Agroindustrial project analysi

40 AGROINDUSTRIAL PROJECT ANALYSISquality theoretically yield consumer value, and consumer preferenceincreases in proportion to the value. But, because quality issubjective, market segments can evaluate quality differently. Sometimesprice alone is presumed to indicate quality, and a low pricewill create consumer resistance because the price is perceived negatively.It is important to recognize the difference between the intrinsicand perceived quality of a product: brand and image creationis a strategy of quality competition, whereas packaging and productcontent are means of quality differentiation.Service is a third parameter of competition. For agroindustrialproducts, service is directed to the distributor or retailer rather thanthe end consumer. Fast delivery, inventory supply, promotionalinformation, and credit and discounts (indirect forms of price competition)-allare services calculated to obtain product support.Such service is particularly relevant for industrial buyers, wheresupply uncertainty is high, or when outlet coverage and shelf displayspace are critical.New products go through a product life cycle (PLc) during whichtheir market experience changes. (Although this pattern is worthnoting, it is less applicable to food products than to other manufactureditems.) A model of the PLc is presented in figure 5.6 Whena new product enters the marketplace, there are few competitors,and the product's newness insulates it from price competition. Asthe product's success grows, it attracts competition that stimulatesprimary demand, expands the entire market, and may also introduceprice competition. As the product matures and differencesamong brands decrease, the basis of competition shifts more toprice. Improvements in the production processes or economies ofscale lead to reductions in production cost that allow more aggressiveprice cutting. The product, perhaps modified or promoted differently,may extend the maturity stage, but its sales eventuallydecline because the market is satiated or captured by new products.Some commodities, such as cereal grains, avoid the final declinebecause they are necessities. As incomes rise, however, consumers6. The PLc model has been used to explain domestic and international tradeflows and competitive patterns. For an excellent overview of the internationalapplication of the model, see Louis T. Wells, Jr. (ed.), The Product Life Cycleand International Trade (Boston: Harvard University, Graduate School ofBusiness Administration, Division of Research, 1972).