Реферат: Marketing Research Project for a Russian Company

Marketing Research Project for a Russian Company

Summary… 3

Theory… 4

Identifying marketsegments… 4

Marketing research… 5

Introduction… 6

The corporation… 7

The history of thecompany… 7

The choice of theindustry… 9

Entering the marketof pastas and the present position of the company. 11

The problem of thecompany… 12

The marketingresearch… 13

The problem… 13

Research objectives… 13

Research plan… 15

The history of themarket of pastas of Saint Petersburg and its present state.         16

Historical approach… 16

The presentsituation… 16

Products in themarket… 17

Market segmentation… 19

The questionnaire… 21

The results… 23

Conclusions… 25

General findings… 26

Recommendationsapropos automation of the process of packaging… 27

References… 29

Краткое содержание.

В данной работе анализируется проблема российскойкомпании, производящей макаронные изделия. Компании было необходимо принятьрешение о целесообразности автоматизации упаковочного процесса. Послепоследнего финансового кризиса рынок макаронных изделий значительно изменился,и компании было необходимо собрать информацию о его состоянии после кризиса.Для сбора релевантной информации было проведено маркетинговое исследование.Работа включает отчёт об этом исследовании, анализ его результатов, а такжедругую релевантную информацию, которая была необходима для подготовкиисследования, включая описание истории рынка макаронных изделий, анализпредполагаемых последствий финансового кризиса и сегментацию рынка. Информация,собранная при помощи исследования, показала, что автоматизация упаковочногопроцесса целесообразна только в том случае, если компания выберет определённыесегменты рынка как целевые и помогла понять новую среду, сформировавшуюся послекризиса. Исследование продемонстрировало, что автоматизация упаковочногопроцесса является скорее средством маркетинга, нежели средством повышенияпроизводительности труда. Это было новым для компании.


In this paper a problem of a Russianpastas manufacturing company is analyzed. The company had to make decisionweather it is reasonable to automate the process of packaging. After the lastfinancial crisis, the market of pastas undergone very substantial changes, andthe company needed to collect information about its state after the crisis. Tocollect the relevant information, a marketing research was prepared andperformed. The paper includes a report on this research, analysis of theresults of the research, and relevant information that was necessary to preparethe research, namely the description of history of the market of pastas,analysis of proposed influence of the financial crisis and segmentation of themarket. The information acquired with the help of the research made it clearthat automating of the packaging process is reasonable only if the company choosescertain market segments as target ones and helped to understand the newenvironment that has formed after the financial crisis. The researchdemonstrated that automating of packaging is mainly a mean of marketing, not amean of increasing labor productivity, it was new for the company.

Theory.Identifying market segments(3).

Markets consist of buyers. Since buyersdiffer in many ways, markets can also be segmented in a number of ways.

Market segmentation represents an effort to increase acompany’s targeting precision

 Market segmentation can be carried out at fourlevels:

1.    Segments

2.    Niches

3.    Local areas

4.    Individuals

For the market of pastas the reasonable level ofsegmentation is the first one.

A market segment consists of a large identifiablegroup within a market.

When segmenting at this level a company tries toisolate some broad segments that make up a market. The consumers belonging to asegment are assumed to be similar in their wants and needs, though they are notidentical.

Many different variables can be used for segmenting:

·    Purchasingpower or income (though they correlate, they are not the same);

·    Wants;

·    Geographicallocation;

·    Buyingattitudes;

·    Habitsand so on

Market segmenting can be made using one or morevariables.

In our case we will use consumer’s income per head asa variable for market segmentation.

We will use income per head because the price is themost decisive factor in making purchase decision and because the demand forpastas is elastic[1].

We will not use any other variables to make oursegmenting be:

·    Measurable:The size, purchasing power, and characteristics of the segments can bemeasured.

·    Substantial:The segments are large and profitable enough to serve. A segment should be thelargest possible homogeneous group worth going after with a tailored marketingprogram.

·    Differentiable:The segments are conceptually distinguishable and respond differently todifferent marketing-mix elements and programs.

Marketing research(3).

Marketing research is the systematicdesign, collection, analysis, and reporting of data and findings relevant to aspecific marketing situation facing the company.

The marketing research process usually includesseveral steps:

1.    Define the problem andresearch objectives.

2.    Develop the research plan.

3.    Collect the information.

4.    Analyze the information.

5.    Present the findings.

Data sources. All data sources can be divided into twolarge groups: primary data and secondary data.

Primary data are gathered for a specific purpose or aspecific research project.The primary data are collected by the researcher andhad not been collected before or is outdated, inaccurate, incomplete, orunreliable.

Primary data can be collected in four ways:

1.    Observation.

2.    Focus groups.

3.    Survey.

4.    Experiments.

Secondary data are data that were collected foranother purpose and already exists somewhere.

The sources of secondary data are:

1.    Internal sources.

2.    Government publications.

3.    Periodicals and books.

4.    Commercial data.

There are following contact methods:

1.    Mail questionnaire.

2.    Telephone interviewing.

3.    Personal interviewing

3.1.      Arrangedinterviews.

3.2.      Interceptinterview.

In our case we will have to collect primary databecause secondary data on the subject is incomplete and outdated.

We will use the survey research because it will beable to give us more reliable, precise data apropos the questions that are ofinterest for us. They will be discussed below.

We will use personal intercept interviewing as acontact method.


After last financial crisis in Russia thebusiness environment had changed dramatically. Companies have to adopt to newconditions. Manufacturing companies have a chance to push their foreigncompetitors out of the Russian market because ruble have devolved.

In this paper I will describe how Ihelped a pasta manufacturing company to make an investment decision aproposreasonability of investing in a new packaging line using a marketing research.

The following tasks were to do to accomplishthis goal:

1.   Analyze the problem of the company.
To do this it was necessary to do the following in advance:

1.1.      Study the history of the company.

1.2.      Study the reasons of its choice of industry.

1.3.      Study the present position in the market ofpastas.

1.4.      Understand and formulate the problem of thecompany.

2.   Carry out a marketing research to give thenecessary information to the management of the company.
I had to make the following steps to do it:

2.1.      Formulate the problem the research is to solveand the research objectives.

2.2.      Develop the research plan.

2.3.      Collect data.

2.4.      Analyze data.

2.5.      Make conclusions apropos the state of the marketand reasonability of investing.


The corporation.The history of the company.

The LBS Corporation started operations inSeptember 1992. It was started-up by three young men who had enough risk-takingpropensity to make a decision to start-up in the Russia of 1992. One of themhad a formal economic education, though a kind of a Soviet one but neverthelesseconomic, another one was a kind of a lawyer, and the third one was just afriend with no formal education useful in business administration (he had ahigher education though). Their cooperation had began before they started-upthe firm- they earned the capital necessary to start-up together. The ideabelonged to the third man who had some connections in Germany. Some people henew there had a used car shop. So the information about prices of used cars inGermany was available for them. They borrowed some money and invested some oftheir own savings to drive several used cars from Germany. During their latertrips they  hired several people (in Russia) to help them drive cars. Afterthey had made several trips to Germany they possessed about five — seventhousand dollars which they invested in the LBS Corporation which wasstarted-up. They continued to import cars for a while but soon they decided toquit the used cars importing business after an unlucky trip during which anaccident has happened and one of them was seriously injured and one car wascompletely destroyed. The matter is that the cars were often in a poortechnical condition and problems with Mafia constantly appeared, so this businesswas really risky and in addition they saw another opportunity of making moneywith the help of the newly established firm. I should mention that in that timethe environment they had to deal with was really unstable and they had nodefinite intentions, no business plan when they decided to start up, that isinteresting. When I asked one of the founders how could it be and what werethey thinking about, he replied that they were thinking in a way that “therewill be a day, there will be food”. I think, hardly someone except Russians canrefer in that way to that sort of questions. But everything happened exactlylike that. First they founded their firm and then they began to look for anopportunity and found it.

In that time the depression effect had been in forceand the demand for river tours in Russia dramatically decreased. As a result ofit, the Volga river fleet was doing almost nothing. As a consequence of that,it was easy and inexpensive to freight a ship, if you needed one. So they did.They organized river tours for foreigners for whom Russia was extremelyinteresting after the Iron Curtain had just been lifted. They were in thisbusiness for one season only and then quit. It became unprofitable for somereason.

Here I have to step aside a little from the point andmention the following: it is very often difficult to get information in Russia,especially from a businessman about his business. They are used to keep silentand they are sometimes extremely jealous about the figures. Though they knowyou cannot harm their business and the information will not go further, theywill feel uncomfortable if their confidential information is shared withsomeone. Sometimes you have to be glad they give you some information abouttheir business and when once began to get into details during speaking with oneof the three men he went ballistic and told in an unpleasant manner that hewould not let him been questioned. So I had some lack of information about thepast of the LBS Corporation, but the situation with information about itspresent is much better for me since I was and I am connected with that companyand I have a job there, but I will return to this a little bit later when weare finished with the history of the LBS Corporation.

After they quit the river tour business they saw theirnext opportunity in the computer industry business. A friend of one of them wasa programmer and an informal leader of a collective of programmers andtechnicians. It was the dawn of Russian computer market in that time. The LBSCorporation hired that collective and began to manufacture (to be more exact-to assemble) and to resell computers and develop software.

The LBS Corporation was more oriented towardscorporate users. In 1993-1995 not many Russians could afford a personalcomputer. The buyers were mostly corporations. After the Soviet system themarket environment required new methods of business administration and for manycorporations it became clear that what they really need is computerization.Also a deficit of software solutions was taking place at that time. Of course,there was imported software but there was a demand for individual solutions inthe market. And of course the networking business was growing.

The LBS Corporation operated in all of the three segmentsand offered complex solutions consisted of computers, software and networking.

This business was bringing significant income. But asthe computer market developed, the competition became stronger. Some of thehired programmers separated and started their own business. On the other hand,the LBS Corporation did not want to go to the basic level computers segmentwhich became growing faster and faster. This required investment and they didnot think they should go into that segment because they though that in a year“everyone in Russia will be assembling computers”.

As the market was growing, there became more softwaredeveloping companies offering their products in Russia. The LBS Corporation haddo face many strong competitors among which there were not only newlyestablished Russian companies but also some of the Western software developerswhich decided to start operations in Russia. Despite of this, the LBS Corporationstill operates in this market but it failed to capture a significant marketshare. It still has many of the clients which were acquired in 1993-1995. TheLBS Corporation does not want to make expensive marketing efforts to increaseits market share. In my opinion, if the LBS Corporation had decided tomanufacture and market computers for personal use when it had that opportunity,it would have succeed much more than it had, though it would have facedsignificant difficulties connected with the last financial crisis in Russia.

But the LBS Corporation decided to invest the biggestpart of its profit in bonds. It was extremely profitable until 1997 to haveyour money invested in the government bonds. Later the market of shares beganto grow, and the LBS Corporation reinvested in shares. But then, approximatelyin may, 1998 the economic situation in the country began to dramatically andrapidly deteriorate. For the LBS Corporation it meant a partial loss of themoney invested in bonds and shares.

But the management of the LBS Corporation did not wantto hold all eggs in one basket. In 1995 they decided to go into the foodindustry.

The choice of the industry .

The basic motives which made the LBS Corporationchose  this industry were the following:

1.    The food industry inRussia and especially in big cities was growing fast. After the Perestroika itsurvived a significant decline which was actually a crisis caused by oldmethods of business administration, antiqueness of technology, poor quality ofproducts and packaging and availability of imported foods. Then the processreversed: more and more  of consumers realized that the imported foods theyused to buy were of poor quality though packaging was good-looking. In additionto this Russian manufacturers began to use more progressive methods of businessadministration and more modern technology of manufacturing and packaging. Thismade the consumer’s preferences to change in favor of the Russian manufacturersand Russian foods.

2.    Market size.

3.    The fact that most offoods are necessities. As a consequence of this, people will not reduce theirconsumption of foods or will reduce it less than consumption of other products.

4.    Absence or low competitionwith Russian manufacturers due to small quantity of them, the tendency ofpushing the foreign manufacturers out of the market, and as a consequence- anopportunity to capture a significant market share and relatively low enteringbarriers.

5.    The demand for many foodsis not seasonal, neither the prices are.

6.    Short operation andproduction cycle.

After the industry had been chosen it was necessary tochoose the concrete product to be manufactured. The management of the LBSCorporation decided that the most acceptable product according to the resourcespossessed was pastas.

The basic advantages of this decision were:

1)    Easy to start:

a)    The technology of pastaproduction is not sophisticated

b)    The equipment isrelatively inexpensive and available

c)    Short list of ingredientsrequired

d)   On the first stageautomated packaging process is though desirable but not necessary. Thissignificantly decreases the capital necessary to start-up because in the foodindustry the cost of a packaging line very often is similar to or even exceedsthe cost of the production line.

2)    Market size:

a)    Pastas are necessities.Because of this people with low disposable income are among the potentialbuyers. This is extremely important in Russian environment.

b)    The technology makes itpossible to vary the quality of the product by using wheat of different qualityand different technology of packaging. Using the wheat of lower quality allowsto decrease costs and, as a consequence, the price of the product. This allowsto cover more segments of the market of pastas if we make an incomesegmentation of it. This is important because income of people of differentstratas in Russia differs dramatically.

c)    Market stability. Thebiggest indirect competitor of pastas is potato. Of course, the price of potatodoes vary during the year, but:

i)    Theperiod when the price of potato is significantly below average is short,

ii)    The seasonal variation ofthe price of potato does not usually exceed 40%.

iii)   Since potato and pastahave a lot of different features, the decision to purchase this or that isgreatly influenced by consumer’s preferences. As a result of it we should notexpect the cross-price elasticity to be high. We certainly can estimate it tobe less than one.
As a result of what was said, we can estimate the market of pastas to be stableand to be a subject for seasonal changes in a low degree.

3)    Long life-cycle of theproduct.

4)    As a result of all this,high economic efficiency.

Entering the market of pastas andthe present position of the company.

In 1995 the LBS Corporation started manufacture ofpastas. Since the biggest part of its capital was in the financial market, theLBS Corporation considered the foods manufacture business to be the secondarysource of income, to be on the safe side. There were alternatives, such aspotato chips, ketchup and others. But the fact that it was possible to buyinexpensive equipment of low capacity and use the manual process of packagingto see how it goes than to tie up much money at once was of the highestimportance.

The LBS Corporation bought the necessary equipment andstarted pastas manufacture.

Thus, at this moment the LBS Corporation manufacturesabout 50 tons of pastas a month. It is a small manufacturer and we cannot talkabout the market share it has in the market. The management would like,however, to increase production.

The nomenclature of pastas being manufactured by theLBS Corporation are:

·    Vermicelli

·    Macaroniof different shape:

Ø  Horns

Ø  Shells

Ø  Spirals

The LBS Corporation plans to deepen the nomenclatureby starting manufacture of spaghetti. 

The problem of the company.

The LBS Corporation uses the manual process ofpackaging. The management of the LBS Corporation must decide weather it shoulduse the automated process of packaging instead of the manual one. It also wantsto know how the last crisis in Russia affected the market of pastas and what isits present state. It needs it because it knows the crisis had a strong effecton the market and the secondary data available is now out of date. It is notsure though, what particular information it needs to make the decision. Itfeels it is unable to predict customer’s reaction and other consequences ofsuch a change in technology. It also has several different options ofperformance of this decision. These options are different in costs and qualityof packaging.

Since I have already worked for the LBS Corporationand I am the only person here who has some formal education in marketing, I wasoffered to do this job.

Since 1995 the LBS Corporation used the manual processof packaging only, it used match-the-market or expenses plus pricing and didn’tever think about the questions like these. The idea of having the process ofpackaging automated had not been discussed seriously, in the sense that it wasthought to be mainly the way to increase the labor productivity, but it reallywas more connected with marketing. When I told them about this they looked alittle surprised.  Saying it another way, the decision to automate the processof packaging meant use of marketing for the LBS Corporation.

Since the secondary data was difficult to find andabsolutely useless after the financial crisis, I had to make a marketing surveyto collect the preliminary data to solve the problems of the company.

The first task I had to accomplish was, so to say, toformulate my task more precisely.

The marketing research.The problem.

The research is to help to solve theproblem of the company discussed above. We can formulate the problem of theresearch more precisely:

1)    Due to inexpensive laborin Russia, the automated packaging process will increase the cost of product.

2)    Since it is a mean ofmarketing, we should identify where it is reasonable to use it. It will requireefforts of the economists and accountants of the corporation. I have  tocollect the necessary marketing information to make them able to answer thequestion:. “will offering an automatically packed product create enoughincremental preference and profit to justify its cost against the other possibleinvestments that could be made?”. This information must also be helpful for thefurther analysis and design of necessary marketing mixes.

3)    The necessary informationis information about the situation in the market, about people’s attitudetowards automatically and manually packed pastas.

To do this I need to:

(I)        Formulatethe research objectives sharply.

(II)      Analyzethe history of the market of pastas of Saint Petersburg and its present state.

(III)     Segmentthe market of pastas and develop profiles of resulting segments.

(IV)     Evaluatethe attractiveness of each segment.

(V)      Evaluatepreferences of the buyers and their attitude towards such factors as price,quality of the core product, quality of packaging, etc.

(VI)     Havingknown the preferences and attitude towards packaging, quality and price,identify conditions upon which an automatically packed product will not fail.

(VII)    Identify the necessarypositioning concept for automatically packed pastas that will be offered todifferent segments.

Research objectives.

I had formulated the following specificresearch objectives:

1)   Evaluate attractiveness of each segment.

a)   What kind of people would be the most likely topurchase pastas in high quality packaging?

b)   Which segment do the most heavy users belong to?

2)   Define the preferred form of pastas (corns,shells, etc.).

3)   Define the most important factors whichinfluence the consumer’s subjective probability[2]concerning the quality of the product.

a)   Does the consumer usually estimate the qualityby appearance of the product?

b)   Is there a stereotype that a quality product canbe packed only in a high quality package?

c)   Is there a stereotype that imported pastas arebetter than the domestic ones? How strong is it?

4)   Define the importance of quality packaging forthe buyer.

a)   Does the quality of packaging correlate with thequality of the product in consumer’s mind?

b)   What must be the quality of the product which isautomatically packed?

c)    How much will a buyer desire to pay forpackaging?

d)  What are the main factors which make packagingimportant (estimated quality of the product, precise weight, other)?

5)   Define the desired characteristics of thepackage.

a)   Which size of the package will be the mostpopular? Shall we offer packages of different size?

b)   What should be the packaging be made of and whatshape should it have(plastic or polyethylene packet, cardboard box)?

6)   Define the loyalty status of the consumers.

7)   Define the “patriot” status of the consumers.

a)   Do they feel unsatisfied that most of the highquality pastas are imported?

b)   Does the fact that Russia substitutes naturalgas and oil for “colonial” goods?

As can be seen from the goals andobjectives, the research combines the features of both exploratory and casualresearch.

Research plan.

Since the company:

1)   has lack of information about the market ingeneral;

2)   needs some specific information ;

3)   does not want to spend money on purchasing theavailable secondary or primary data;

4)   thinks that the secondary data available can beoutdated due to the last crisis; primary data must be collected.

The most reasonable research approach inthis situation is a survey research. It will allow to gather more informationin less time, and some information needed can be acquired only directly fromthe purchaser’s answer. As a consequence, a questionnaire should be used as aresearch instrument.

I have two basic sources of information:

1.    The buyers of pastas.

2.    The salesmen who sellpastas .

Of course it is much easier to talk to salesmen thanto the buyers, since the seller knows his market and he can give you a completeidea about what the situation in the market is like. But for this ease we haveto pay:

·    Thisinformation can be not so accurate because the salesman though can give youinformation about how much of this or that good had been sold, probably willhave difficulties with determining such things as percentage of buyers ofdifferent  age, sex, etc. Here a problem of selective remembering may arise.

·    Thereare questions which can be answered only by the buyer himself and about whichthe salesman can have no idea at all. It regards to, for example, such thingsas the expected reaction for a price change, attitude towards packaging and the“reasonable” price of it in the consumer’s eyes.

As may be seen, this source of information could notsatisfy our needs, but I decided not to neglect it for that reason but leavefor the purposes of control. It is reasonable to expect that the results fromthe both sources must correlate.

The consumer survey was made by me andtwo other employees of the LBS Corporation between the 5th and the10th of November at outdoors markets of Primorsky district ofSaint-Peteersbug. About seventy customers were asked. The results of the surveyare shown and discussed below in the appropriate section.

The history of the market ofpastas of Saint Petersburg and its present state. Historical approach.

Before and during the Perestroika the market of pastasof Saint Petersburg was offering only the products of the Soviet manufacturers.There were no imported pastas at all. Due to the system, the market of pastasof the city was actually offering something. In the province it did not. Therewas a deficit of everything. Since there was no competition between themanufacturers, the quality of pastas was extremely poor. The technology ofpastas manufacture itself was of interest: it was a so-called “doubletechnology”. A double technology is one that can be used both for manufactureof civil and military products. In the USSR the equipment used for pastasmanufacture could be used for manufacture of ammunition. I think it didnot affect the quality of pastas positively.

In addition to this, high quality pastascan be made only of high quality durum wheat flour. And of course, there was adeficit of this kind of wheat in the USSR.

The consequence of all these plus bad management wasthe poor quality of the pastas manufactured in the USSR.

When later the market was open for foreignmanufacturers of pastas the native ones were pushed out of the market sincethey were non-competitive.

For several years the market of pastas was saturatedwith imported products. Only in the last few years the situation began toimprove for native manufacturers. This was because the difference in pricesbetween them and the foreign manufacturers they could achieve became moresignificant and the quality of Russian pastas improved. The industry began todevelop.

The present situation.

In this section some information that had beenavailable for us before the research was made is given.

We can say that the Russian manufacturers use and haveused price methods of competition mainly. The reasons why they have to do itare the following:

·    Oftenthe product is of low quality;

·    Theproduct is manually packed in most of the cases;

·    Thereason which in my opinion is of the highest importance: Russian people have astereotype which was, as we say, absorbed with the mother’s milk: made in theUSSR means made badly. That is why Russians have negative attitude towardsproducts manufactured in Russia or Post-Soviet area. It makes people think thatanything imported is better. And that is why English on the packaging is a meanof marketing in Russia. We have to break this stereotype if we want to succeed.

Products in the market.

We can divide all pastas availableinto three major categories:

1.    Low quality pastas. Theyare cheap, manufactured in Russia or Byelorussia, made of flour which is notactually for pastas manufacture. [3]Their poor quality can be easily identified by their appearance. They are notsmooth and their color is a kind of whitish, not the ultimate specificyellow-gray color of good pasta. Their packaging is always manual.

2.    Middle quality pastas.This category will include domestic pastas made of good durum wheat flour butpacked manually. As a consequence, the only possible method of competition islow price. The low price influences the position of these pastas, though theyare more expensive than the ones from the previous category, approximately by20-25%[4].

3.    High quality pastas. Thiscategory includes pastas made of high quality durum wheat flour and packedautomatically. Most of the high quality pastas are imported. The strongestposition in the market belongs to Italian and Finnish pastas. Domestic offeringsof these pastas are rare. The best known domestic manufacturer of high qualitypastas in the city is “Panna”, the former “First pasta factory”. 

During the last crisis after August,the 17th, the foreign manufacturers of pastas had to face problemsin Russia. If before the crisis Russian pastas were approximately 20-30 %cheaper than imported ones, after the crisis when the economic situation becamerelatively stable again (in October-November), the imported pastas were twotimes more expensive than the Russian ones. This relates to all or almost allimported pastas since they cost approximately the same nevertheless they aremade in different countries- from Italy to Iran. In addition to this, the pricelevel in Russia increased dramatically during only a few weeks. Many importedgoods became 2-3 times more expensive than they were. This means a decrease ofreal income. Since attitude towards Russian pastas comparatively with theimported ones is negative, we can assume that Russian pastas are inferior goods.This means that even if only the people’s income had decrease without any changein price, the consumption of the imported pastas would have reduce in favor ofthe Russian ones.

Having applied some microeconomicsissues to our analysis we found an interesting detail: we have not only oneprocess which can improve the conditions of Russian manufacturers but two. Theyare a change in price and a change in income. According to the economist of theLBS Corporation the average increase in prices of foods was about 50%. Thismeans the effect of the second process should have been significant. What thisled to was called “pastas boom”. According to the information gained with thehelp of some channels of the LBS Corporation, some big Moscow and Petersburg manufacturersincreased their production by three times in September and Octobercomparatively with August. This means the foreign manufacturers which dominatedour market became non-competitive and where pushed out of the market. We had tothink how should we use this. One of the ideas, as was said before,  was tostart package automatically, design the appropriate marketing mix for ourproduct, and use this opportunity to gain the brand recognition. We had tobreak the stereotype and make people think our product is a high quality onethough it is made in Russia. We should use this time when foreign competitorsare destroyed to capture some market share in which the people would havepositive attitude towards our product. 

We can also estimate that the overallcapacity of the market of pastas will decrease since the most dangerous for ussubstitute of pastas, potato, have not became significantly more expensive.

Trying to estimate the marketcapacity of our product, we meet some difficulties:

·    Thereare a lot of small manufacturers and the market is saturated with theirproducts, and they do not declare their true level of production to reduce orcompletely avoid taxation.

·    Pastasare sold in the outdoors markets without cash registers, some pastas are importedthrough Byelorussia to avoid Russian customs.

That means we cannot trace thequantity of pastas manufactured in the city using top-down approach. The onlypowerful mean of estimating the capacity of the market we still have at ourdisposal is the bottom-up approach. We can figure out how much pastas anaverage person consumes and it will give us an idea about the capacity of themarket.

Market segmentation.

My next step was to segment themarket.

In my opinion, the most importantvariable of segmenting of the pastas market is consumer’s family income perhead. Later we can apply a kind of sub-segmentation to some of the segments todivide them into smaller ones using another variables.

The segments we can name are thefollowing:

1)    “Low class”[5]. Poor people. Theirincome per head is below 500 roubles. Since they have to make a living somehow,they will want to save on anything. They will most probably buy low qualitypastas. The following social groups belong to this segment:

¨   Pensioners,

¨   Joblesspeople,

¨   Familieswith more than 3 children,

¨   Publicemployees (doctors, teachers).

¨   Peoplewho are not paid for their job
Though their income is low, this segment is important because of its size.

2)    “Lower middle class”. Thiscategory will denote people with income per head from 500 roubles to 900roubles per month. They are able to satisfy their needs for food, though theywill try to save on it because their disposable income is still low.
We can name the following groups of people who match this definition:

¨   workingpensioners;

¨   retiredofficers;

¨   publicemployees[6];

¨   workersand employees of different professions, usually not complex ones ;

3)    “Higher middle class”.People with an income of 900 to 1500 roubles per head per month will be includedin this segment. These people have a significant disposable income for Russia.This means sometimes they will prefer the quality to the price, but the pricestill is of the highest importance.
To this segment belong:

¨   whitecollars, office workers;

¨   representativesof complex professions;

¨   representativesof militia, army, tax police, etc.

4)    “High class”. We willencounter in this category everyone whose income per head is higher than 1500rubles per month. These people have a big disposable income for Russia. Atleast they can afford buy the pastas they like. This means we can expect theprice elasticity of this segment to be the lowest one. The representatives ofthis segment will be influenced by such factors as brand name recognition,quality of packaging, etc. in the highest degree.
In this segment we can include:

¨   smallentrepreneurs;

¨   peoplewho have a good job, have a good income, but are not entrepreneurs. Thiscategory will include a lot of different professions from drivers to butchers.

¨   NewRussians.
We should underline, though this segment is relatively small (according to thesources of the LBS Corporation, 20-30% in Saint Petersburg), it is huge in itsabsolute figures. In addition, its representatives have the highest disposableincome and are concerned about prestige and self-respect much more than therepresentatives of the other segments. That is why we can be sure a-priori thatthis segment will require an elaborated marketing mix of its own.

We should not deepen our segmentation using othervariables because it will complicate our model of the market and thesubsegments which will result from this will hardly differ significantly. Thedeeper segmentation will not be relevant to our problem.

The questionnaire.

Before and during asking the questionstry to notice the following:

1.   The customer has bought pastas:

¨   Automatically             manually          packed

¨   Sort:    Corns   Shells   Spirals             Spaghetti        Vermicelli

¨   Quality:           high                 midle               low

¨   Domestic                     Imported

¨   Trade mark: (for automatically packed)
            Nordic             Big      other_______              unknown

¨   Weight: 300g              500g                1000g

¨   Price:   __________________           

¨   Quantity:  1     2          3          more

2.   The customer is making or has already madeanother purchases
      YES                NO

3.   The customer’s sex:                       M         F

4.   The customer’s age:          10-18,              18-25,             25-35,              35-45,              45-55,              55-65,65-

5.   The customer’s dress is:
      poor                 average                        rich


The questions to be asked (skip thequestion if the answer is obvious, just mark the right answer):

1.   Have you bought pastas manually or automaticallypacked?
Manually               Automatically

2.   (skip the questions 2 and 3 if the pasta boughtis manually packed) What is the trademark of the pasta you have just bought?

3.   You prefer to purchase pasta

¨    of this trademark

¨   of this and some others trademarks (if yes, whatare they)

¨   the trademark does not mean

4.   What is the sort of the pasta you have bought?
      Corns   Shells   Spirals             Spaghetti         Vermicelli

5.   What is the size of the package?
      300g                500g                1000g

6.   What is the optimal size of the package?
300g          500g    1000g              other ____________

7.   What is the price of the package?             __________________

8.   What is the form of the pastas you have bought?
Shells         corns                spirals              vermicelli

9.   Why have you chosen exactly this pasta?
Price          Quality            Familiar trademark      Other__________________

10.  How often do you buy pastas?
____ times a week                        once a _____weeks     once a _____months

11.  How many people will eat the pasta you have bough?     _______

12.  Did you use to buy more or less pastas before crisis?       MORE                        LESS

13.  You have planned to buy pastas in advance?       YES    NO

14.  You have made your decision about which particular pasta (brandname, sort) you will buy in advance?      YES    NO

15.  Imported[7]pastas are better than the domestic ones.        Yes      No

16.  How much would you pay to have a 500g package of imported pastasinstead of Russian? ___________________

17.  Automatically packed pastas are better than manually packed ones:
often, but sometimes manually packed pastas are not worth
manually packed pastas are as good as automatically packed

18.  How much should a 500g package of good-looking automatically packedpasta of an unknown domestic brand cost to make you switch to it? _____________

19.  What is the biggest disadvantage of manually packed pastas?
Poor quality           Unknown manufacturer         No guarantee on weight
Other ___________________________________________________

20.  When you buy imported goods do you have a feeling that it is badthat we have to substitute natural gas for foods, cloths, etc.
Usually      Sometimes       Seldom            Never

21.  What are you?

22.  Have the reforms performed in Russia been in your favor?

23.  Do you prefer to buy clothes and footwear in the shop or in themarket?

24.  What are the members of your family?

25.  What is your personal income?

26.  What is the income per head in your family?

27.  How old are you?

The results.

1.   We revealed a negative correlation betweenincome per head and consumption of pastas. The biggest part[8] of buyers wererepresentatives of the lower class or the lower middles (31% and  33%respectively). 27% were higher middles, and 16% belonged to the high class.Since only pasta buyers were asked, the average consumption of pasta is lowerthan our research show, but nevertheless we can get an idea of structure ofconsumption of pastas. According to our calculations, the consumption of pastasper head is:

¨   Lower class- 0.6 kg/month

¨   Lower middles – 0.55 kg/month

¨   Higher middles – 0.32 kg/month

¨   High class — 0.13 kg/month

2.   Only 12% of the respondents claimed they consumemore than 1.3 kg of pastas a month per head. We can treat the lower class andthe lower middles as the heavy half and the higher middles and the high classas the light half.

3.   36 % of respondents claimed they prefer corns toother pastas, 22%like spirals, 26% like shells, 7% prefer vermicelli, and 2%usually buy spaghetti.

4.   46% of buyers claimed the price to be the mostimportant factor which influenced their purchase decision, for 37% of consumersthe quality is the priority. 5% think they should buy only automatically packedpastas, and 3% claimed some specific features as taste (we should assume thatgood taste is a part of quality and that is why this group is small). Therewere also 4% of loyals who are driven by a familiar brand name while makingtheir decision.

5.   Usually people plan to purchase pastas inadvance (87%). In spite of this, the decision about the particular sort andbrand name (if there is any) is usually impulse (63%).

6.   The crisis dramatically affected the market ofpastas. We talked to the salesmen of pastas to shed light on this question. Allof the salesmen we talked to said that before the crisis people preferredimported pastas to domestic ones. Now domestic pastas of low quality (37%) andmiddle quality (45%) are bought (according to our survey, not to salesmen). Weexpected changes to happen, but we did not expect them to be so huge, thoughLBS Corporation’s manufacture of pastas very notably increased since beforeAugust, 17th.

7.   The most desirable size of package is 1kg (57%),then goes a 500g package (38%).

8.   People almost do not purchase domesticautomatically packed pastas. Their price is almost equal to the price ofimported pastas.

9.   72% of respondents said that they would preferautomatically packed pasta to manually packed one. 35% would do it because theyare afraid of being given light weight, 19% do not like unawareness about themanufacturer, and 11% think the quality is poor.
In spite of this, people are not willing to pay much for packaging, though 82%of them agree that they would prefer automatically packed pasta to manuallypacked one.  Only 9% were willing to pay more than 1 ruble for a 500g package,24 % would pay from 0.6 to 1 ruble for a 500g package, 28% would pay about 0.5ruble, and 10% would pay nothing at all (some even said they would prefermanually packed pastas because they can use the packaging).

10.  People would not like to buy pastas in cardboard or other non-glassypackaging. Actually all of the respondents said they need to look at theproduct to estimate its quality.

11.  Though people agree that imported pastas tend to be better than thedomestic ones, most of them (67%) would not like to pay more than 25% more forimported pastas.

12.  People do not worry a lot about the brand name. There are nohard-core loyals. There are a few split loyals (11%). They are among the peoplewho still prefer imported pastas. The most popular brands are: Nordic (27% ofimported pastas purchased were of this brand), Big (21 %). Non of therespondents was a loyal of any domestic trademarks.

13.  Actually all people said that it is bad that Russia substitutesnatural resources for industrial goods, but only 4% said they often think aboutit when they make their purchase decision, 7% said they sometimes do, 5% seldomthink of this.

14.  Since it was difficult for the respondents to answer weather theyused to consume more or less pastas before the crisis (more than 50% could notanswer at all or hesitated), we used the salesmen as our reserve source ofinformation. According to them, the overall consumption of pastas decreased byapproximately 15%, and consumption of imported pastas has just slummed- by morethan 50%.


Putting two and two together, we canstate the following.

General findings.

1.   The price is the most important factorinfluencing the consumer’s purchase decision. It will probably keep itsposition or even be able to strengthen it if we take the constantlydeteriorating economic situation in the country into account.

2.   The lower middles and the lower class are themost attractive segments from the point of value. The lowers will more likelyneed low and middle quality pastas. Taking into account the role of price inpurchase decision, we should assume that this segment will hardly react thetraditional marketing measures. The other segments high class will probablyrequire more elaborated marketing mixes, since quality plays the most importantrole there. Quality is estimated subjectively, and we can affect subjectiveprobability using the means of marketing.
The lower middles and higher middles will probably prefer middle qualitypastas. the biggest difference between them is in the price they are ready topay for quality. A company can acquire competitive advantages using automatedprocess of packaging. The main difficulty it is likely to face here – theincrease in price must be low enough. It also should be careful and rememberabout positioning: even if it is able to automatically pack at a low cost andprovide the necessary low price, its products than will be positioned as middlequality ones due to the low price. It may harm its reputation and its marketingin the higher middles and high class segments.
 The high class segment is relatively small and less attractive because itsrepresentatives are less likely to buy pastas in general and when they buy,they are more likely to buy imported pastas.
Actually we can join the higher and the lower middles in one market segmentsince there are no differences in their preferences which are of principle.Both of them will require pastas positioned as middle ones. Though quality isthe most important factor for the representatives of those segments, the priceis also of the great importance, and the main difference between therepresentatives of these segments is the price they are ready to pay forquality (or for the quality packaging).

3.   The crisis seriously affected the market ofpastas. The domestic manufacturers now have a lucky chance to grab the marketshare that earlier belonged to foreign manufacturers. They can gain brandrecognition and loyalty.

4.   The main task, in my opinion, for a pastamanufacturing company in Russia now is gaining brand recognition and goodattitude of consumers (of course, if it thinks of its long-term perspectives).People have to give up consumption of imported pastas. This gives a greatopportunity to get people used to consume domestic pastas. Since quality of manydomestic pastas is actually as high as of the imported ones, the stereotypewhich has formed in the time of the USSR and which has been providing anegative attitude towards domestic goods will slack.

Recommendations apropos automationof the process of packaging.

Since the final decision aboutreasonability of the automation requires complicated accounts, such asbreakeven analysis for instance, my recommendations which result from thesurvey are preliminary, they are an object for application by the economistsand managers of the Corporation. A lot of exogenous and endogenous variableswill affect this decision, and only a part of the exogenous ones may berevealed by a marketing research.

We should think that the automation of theprocess of packaging may be reasonable if:

I          The company can provide low increase in costsresulting from the automation. In this case the corresponding increase in pricewill be also low. This will make orientation towards the heavy half (lowers andlower middles, and partly even the higher middles) possible. We can estimatethat it will not be possible to provide high quality of packaging in this case.
The company will position its product somewhere between automatically packed(or high quality) and manually packed (or middle quality) pastas. This maycause a positive reaction of up to 72 % of buyers depending on the priceincrease.

II         The other alternative is to use packaging ofhigher quality at higher costs. The limit here is about a one ruble riceincrease per 500g package. It is also possible to make 1000g packages, thiswill decrease cost of packaging. The most important thing resulting from theresearch we should remember about is: class pricing will hardly do. We have notmade a special research, but we have the reasons to think that most of domesticmanufacturers of automatically packed pastas position their products too highand face significant problems… Providing a high quality packaging and acomparatively low price (if it is possible) will position the product as aninexpensive and quality one. This should cause a positive reaction of  about20%, we may estimate (of course, this figure will depend upon marketing effortsmade). This decision will mean orientation towards the higher middles and thehigher class.
Though this option will probably be less attractive than the first one, it ismore attractive in prospect, since it will increase competitiveness of thecompany, improve its reputation and help gain loyalty.

III       The best alternative, in my opinion, is tocombine the features of the first two. It is possible if the company can varycosts of packaging. This actually will mean full covering of the market.

We see, thatalternative decisions depend on the costs of packaging, so the market coveragedoes. We have a strict limit here- we cannot afford using packaging which willcause a price increase more than 1 ruble per 500g package. This means we willhave to think of production first, and only after that continue thinking aboutmarketing (do not mix it with actually manufacturing first and than thinkingabout marketing). It is a specific feature of our country- everything is madevice versa.

The decisionof the management of the Corporation based on this research and on theeconomists’ opinion was to seek means to decrease costs of packaging and makethe third option possible to be performed. One of  the possible decisions issharing a packaging line with another foods (not pastas) manufacturing company.When the company has several alternative possible solutions of this problem,elaborated marketing mixes will be developed for the segments that will beselected as the target ones.


1.   Eaton B.C., Eaton D.F., Microeconomics, 2ndedition.

2.   Hisrich R.D., Peters M.P., Entrepreneurship.Starting, Developing, and Managing a New Enterprise. 3rdedition. Irwin.

3.   Kotler P, Marketing Management, 9thedition, Prentice Hall International.

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