Tea industry needs revised strategy for sustainability

Dr N Yogaratnam

With cyclical crisis in the global tea industry still existing, the current need is to shift from a production oriented strategy and subsidy approach to market oriented strategic framework with market economy outlook.

This implies the need to liberate the mindset of the industry from its old strategic framework of produce and market.

Due to the pressures of the economy, the earlier mindset of ‘disposal of tea’ was changing to a new one-‘marketing of tea,’ which implied a shift from ‘subsidy’ to capacity building approach.

In the absence of adequate government interventions, attention may have to be given to developing appropriate agribusiness models with strong vertical coordination to ensure that small holders also have financial capacity and access to information required exporting into global markets. Multinational tea companies were increasingly contracting with larger agro-processing firms, who were able to effectively coordinate deliveries and quality standards from small farmers through effective supply chain management, as in South India and Indonesia. Oversupply of tea and less demand has contributed to market imbalance. Strategies have to be devised to improve the demand side, as so much effort has been put in improving supply efficiency in the past.

Tea, a perennial crop, was also a perishable commodity and cannot be stored for an indefinite period, without affecting the quality. So decision of the growers to regulate marketing of tea within six to eight months from the date of manufacture to fetch maximum prices was an important one.

Though tea can be stored with proper arrangements for this period, the general intention of tea growers was to market their teas within four to six weeks from the time of manufacturing to recoup the liability towards cost involved in the tea field estate factory or in a trading activity.

Only financially sound tea producers would perhaps be able to take the risk of delayed marketing and avail any possible opportunity arising out of future upward price movement in the market.

The tea industry was primarily based on the ‘linkage’ model, wherein medium size units and small growers were linked to the value chain through bought tea leaf factories, as well as to many corporate enterprises.

While productivity and quality have received some attention, cost reduction, value addition and risk management needed a new focus.

It is suggested that a shift in the direction of marketing from the earlier strategic focus and policy making focus on the production side is needed.

Tea marketing

In today’s world, where communication is more through blogging sites and messages rather than personal interaction, marketing a simple product becomes more difficult. How do companies market such simple products and create product lines?

Ever recall a shopping list which had items in the grocery listed as Dole bananas, Starbucks coffee and Danon yoghurt. This typical list has so many brand names that we have unconsciously associated with these raw products. So how in the world do these companies successfully market these products and form a trademark on our mind? Their marketing strategies are so unique that it not only creates a brand value, but also has consumers in the form of fans attached to their products.

As there are so many big corporations involved in marketing these products, it’s extremely important to keep innovating the marketing plan and keep launching new products to gain a competitive edge over the competitors.

The strategy basically involves using marketing techniques such as positioning tactics and various promotional strategies to market this basic product. Tea, since ancient times, has been used for beauty treatments, as a soothing agent, as dye colors used on clothes and as a cleaning agent. Even now, the ever expanding tea market continues to grow despite hitting saturation. Tea has always been termed as instant wisdom.

So how do marketeers explore this potion of wisdom to their benefit? Tea also has medicinal properties and is favoured more than coffee now in the market.

Also there are varieties in the tea market - black tea, green tea, ready-to-drink tea and fruit teas, which have already captured a major segment of the market. Following are some tips for tea marketing:

Researching the market

It’s necessary that you decide on the market you want your product to sell. Through market segmentation, you can divide the market on the basis of geographic, demographic, behavioural, psychographic factors and on price too. After segmentation, your goal will be more well-defined and it will help you to reach your customer in a more refined manner. Also, new strategies such as finding out the motivation factor and social characteristics in the target market can serve as an answer to searching and reaching your goals. In your research, it is also necessary to conduct a survey and rely on the primary data, which will help you decide the future course of action related to your marketing goals.

Analyzing the product through matrices

Once you have zeroed in on the market, the next step is creating a matrix according to the needs of your product. This analysis will help you in identifying your product while measuring the relative market share and market growth. By identifying, your product can be classified as high earner or low earner.

Finding suitable channels of promotion

After you have found your niche market, it’s important to select a promotional tool that is effective in conveying the message. Promotional tools include television, radio, sponsorships, Internet and other advertising media. Also, the cost incurred while promoting the product should be taken into account. The new trend of promotion is making your presence felt at the new social websites.

Finding the perfect location

After choosing a suitable channel for promotion, location plays an important role. The product needs a strong distribution channel where your product can easily reach the customer at low cost.

Also before the product is extensively advertised, the product should be before the customer’s eyes. As it is a convenience product which is purchased through minimum effort, the product should be available at all possible locations. The plus point here is that as the customer doesn’t have any strong preferences, new products are easily acceptable by the customer. This point can serve as an added advantage while marketing the product.

Marketing audit

After your product has been successfully launched, it’s time to keep a tab on your marketing plans, sales and profits. Through auditing techniques, one can find out the deviations between actual and expected performance. In this cut throat competition, marketing strategies need to be changed after a period of time.

Therefore, auditing serves the purpose by measuring the performance of every plan and alerting the marketeer if any changes are to be made. In America, where convenience is of utmost priority, ready-to-drink tea markets have emerged as the best choice of customers. Now is the time for new innovations as many market segments have saturated. The positive aspect about tea market is that because of its positive health benefits, its market is never going to be extinct. In fact, declining sales in soft drinks and coffee has boosted the market for tea.

Tea is finding its uses in many industries too, so there are more niche markets that can be developed. So the saying, “It’s not your cup of tea” is certainly going to change with new product lines, new brands and new packaging.

Traditional to exotic

World’s tea drinkers are shifting from the traditional to the exotic. Exotic and organic teas are wooing tea drinkers and challenging the dominance of traditional black tea as never before, tea industry experts say, as a tea factory in Dubai bids to become the world’s largest.

The shift in global tea-drinking trends is felt at the Jebel Ali Free Zone, despite it being more than 2,000 kilometers from the nearest tea bushes in the lush misty mountains of South Asia and East Africa.

Unilever’s Jebel Ali tea-blending and packing plant is in the middle of a major tea-consuming market - the oil-rich Middle East - and records the changing habits of tea drinkers. Producing 1.1 million tea bags an hour every day all year round, the plant expects to expand later in the year and aims to double its output within four years to become the world’s biggest tea factory.

Green tea

Green tea was relatively unheard of 25 years ago in many Middle Eastern countries. But this has changed rapidly in the past five years. Green tea has got a lot of good press ... its health properties are well-known.

“Black” and “green” in tea are what “red” and “white” are to wine. The health properties of green tea are also helping the financial health of the whole tea industry. Nations that export orthodox black tea, such as Sri Lanka, have in recent years begun a major drive to produce more green tea as well as exotic varieties. Black tea goes through a process of fermentation, or oxidation, which changes the colour of the leaves from green to black. Green tea production stops the fermentation and retains the colour of the leaves. But both varieties come from the same bush.

Decades ago, tea drinkers would opt for either black or green, but now there is a huge choice, and even the humble tea bag is available in a pyramid shape. Mainstream black and green have been joined by, among others, organic, herbal and infusions, single-origin, ready-to-drink and fruit-flavoured varieties. Jasmine, Earl Grey, Chamomile, Lemon and Mint are some of the more popular choices. The industry is also seeing a Surge in “fruit” combinations as well as libido-boosting “white teas,” known as silver tips and golden tips.

Tea has been relatively unaffected by the sharp rise in global commodity prices seen earlier this year, but climate change is beginning to affect tropical crops, including tea.

Prices are more volatile than ever, and the cost per cup has risen steadily for the past five years. It is believed that the industry must become more sustainable and go “green” - in the environmental sense.

Tea has been spared extreme market volatility partly because it is perhaps the only commodity without a “futures” market, unlike commodities such as oil, coffee, cocoa, sugar and wheat. Industry officials agree that a tea futures market did not develop because of the crop’s extreme seasonality, its infinitely variable quality and because it cannot be stored for long periods without losing aroma.

But officials note that volatility has increased in the past few years because of crop failures triggered by droughts, particularly in Kenya, India and Sri Lanka. Sri Lanka, which is competing with Kenya to be the world’s top tea exporter, is already working to developing plants that better resist drought, according to the Tea Research Institute.

By 2015, Unilever has committed to source all the tea in its Lipton brand from plantations certified by the US-based Rainforest Alliance, which guarantees the grower’s green credentials. Although the cost of tea would rise accordingly, they expect an increase of up to three percent in sales growth, says Lipton’s global vice president for brand development Cees Talma.

He said the global tea market is expected to rise up to seven percent annually, and as consumers become more environmentally aware, those who joined the green bandwagon early will benefit more.

At Jebel Ali in Dubai, German-made state-of-the-art machines pack tons of tea into bags and packets, and expected to expand to meet ever-rising demand. The Jebel Ali plant, in the middle of Dubai’s showpiece industrial free zone, may seem an unlikely location for packing the world’s favourite brew, but it is in the middle of a region that has the world’s most avid tea drinkers.

They are quite close to the biggest tea-producing and exporting countries in the world, East Africa, India and Sri Lanka. It appears that per capita tea consumption levels in the Middle East, rival the world’s most prolific tea-drinking nations - Britain and Ireland.

Customer’s cup of tea

A good many loyalty schemes are failing, says a new study. Unless marketeers collect data on customer preferences and make them core to brand strategy, these programmes will never stir up a big response.

A well-designed loyalty scheme based around robust data can be a winner for brand and customer. However, many marketeers admit that their loyalty programmes are underperforming or producing erratic results, according to a report published by Forrester last month.

It reveals that 40% of those questioned aren’t sure about how accurate their schemes are.

There is little differentiation, poor communication and promotional support, while many programmes are not integrated with the sales cycle or in sync with branding, says the study.

There are also problems with measuring results and targeting the same consumers too often. The drive for loyalty should fuel a brand’s entire marketing strategy, says Forrester’s report.

For retail marketeers, it informs store layout and the profile of product ranges. Tesco, for instance, uses its Clubcard data to ensure the products on the shelves of its Metro convenience stores meet local needs, and is the envy of other convenience store brands, according to Forrester vice president and principal analyst Luca Paderni.

“The problem is that many brands fail to set long-term objectives for their schemes and are too focused on immediate sales and customer acquisition. Instead, they need to look beyond tactical activity and study what is driving customer value,” he says.

He says consumer intelligence has a big role to play. “Brands need to discover who would buy a product whether they were rewarded or not, who will move from one promoted brand to another and who really needs to change their behaviour,” he says.

Loyalty must be earned and is usually the result of a series of compelling brand experiences which the consumer enjoys over time. It is suggested that marketeers build their brand strategy around a three-point cycle of customer engagement, interaction data and actionable insights. Leisure customers may only travel once every four years but having miles gives them equity in the brand.