This was a not untypical question from a consumer in the focus groups conducted as a part of developing a strategy to grow the UK organic milk market. It neatly summed up the issue, however: we had to start with the consumer viewpoint.
Until 2001 the organic milk industry was very production-focused. The producers tended to be led by the processors, who in turn were led by the retailers; in fact they all had little or no understanding of consumer attitudes and behaviour concerning organic milk. In addition, the industry was dominated by a ‘deep green’ mindset – in other words, the enthusiasts believed that their own motivations would be the same for the population at large. Up until Spring 2001 the organic milk market was growing at 50-100% per year and demand exceeded supply. However, unbeknown to the industry at the time the deep green market was almost saturated and no one had attempted to understand the dynamics of the market as a whole. Almost literally overnight the market went into 100% over-supply as hundreds more farmers came out of organic conversion, incentivised by government grants. As a result, half of the UK’s organically produced milk had to be sold as conventional milk at conventional prices.
OMSCo (the Organic Milk Suppliers Cooperative, which accounts for well over 50% of UK organic milk production) brought in professional marketing advice. Consumer research revealed that the organic ‘dabblers’ who represented the future of the industry were completely unlike the organic enthusiasts who populated the producers and NGOs and had driven early market sales. They had no interest in farmers and the rural economy and little interest in the environment – at that time – or animal welfare. Not surprisingly, it was their health and that of their families that was the prime motivator for purchase. Unfortunately, hitherto all the emphasis, and most of the evidence for claims, related to non-motivating factors. Crucially, it was also found was that very few consumers had any idea as to the price of ordinary milk and certainly not the organic premium. Whilst their initial response was to say that organic milk was too expensive, on probing it became clear that the issue was not the scale of the price premium (about 50% at that time) but the lack of understanding about the value equation. They wanted to know why organic milk was supposed to be healthier before they would consider purchase – the typical response was “milk is milk isn’t it?”
We set out to collect the evidence we needed to support claims and to build a compelling and irrefutable proposition that organic milk was worth paying more for because ‘it’s healthier for you’. We developed a new brand identity for OMSCo, built an award-winning website, and launched a £1m media campaign that ran for 5 years and featured stories such as higher omega-3 and vitamin E levels, absence of pesticides and GM content, etc. As well as creating a consumer franchise for the milk, and an attractive category for the retailers, we also had to provide a profitable future for OMSCo’s farmers who were beginning to bleed from the downwards pressure on prices. We had to prove that reducing the price was irrelevant to the need to get consumers to purchase organic milk more frequently, even though almost everyone in the industry and supply chain, in addition to the NGOs, believed that because “the market is in crisis” the only possible course of action was to drop the price.
In fact, annual growth in sales of all organic milk products never dipped below 21% and by 2006 was at 44%; for liquid milk it rose to 65%. Household penetration of organic milk rose from only 8% in 2001 to 24% in 2006, a 200% increase. In London penetration rose to 35%. The industry went back into under-supply again in November 2005, after 4.5 years. We succeeded in adding value to a commoditised category (milk) and created an attractive and profitable new sub-category for retailers. Organic milk went from accounting for only 1% of milk sales in 2001 to 5% by value by the end of 2006.
It is a classic example of an industry that was fixated by the production, rather than the demand, end of the supply chain. What they saw was a market crisis, when in fact they faced a self-inflicted over-supply crisis and a very healthy market situation. They lacked the marketer’s ability to see that the majority of consumer segments had very different perceptions of the world to themselves. This lack of insight, in turn, led to a reflex action that emphasised the importance of price rather than knowledge and understanding (by both suppliers and consumers). As a case study it demonstrates the vital role that marketing can play in revealing the realities and opportunities of a situation, rather than the myopic views that can result from production-led thinking.