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Tuesday, 12 November 2013 00:01 - - {{hitsCtrl.values.hits}}
Changing consumer behaviour
National Milk Foods, a State-regulated organisation, is the original parent of Lakspray and possesses the honour of launching the brand Lakspray in 1969. Later on in 1981 Lanka Milk Foods was established to packet and distribute imported milk powder in Sri Lanka which marketed Lakspray and in 1983 it was established as a public quoted company with a major shareholding by the Government.
But 1991 was a turning point for the company when it was privatised and Stassen Group took over its controlling interest. Today the company owns the largest packing plant in South-East Asia with a capacity of 48,000 metric tons per year. At present Lanka Milk Foods (CWE) PLC engages in importing, packing, manufacturing, marketing and distributing dairy and beverage products in Sri Lanka.
Amongst the immense competition of international brands, Lakspray is extremely active in the milk-food market with a diversified product portfolio. The company offers full cream-milk powder under the Lakspray and Dairy Farm brands; skimmed milk powder under the Lakspray Trim brand; flavoured milk under the Daily brand; and flavoured fruit drink under the Sun Top brand.
It is also involved in rearing cattle, goats and rabbits to produce and sell milk and milk-allied products, such as natural cheeses. At present, Lakspray retains the second highest market share as a result of its efficient and extensive distribution network in Sri Lanka.
Birth of powdered milk
This assignment is focused on their flagship brand Lakspray, which nourished the people of Sri Lanka for 45 years. The brand ‘Lakspray’ is a household name and one of the pioneer milk powder brands in the country. Lakspray constitutes of rich milk proteins, vitamins and minerals for healthy family nutrition, promotes optimum bone density and builds resistance to a number of serious health problems and also enables to prepare a larger number of tea cups. Lakspray is currently available in multiple pack sizes: 50g, 100g, 200g, 400g, 900g and 1 kg to suit different customer requirements.
Brand equity/awareness
Kotler (1997) defined brand equity as the added value ascribed to products and services. This added value may be shown in the way customers consider, feel and act with respect to a brand, as well as in the prices, market share and profitability that the brand commands for the company.
Emerging and properly managing brand equity can help firms to increase their cash flow and make products differentiation in order to obtain competitive advantages. Brand equity is the set of assets (and liabilities) linked to a brand’s name and icon that adds the value provided by a product or service to a customer. Positive brand equity affects a firm’s future profit and the willingness of consumers to pay premium prices.
Brand awareness is the ability for a customer to recognise or recall that a brand is a member of a certain product category (Aaker, 1991). Brand awareness is a fundamental characteristic of customer brand equity. Brand awareness includes two elements, which are brand recall and brand recognition. Brand recall refers to whether or not customers can recognise the brand or are just unclear about it. As to brand recognition, it refers to the level of the connection between the brand and its products, ideas and any other dimensions.
Perceived quality/loyalty
Zeithaml (1988) defined perceived quality as the customer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives. Perceived quality is one of the main dimensions of brand equity. Perceived quality is also a component of brand value, which leads consumers to select a particular brand rather than another competing brand (Yoo et al., 2000). Aaker (1991) considered perceived quality as an overall nonphysical feeling toward the brand that impacts market shares, profitability and price.
Asseal (1992) defined brand loyalty as a favourable disposition towards the result in consistent purchases of that brand over time. Moreover, brand loyalty describes the attitude, behaviour, and choice perspectives of the customers (Javalgi & Moberg, 1997). Brand loyalty has a positive and direct role in affecting brand equity (Atilgan et al., 2005). It is considered to be the strongest path leading to brand equity (Atilgan et al., 2005).
Nowadays, products and services sold are not only about the physicality of the products or the quality of the services but also about beliefs in the brand associated with the products or services. It emphasises the critical role of the brand. As a result, brand loyalty is a concept that firms emphasise, since it may create or sustain a customer’s patronage over the long-term, thereby increasing brand equity.
Without advertising
As per the above recent data pertaining to Lanka Milk Foods, the brand value of Lakspray has been enhanced over the years while brand ranking has marginally decreased due to overall brand competition. The increase of brand value over a period of five years has been marked as 46%, which implies an increasing trend where the brand has been accepted by the customers as a result of the awareness created through the strong ATL and BTL advertising during 2009 and 2010.
As a result, Lanka Milk Foods has been able to position its brand as a ‘local brand with international quality at a low price’ and this has been clearly communicated to their target consumers: housewives. Thus, even with no advertising at all, the brand has been able to mark its existence in the industry with an increase of its brand value while earning an 8% sales increase from 2008 to 2012. This is indeed a remarkable performance of the brand amongst many more local brands as well as multinational brands as the message of the brand has been clearly communicated to its target audience.
Moreover, enterprise value has indicated a remarkable increase by 2012, which is double the enterprise value of 2008 over the time span of four years due to the drastic increase of equity. But 2011 has been a bad year in terms of operational performance. Though the enterprise value and brand value was increased during 2011, profits were comparatively low as a result of tariff imposed on imported milk powder, rupee value depreciation which adversely affected imported material cost and the price ceiling set by the Government to prevent the prices going up accordance with global market, which resulted in selling at a price lower than the imported price.
Another reason was the drop of sales of the Lakspray welfare pack due to the drop of corporate sales as one of the main corporate buyers was the armed forces and end of the war resulted in low consumption. On the other hand, the contribution to sales from the industrial sector is 70% for Lakspray where they need minimum support on ATL. The key selling preposition is competitive selling prices and the highest number of tea cups that it makes per packet.
Profits which were drastically increased from 2008 to 2010 by 104% suddenly dropped by 92% due to these macro environmental factors. The impact of these macro environmental factors was visible not only on profits, but overall performances during 2011. It could be evident on many other aspects such as earning per share and advertising cost as well. As a result of low profits, earning per share in 2011 was shown as nil and advertising expenses have been cut down in 2011 and 2012.
The correlation between the brand value and the sales implies an insight to brand equity and sustainability of the brand. As per the above statistics, sales are generated 7.75 times compared to the brand value in 2008, it has reduced to 5.75 times in 2012, which is interesting and needs more thought on how the future will pan out.
Summary
Hence, we can see how focused marketing activity, even without advertising, can sustain a loyal consumer base.
(The writer acknowledges the research done by the MBA graduates of the University of Colombo. The thoughts shared have no links to the organisations the writer serves in Sri Lanka or globally. Writing is only a hobby he pursues.)
