Academic journal article Agricultural and Resource Economics Review

Financial Benefits of Florida Generic Orange Juice Marketing

Academic journal article Agricultural and Resource Economics Review

Financial Benefits of Florida Generic Orange Juice Marketing

Article excerpt

The benefits to Florida orange growers of generic orange juice advertising are assessed using additive, nonlinear, regional econometric models, measuring the impact of category and brand marketing efforts on category demand while controlling for pricing and various other factors. The study shows that generic marketing efforts increased orange juice category demand by 8.3 percent, resulting in increased orange prices and a benefit-to-cost ratio to Florida growers of 3.5 to 1. Branded promotional activity was found to primarily fuel brand switching and pantry-loading, with only modest impacts on overall category demand.

Key Words: marketing mix, marketing spend optimization, checkoff program, orange juice, benefit to cost ratio

(ProQuest: ... denotes formulae omitted.)

The Florida Department of Citrus (FDOC) is a state government agency charged with the marketing, research, and regulation of the Florida citrus industry. The FDOC's mission is to help grow the demand for Florida citrus products and thus provide a direct benefit to Florida citrus growers. The department's activities are funded by a tax paid by citrus growers on each box of citrus that moves through commercial channels. Over 80 percent of the FDOC's annual budget is spent on advertising and promotional activities for Florida citrus in the United States, Canada, Europe, and Asia.

The department has a fiduciary responsibility and a practical need to measure the benefits of its marketing programs to Florida citrus growers and Florida's general economy, and the department has a long history of analytic efforts to provide such measurements. Early studies included work by Ward and Myers (1979), Ward and Davis (1978), Ward and Tilley (1980), and Lee and Brown (1985).Although comprehensive for the time, these studies did not benefit from the advent of weekly point-of-sale (POS) tracking data and the gradual transition from store sample data to store census data in the retail tracking industry over the last 20 years. These studies have also lost relevance as dramatic changes have taken place in the orange juice and general drink categories, including the sales decline of frozen orange juice concentrate (which dropped from 29.5 percent of category sales in 1988-2002 to 8 percent in 2007); the rise of premium, not-from-concentrate, ready-to-serve products; and the introduction of new drink categories such as bottled waters, flavored waters, and sport drinks.

More recently, the FDOC commissioned two studies from Forecast and BusinessAnalytics, LLC (Capps, Bessler, andWilliams 2004a, 2004b). The first of these utilized a forty-equation simulation model, the demand equation of which was estimated using econometric analysis of 33 years of annual demand and marketing data from 1967/68 through 1999/2000. The second utilized an econometric analysis of 165 monthly observations of retail sales in supermarkets and mass merchandiser stores with sales in excess of $2 million per year, collected by the A.C. Nielsen Company from January 1988 to September 2002. These studies indicated a quantifiable impact of FDOC marketing efforts on orange juice demand but were limited by the granularity of annual and monthly input data.

In 2007, after a competitive review, the FDOC commissioned Marketing Accountability Partnership (MAP), a subsidiary of the Mediabrands unit of the Interpublic Group of Companies, to perform econometric analysis using more granular weekly data; the objective was to obtain a more nuanced view of the impact of FDOC marketing and to determine the level and allocation of FDOC marketing spend that maximizes benefit to Florida growers. MAP approached the engagement using modeling techniques that have been developed in the consumer packaged goods industry over the past two decades and employed proprietary estimation and optimization tools. This paper describes the MAP study, including details on the FDOC's programs, the data used, the modeling techniques employed, the approach to translating demand increases to grower benefit, the process of optimization, and the results obtained. …

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