Business Ethics

Consumer Purchasing Pattern and Scopes for Product Innovation w. r. t. Packaged Dairy Products in Bettiah (West Champaran)

Study Done Under Guidance of

Dr. D. Ashok, M Sc., MBA, M Phil., Ph D

Abhay Prakash Sriwastwa VIT Business School VIT University, Vellore Tamilnadu (India)

Abstract:

The objective of this study was to explore and assess the usage pattern, consumer preferences and scopes for products innovation with respect to the packaged (and branded) dairy products in the town; Bettiah, West Champaran, Bihar. With the opening of “Muzaffarpur” (130 Km away from the study place) dairy with a capacity of 25,000 liters per day, this market (i.e.

Bettiah) is not new for packaged dairy products. Several players, including multinationals, are available in the market but market is still dominated by local dairy producers. This study throws light on usage pattern and the reasons behind low penetration of packaged dairy products. This study obtains information concerning consumers' preferences and knowledge of processed organic/dairy products. It also identifies those consumers who are most likely to purchase processed organic/dairy products. A consumer response (via questionnaire) survey was done to collect data. Results indicated that 53 % of the respondents use branded dairy products, while 46 % are still using conventional (local, unprocessed) dairy products, whereas 1 % use neither. Of those who purchase (or would purchase) packaged dairy products, “availability” ranked as the most important reason, followed by the “freshness” of packaged dairy products. When respondents were asked why they prefer packaged dairy products over conventional dairy products, we got mixed responses. As 28 % of them said “because of health related benefits” while 26 % said because of packaging and 20 % said it gives them “sense of fulfilment” in daily food. Apart form these, 19 % respondents accept that greater shelf life of packaged dairy products was a reason to choose it. Descriptive frequencies analysis were used to determine consumer or household characteristics that influence the purchase decision related to packaged dairy products. It was found that middle aged and older people (above 36 years), with high education (graduation, PG or technical) are more concerned with usage degree of packaged dairy products. A healthy 65 % of above stated consumers purchase, essential items (e.g. packaged milk, ghee, powder milk etc) “daily”. The study shows that, families with less number of family members give more importance to packaged dairy products (i.e. the give utmost importance); a significant 67 % of small families are in this category. Families with higher income (i.e. more than Rs. 12,000 per month) are more concerned with quality of packaged dairy product. 42 % of higher income group population voted “quality” as the most attracting feature in packaged dairy product. Study reveals that, majority population living in rural areas still uses the unprocessed, unbranded local dairy products. Out of 91 rural

respondents, 55 agreed that they still use unprocessed dairy products, which are neither hygienic nor enriched with nutrients. Respondents have different reasons to purchase packaged dairy products. Almost 45 % of respondents purchase packaged dairy products because of nutrition related benefits, where 36 % purchase because of health related benefits and around 20 % see other benefits in packaged dairy products. It is significant from the weighted average rank table (where “availiability” has got first rank in importance and awareness advertisment has got fifth rank), that dariy producres have to work on better distribution and reatail network while keeping the “freshness” of the products, which should have greater “shelf life”. To differentiate form the competitors, these dairy producres can work on different flavours, and they can offer a range of “tastes” to the consumers. With the use of non-parametric tests, certain hypotheses were tested. Chi Square tests prove that there is no significant relationship between the age of the head of the family and the type of product (i.e. branded or conventional) he/she uses. The study finds that the age of the head of family and the degree of importance they give to dairy products in daily food, have significant relationship, as middle and higher aged respondents admit giving more importance to dairy products in daily food. Almost half of the respondents admit that they are not aware off all benefits of packaged dairy products. The relationship possibility between the awareness level of benefits (from packaged dairy products) and purchase frequency of essential dairy items, was tested, but there is no significant relationship among these two. It signifies, other factors, e.g. price, availability, quality and freshness of the packaged dairy precuts have got greater importance in the eyes of customers, while they make purchase decision. Introduction: India ranks first in the world in terms of milk production. At present, the dairy sector has an estimated consumer demand for milk and milk products at EUR 26 billion, growing at about 8 percent per annum . About 35 percent of milk produced in India is processed. The organized sector (large scale dairy plants) processes about 13 million tons annually, while the unorganized sector processes about 22 million tons per annum. Chief products manufactured are infant milk food, malted food, condensed milk and cheese. The southern and western regions collectively contribute for 80 percent of the milk produced in India. The rapid growth of the dairy-processing industry is likely to lead to a greater demand for value-added, milk-based products, such as

processed cheese, table butter, sour milk, yoghurt and ice cream. A higher demand for branded and pro-biotic milk has also led to a rise in investment for milk processing. As per Dairy India 2007, by 2011 G1: Milk Usage in India (Value Added) private dairies are slated to outpace the co-operative sector and become the largest producers of milk in the industry. Private dairies are likely to contribute double the quantity of milk that would be contributed by cooperatives in 2011. Sensing the big business opportunities in the dairy sector, with rising demand for processed milk and milk products, many corporate are planning a foray into the dairy business. In the development of milk production, dairy cooperatives have a major role. Many small dairy cooperatives are now full fledged milk producers, AMUL of Gujrat is one of such example. Till about year 2000, India was not on the radar screen of most international dairy companies, since India was neither a major importer nor an exporter of dairy products. Through the 70’s, 80’s and 90’s India used to take some milk powder and butter oil as aid. Exports from India were insignificantly small. From 2000 onwards, Indian dairy products, particularly milk powder, casein, whey products and ghee started making their presence felt in global markets.

The National Dairy Development Board (NDDB) was set up by the national government in 1965 with a mandate to strengthen and expand the cooperative dairy movement in India. NDDB began operation with the mission of making dairying a means to a better future for millions of grassroots milk producers. Since then, India has emerged as the world’s largest milk-producing nation. Production has increased by approximately 4% a year, growing from 21.2 million metric tons in 1968 to 84.6 million metric tons in 2001— capable of supplying India’s very large population with 226 grams of milk per person per day. Indian milk production, in contrast to other milk producing countries, is characterized by millions of small and marginal farmers, including landless milk producers for whom dairying is not only a business but also the main source of income. A majority of these farmers are illiterate or semi-literate.

Nevertheless, the Indian dairy sector is organized as a producerowned and professionally-managed cooperative system. As of March 2001, India's 96,000 local dairy cooperative societies (DCS) included more than ten million farmers and were integrated in a three-tiered cooperative structure Though dairy cooperatives are found throughout India, the cooperative movement has been most successful in a few states, notably Gujarat. Gujarat’s success can be attributed to a higher rate of farmer activism and more efficient political institutions. Over the years, states have developed popular dairy brands such as Amul (from Gujarat), Vijaya (from Andhra Pradesh), Verka (from Punjab), Saras (from Rajasthan), Nandini (from Karnataka), Milma (from Kerala) and Gokul (from Maharashtra). These brands have earned high degrees of brand recognition and customer confidence, especially within in their respective states.

Global Challenges for the Indian Dairy Industry: The Indian dairy industry faces challenges from the international dairy market. Chief among these challenges is that India, as a signatory to the World Trade Organization (WTO), is obligated to open its milk and milk products markets to international dairy companies. Because the Indian dairy industry is characterized by relatively high costs in milk production, processing, and marketing, and relatively poor quality of milk due to unhygienic handling, this could potentially pose a significant threat to the industry and its farmers. In 1999, India imported 10,000 metric tons of milk powder, primarily from Australia, the European Union, and the United States. In 2000, the industry was threatened by the arrival of low-cost fresh milk from New Zealand. The imposition of a heavy import tax on milk in 2001 has given the domestic dairy industry some breathing space. However, the respite

is temporary, as the tax is slated to be abolished before the year 2006, as per the WTO agreement. An Indian dairy farmer gets paid about US$0.16 (Rs 7-8) per kg. Milk is handled at several levels, passing from the farmer, to the local dairy cooperative society (DCS), and the union before it is pasteurized. The milk is then shipped to retail markets through various supply chain delivery mechanisms, ultimately reaching the consumer after several levels of “middlemen.” This multi-layered system not only poses hygiene issues, but each level of handling adds additional cost. The high costs of domestic production is compounded by the fact that Indian dairy products cannot be exported to overseas markets due to their poor quality which results from poor animal health, a polluted and unclean environment, and manual handling delays. High costs and a limited market make the threat from low-priced, high-quality milk and milk products from international competitors particularly keen. Addressing these challenges and increasing the competitiveness of the Indian dairy industry will require both improved technology and better management. The innovative use of appropriate technologies can help the industry produce high-quality products at a lower cost, while professional management can ensure a more optimal utilization of the industry's human and financial resources. Technology solutions will need to address the unique needs of India’s dairy supply chain, which runs from its largest cities to its smallest, most remote villages, in an integrated and locally-relevant way. Because the Indian dairy industry supply chain extends from small villages where the milk collection happens to big cities where consumers buy dairy products, it necessarily involves people from very different backgrounds who often speak very dialects.

Appropriate solutions need to be integrated in a way that can address these differences; for example, applications at the village-level will require a different language interface and customer support than applications and customer support for marketing and procurement executives of companies in India’s larger cities. India is the largest producer of milk producing more than 100 million tons of milk per annum. Yet, her per capita milk consumption is around 250 g per day. India has a population of more than 1 billion with diverse food habits, cultures, traditions an religions. Regional variations within the country can be mind boggling. On one hand the country has plains with long tradition of milk production and

consumption. On the other hand, there are forest and hilly regions with no tradition of dairying. Most of coastal belts also do not have much of dairy tradition. India’s milk production will grow at about 3 per cent per annum in spite of difficulties due to stagnant livestock herd size and shortage of fodder. Due to increasing population, per capita availability of milk will increase by only about 1.5 per cent per annum. For an economy growing at about 8 per cent per annum, this increase in availability will be grossly inadequate. Table T9: – Projected growth rate of milk production and dairy products consumption

Product Milk Production Ghee Consumption Table Butter Consumption Paneer (cottage cheese) Processed Cheese Dairy Whiteners & Condensed Milk

Projected Growth Rate (per cent per annum) 03 08 10 10 12 08

BIHAR: The Milk production in Bihar is approximately equal to that of Haryana and Tamilnadu. But the per capita milk availability of this state is significantly low (only 163 gms per day, as of July 2006 data). Relatively higher population is one of the reasons. The development of co-operative societies in the state has created the environment for higher milk and dairy production levels. Despite that, milk and dairy product consumption levels are still very low, which results into malnourishment of babies, youth and old age people. A population of 8.3 Crores creates a huge market for dairy products, but Bihar is still not the centre of attraction for investment from multinational dairy producers.

West Champaran district, headquarters Bettiah, has a population of 30 lakhs (approx). The district borders are shared with neighbor country Nepal. The low per capita milk (& dairy products) consumption, low penetration level of packaged (and branded) dairy products and absence of any such study which throws light on this issues, in this region, create the ground for the study. This study was done to explore and assess the usage pattern, consumer preferences and scopes for products innovation with respect to the packaged (and branded) dairy products in the town; Bettiah, West Champaran, Bihar. Earlier Studies: There has been a little number of studies that evaluated the demand and purchasing pattern for these niche products in the region of study. While some studies suggest that the motivation to purchase organic and processed food and natural products derives from environmental concerns, most conclude that the primary motive is for health reasons (Huang 1996). Following researches have given the list of factors that affect the purchasing pattern. The objective remains to the research is to test those factors (and explore more) in the study domain, i.e. up to what extent they hold true or what deviations are experienced.

Fearne and Bates (2003) collected qualitative and quantitative data to understand consumer purchases of value-added dairy and prices after de-regulation of the dairy market in the UK. Fourteen focus groups and 1,200 face-to-face interviews were conducted across the UK. They found that participants believed the price of organic foods was too high with no clear benefits. They concluded that this was due to the lack of knowledge between organic and conventional products, especially with milk. Dhar and Foltz (2003) studied milk and organic milk demand using supermarket scanner data from 1997 to 2002. They found that organic milk had a low expenditure elasticity, which would indicate that organic milk was not associated with higher income groups. Results also showed that smaller families without children purchased more organic milk McEachern and McClean (2002) performed a cluster analysis of consumers. Dairy purchases in Edinburgh, UK. They categorized their participants into three groups, complacents, conceivables, and

committed. Complacents were concerned about price and never buy organic dairy. They were mostly 18-30 years old and in a lower socioeconomic group. Conceivables who sometimes buy organic milk, were mostly between 31 and 50 years old and were in the middle socioeconomic groups. Those in the committed group were mostly women, 31-60 years of age, and in a higher socioeconomic category. They also found taste (30% of the respondents), food safety (24%), health benefits (17%), environment (16%), ethics (10%), and a variation in their diet (3%) to be consumer motivations for purchasing organic dairy products. More than half (65.5%) of the respondents believed organic foods to be produced more ethically than conventional foods. Factor analysis on food safety, organic standards, and food ethics revealed that food safety and food ethics are the primary attitudinal drivers affecting consumer purchases. They defined food safety as the health benefits and safety of organic foods versus conventional. Food ethics was defined by the authors as purchasing locally grown foods and using ethical means of production. Grunet, Bech-Larsen, and Bredhal (2000) identified three major determinants that affect consumers’ acceptance of organic dairy products. First, credible information must be provided about the product, such as information on production methods. Second, the knowledge and awareness stimulated by the credible information must be associated with implications for consumers. Lastly, credible information must be consistent with consumers’ existing values toward attributes if it is to change behaviour. Research Methodology: A Descriptive Research was done to test the hypotheses and to know the extent up to which different factors affect the purchasing pattern with respect to packaged dairy products in Bettiah, W. Champaran, Bihar. The area under consideration is Bettiah, W. Champaran, Bihar and the selection of the sample size was non-probability convenience sample. The size of sample was 225. The data collection was done from primary sources. A Questionnaire method was followed, where questions related to purchasing pattern observation, purchase denominations, purchase frequencies, attraction/purchase reason, awareness level and demographic variables with a rating scale, were asked. The study is done in the period of December 2008 to April 2009. A pilot study to test the questionnaire was done with 15 prespondents. The statistical design of the research consist of three tools, percentage analysis, Chi Square Test and weighted average methods.

Test Results: The (exact) population is not known, and certain hypotheses need to be tested. Chi Square test aims at determining whether significant relationship exists among the group of data or relationships are present due to sampling. Following are hypothesis, developed to be tested in research. Respondents’ Demographic at a glance: Place

40% rural and 47% semi urban

age 20 -30

24% above 46 years and 21% in the band of 41 to 45 years

Male: Female (decision making person)

1.103

PG & UG

31% UG and 27% higher secondary

Household Size

28% 3-4, and 27% 5-6

No. of Children in family

50% 1-3, 31% have 0

Family Income

12% more than Rs 18K, 19% 12K to 15K, 17% --- 6K to 9K

Branded VS Local

46% local and 53% branded

awareness of all benefits

51% aware

packaged dairy puchase reason

45% nutrition

factor attracting towards packaged dairy

40% quality

Usage Degree

2

Degree of Importance

3

Purchase Reason

4

Branded Purchase Reason

5

Attracting Factors

6

Regularity

7

Degree of Importance

8

Awareness State

9

Purchase Frequency

10

Attracting

EDUCATION LEVLE

1

AGE

T1: Hypothesis Table: s. n. Category

Hypotheses H01 : There is no significant relationship between age of family head and the type of dairy products (branded or conventional) H01 : There is no significant relationship between the age of the family head and the importance given to dairy products in daily food. H01 : there is no significant relationship between the age of the family head and the reason behind the purchase of dairy products H01 : there is no significant relationship between the age of the family head and the reason for purchase of branded dairy products. H01 : there is no significant relationship between the age of the family head and the factors attracting towards branded dairy products. H01 : there is no significant difference between the education level of customers and the type of consumers they are i.e. regular or occasional. H01 : there is no significant relationship between the education level of customers and the importance given to dairy products in daily food. H01 : there is no significant relationship between the educational level of customer and their awareness state about the benefits of the packaged dairy products. H01 : there is no significant relationship between the educational level of the customer and the purchase frequency of essential dairy products. H01 : there is no significant relationship between

12

Regularity

13

Packaged Preference

14

Regularity

15

Importance Given

16

Purchase Reason

17

Awareness Impact

INCOME LEVEL

Substitute Action

the educational level of the customer and the factors attracting towards branded dairy products. H01 : there is no significant relationship between the educational level of customer and their actions, in case of unavailability of desired brand products. H01 : there is no significant relationship between the gender of the purchase decision making person and type of consumers they are, i.e. regular or occasional. H01 : there is no significant relationship between the gender of the purchase decision making person and reason behind the purchase of packaged over conventional dairy products. H01 : there is no significant relationship between the income level of customers and the type of consumers they are i.e. regular or occasional. H01 : there is no significant relationship between the income level of customers and the importance given by them to diary products in daily food. H01 : there is no significant relationship between the income level of the customers and the reason behind the purchase of packaged dairy products.

AWARENESS

11

GENDER

Factors

H01 : there is no significant relationship between the state of the awareness of the customer and their purchase frequency of essential branded dairy products.

Chi Square Tests Results: s. n.

Test

variable 1

variable 2

1

Chi Square

Age of family head

usage dairy type

−do−

Age of family head

importanc e given to dairy products

3

−do−

Age of family head

reason behind purchase

4

−do−

2

Age of family head

reason for branded purchase

Hypothes is there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi

calculat table resul ed value t value 18.12

21.0 3

accep t H0

24.97

21.0 3

reject H0

17.8

21.0 3

accep t H0

36.4 2

accep t H0

33.06

5

6

7

8

9

10

11

12

13

14

−do−

Age of family head

factors attracting

−do−

Educational Qualification

regular consumer or not?

−do−

Educational Qualification

importanc e given to dairy products

−do−

Educational Qualification

awarenes s of benefits

Educational Qualification

purchase frequency of essential items

−do−

−do−

−do−

−do−

−do−

−do−

15

−do−

16

−do−

Educational Qualification

factors attracting

Educational Qualification

action, in case of unavailabi lity

gender

Regular consumer or not?

gender

reason behind packaged over conventio nal

monthly income

Regular consumer or not?

monthly income monthly income

importanc e given to dairy products responde nt's purchase

p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi p there is no significant relationshi

33.667

36.4 2

accep t H0

24.09

15.5 1

reject H0

10.72

15.5 1

accep t H0

5.82

9.49

accep t H0

31.38

36.4 2

accep t H0

15.18

21.0 3

accep t H0

40

15.5 1

reject H0

0.348

5.99

accep t H0

9.04

9.49

accep t H0

21.886

21.0 3

reject H0

15.372

21.0 3

accep t H0

21.0 3

accep t H0

14.875

reason

p

Chi Square Results’ Inferences: A. There is no significant relationship between the age of the respondents and their usage type (conventional or branded) with respect to dairy products. B. There is a significant relationship between the age of the head of the family and the importance given by them to (conventional or branded) dairy product in daily food. C. There is no significant relationship between the age of the family head and the reason behind the purchase of dairy products D. There is no significant relationship between the age of the family head and the reason for purchase of branded dairy products E. There is no significant relationship between the age of the family head and the factors attracting towards branded dairy products. F. There is a significant difference between the education level of customers and the type of consumers they are i.e. regular or occasional. G. There is no significant relationship between the education level of customers and the importance given to dairy products in daily food. H. There is no significant relationship between the educational level of customer and their awareness state about the benefits of the packaged dairy products. I. There is no significant relationship between the educational level of the customer and the purchase frequency of essential dairy products. J. There is no significant relationship between the educational level of the customer and the factors attracting towards branded dairy products. K. There is a significant relationship between the educational level of customer and their actions, in case of unavailability of desired brand products. L. There is no significant relationship between the gender of the purchase decision making person and type of consumers they are, i.e. regular or occasional. M. There is no significant relationship between the gender of the purchase decision-making person and reason behind the purchase of packaged over conventional dairy products. N. There is a significant relationship between the income level of customers and the type of consumers they are i.e. regular or occasional. O. There is no significant relationship between the income level of customers and the importance given by them to diary products in daily food. P. There is no significant relationship between the income level of the customers and the reason behind the purchase of packaged dairy products. Q. There is no significant relationship between the state of the awareness about the benefits of the packaged dairy products and the purchase frequency of essential dairy (packaged) products. It signifies, other factors, e.g. price, availability, quality and freshness of the packaged dairy precuts have got greater importance in the eyes of customers, while they make purchase decision.

Findings: When respondents were asked why they prefer packaged dairy products over conventional dairy products, we got mixed responses. As 28 % of them said “because of health related benefits” while 26 % said because of packaging and 20 % said it gives them “sense of fulfilment” in daily food. Apart form these 19 % respondents accept that greater shelf life of packaged dairy products was a reason to choose it. Descriptive frequencies analysis were used to determine consumer or household characteristics that influence the purchase decision related to packaged dairy products. It was found that middle aged and older people (above 36 years), with high education (graduation, PG or technical) are more concerned with usage degree of packaged dairy products. A healthy 65 % of above stated consumers purchase, essential items (e.g. packaged milk, ghee, powder milk etc) “daily”. The study shows that, families with less number of family members give more importance to packaged dairy products (i.e. the give utmost importance); a significant 67 % of small families are in this category. Families with higher income (i.e. more than Rs. 12,000 per month) are more concerned with quality of packaged dairy product. 42 % of higher income group population voted “quality” as the most attracting feature in packaged dairy product. Study reveals that, majority population living in rural areas still uses the unprocessed, unbranded local dairy products. Out of 91 rural respondents, 55 agreed that they still use unprocessed dairy products, which are neither hygienic nor enriched with nutrients. Respondents have different reasons to purchase packaged dairy products. Almost 45 % of respondents purchase packaged dairy products because of nutrition related benefits, where 36 % purchase because of health related benefits and around 20 % see other benefits in packaged dairy products. It is significant from the weighted average rank table (where “availiability” has got first rank in importance and awareness advertisment has got fifth rank), that dariy producres have to work on better distribution and reatail network while keeping the “freshness” of the products, which should have greater “shelf life”. To differentiate form the competitors, these dairy producres can work on different flavours, and they can offer a range of “tastes” to the consumers. Conclusion:

The survey helped the researcher in getting to know more about the world of dairy products, their usage pattern, dairy cooperatives and their developments. On a whole, the respondents surveyed seem to have a healthy awareness about packaged dairy products. The most differentiating factor is “quality” of packaged dairy products. Consumers are more concerned about the health related benefits from the packaged dairy products. Majority of respondents believe including sufficient amount of dairy products in their daily food is utmost important for proper nourishment. The purchase decision making person in majority of households surveyed, are male. Almost half of households surveyed, there are 1-3 children and having more children in family leads to less consumption level of dairy products in the family. The respondents seems to be more concerned about the credible information given on the pack as majority of respondents prefer to buy dairy items about which credible information is given. Respondents at Bettiah are more concerned about the health and nutrition related benefits from packaged dairy products. It revels their attachment towards packaged dairy products. Though respondents are health and nutrition conscious but their expectation from packaged dairy products do not end here, almost three fourth of them are taste conscious as well. The “availability” of the packaged dairy products are given first importance by the respondents while “freshness” got the second place. It shows the “impulsive” purchase pattern is prevailing in the study area. Since non-probability sampling techniques were used, the results obtained cannot be generalized and said to be applicable to the whole town. They can be however generalized for a particular part of the town nevertheless. The relationships between the various variables tested using statistical techniques help the researchers in finding-out the relationship between them. Though there were many constraints which, to some extent, acted as bottle-necks, the previous research articles as well as some valuable guidance given by people around proved as a major source of inspiration and motivated the researchers to put their best foot forward. It won’t be a hyperbole if I say that I have got the maximum value for the resource I mobilized in this direction. This study is not an end in itself as it has not been conducted keeping any particular problem or any particular company’s business intentions in mind but it has acted as a valuable source of knowledge-enhancement. I hope that it provides assistance for similar studies to be conducted in the future.

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