully this information provides abetter understanding about getting started in the foodproduct marketing process. If you would like to learnmore, or if you would like some assistance with mar-keting, please contact Dr. Ken Hood,hood@agecon.msstate.edu or Dr. Kim Morgan, mor-gan@agecon.msstate.edu, Department of AgriculturalEconomics: P.O. Box 5187, Mississippi State, MS,39762. (662) 325-2750.

Copyright 2009 by Mississippi State University. All rights reserved. This publication may be copied anddistributed without alteration for nonprofit educational purposes provided that credit is given to theMississippi State University Extension Service.

By Dr. Kenneth Hood, Extension Professor, Agricultural Economics and Dr. Kimberly Morgan, AssistantExtension Professor, Agricultural Economics.

Discrimination based upon race, color, religion, sex, national origin, age, disability, or veteran’s status is aviolation of federal and state law and MSU policy and will not be tolerated. Discrimination based uponsexual orientation or group affiliation is a violation of MSU policy and will not be tolerated.

Publication 2567Extension Service of Mississippi State University, cooperating with U.S. Department of Agriculture.Published in furtherance of Acts of Congress, May 8 and June 30, 1914. Dr. Melissa Mixon, InterimDirector (POD 10-09)