Tietgen business college Marketing management

Sep 2007

Dissertation
(MARKETING)
Exploring the possibilities for Arla in Pakistan

FROM: Muhammad haroon zafar me24523 ADVISOR: Michael tommerup

Table of contents
1. EXECUTIVE SUMMARY 1.2 INTRODUCTION 1.3 STATEMENT OF PURPOSE 1.4 METHODOLOGY 1.5 DELIMITATION 1.6 AIM OF THE PROJECT 2 INTERNAL ANALYSES 2.1 ARLA MISSION 2.2 COMPANY PERSPECTIVES 2.3 COMPETITIVE STRATEGY OF ARLA 2.3.1 HOME MARKET 2.3.2 GLOBAL MARKET 2.4 POSSIBLE STRATEGIES 2.5 SUB CONCLUSION 3. EXTERNAL ANALYSIS 3.1 PAKISTANI MARKET 3.2 IMPORTANT FACTS ABOUT PAKISTAN 3.3 DEFINITION OF OVERALL MARKET. 3.4 CHARACTERISTICS OF MILK PRODUCTION SYSTEMS IN PAKISTAN 3.5 RURAL MILK PRODUCTION SYSTEMS: 3.6 INDUSTRY ANALYSIS (SIZE AND ITS GROWTH) 3.6.1 ATTRIBUTES OF MILK INDUSTRY 3.7 MILK PROCESSING INDUSTRY IN PAKISTAN 5 7 9 10 11 11 11 11 12 13 13 14 15 15 16 16 16 18 19 20 21 21 23

4. BUSINESS MARKET (THE POTENTIAL OF PROCESSED MILK AND ITS LOGISTICS IN PAKISTAN) 4.1 SIZE AND POTENTIAL OF THE MARKET 4.2 DAIRY FARM STRUCTURE 4.3 MILK SUPPLY CHAIN (MARKETING CHANNELS FOR DAIRY PRODUCTS IN PAKISTAN) 4.4 CHANNELS OF MILK FLOW IN PAKISTAN 5. MACRO ENVIRONMENT 5.1 ENTRY BARRIERS: 5.2 PEST ANALYSIS 5.2.1 POLITICAL FACTOR 5.2.2 ECONOMIC FACTOR ABUNDANT LAND AND NATURAL RESOURCES 5.2.3 SOCIAL AND CULTURAL FACTOR 5.2.4 TECHNOLOGICAL FACTORS 6. THE DEMAND 6.1 EXPENDITURE ON MILK BY PAKISTANI CONSUMER 6.2 FUTURE DEMAND FOR MILK AND DAIRY PRODUCTS 6.3 MARKET STRUCTURE (SEGMENTATION) 6.4 CONSUMPTION HABITS 6.5 BUYING BEHAVIOUR 6.5.1 CUSTOMERS CHARACTERISTICS 7. COMPETITION 7.1 FORM OF COMPETITION IN PAKISTAN 7.2 IDENTIFICATION OF KEY COMPETITORS TO ARLA IN PAKISTAN 7.3 NESTLE MILKPAK 7.3.2 HALEEB DAIRIES 8. DAIRY PRODUCTS DISTRIBUTION SYSTEM IN PAKISTAN. 9. SWOT. 9.1 CONCLUSION: 10. MARKETING PROGRAM 10.1 COMPANY OBJECTIVES:

24 24 25 25 26 27 27 27 27 28 28 29 29 30 30 31 32 33 33 33 34 34 35 35 37 39 40 40 42 42

10.2 MARKETING OBJECTIVES OF ARLA IN PAKISTAN 10.2.1 MAIN OBJECTIVE 10.3 CORE STRATEGY 10.4 GENERIC STRATEGY 11. MARKETING MIX STRATEGIES 11.1 PRODUCT STRATEGY 11.2 PRICE STRATEGY 11.3 PLACE/DISTRIBUTION STRATEGY 11.4 PROMOTIONAL STRATEGY 11.4.1 PROMOTIONAL BUDGET 11.4.2 PROMOTIONAL MIX STRATEGY 12. ACTION PLAN 12.1 PRODUCT ASSORTMENT 12.2 PRICE STRUCTURE 12.3 DISTRIBUTION CHANNEL SELECTION 13. SALES CYCLE 13.1 QUARTERLY SALES CYCLE PLAN (PAK RS. MILLION) 13.2 TIME TABLE FOR SCHEDULED MARKETING ACTIVITIES: 14. PREREQUISITES FOR PLAN: 15. FOLLOW UP: 16. OVERALL CONCLUSION APPENDIXES BIBLIOGRAPHY

42 43 43 43 44 44 44 45 45 46 46 47 47 47 48 48 49 50 51 51 52 54 55

1. Executive Summary Arla foods is second largest dairy company in the Europe with the business in many other countries in the world. Company is specialized in its field and now wants to enter in Pakistan. After a internal analysis of Arla, company move towards Pakistani market. Pakistan is a developing country with population of 164 million inhabitants. Country recognize as agricultural country and most of the population is engaged with agriculture and livestock industry. Pakistani market defines that a country which has potential to produce massive amount of milk and ranked as a 5th in the world and has contribution of 6% of overall milk production in the world still have the system of traditionally milk men distributions with non processed milk full with unhygienic products. Arla is plan to move into a developing country with aiming to modernize Pakistani formal milk processing system.

Pakistani market analysis shows that Pakistan is a high milk producing country but lake of facilities and less investment in the dairy sector destroying large amount of milk. Countrys dairy sector is still performing the old age distribution of milk. Only 2 % of total milk production of the country comes through to formal processing channels and left 98 % still drives from informal sector(distribution by Milkman). Although this level of milk production is more than adequate on a per capita basis for today population, lack of processing and poor distribution system in a long hot weather (milk has a shelf life of

only four hours under moderate temperatures) keeps it away from reaching consumers in areas that are either deficient in milk production, particularly the urban centers, or those that are difficult to access. Pakistani dairy Industry analysis gives a quick outlook of current stage of Pakistani dairy industry. Why Pakistan is away from the modernize processing system in the country? This question we analyzed in entry barriers to Pakistani market for a foreign investor. Political environment, brand identification, huge investment and Administers delays are major barrier in the way of development of this sector. To measure the market potential PEST model analyzed the Pakistani market for Arla. Politically Pakistan has some long standing conflict with India on Kashmir region and Afghanistan also a political issue for investor in the region, but multinational companies still interested to investment in Pakistan like Nestle established world largest milk processing plant in Pakistan due to potential of the market and potential in the dairy industry in Pakistan. SWOT analysis gives the idea about potential strength ,weaknesses , opportunities and threats. In Pakistani market Arla has some weakness like cartoon controversy that may effect their business but people are looking forward so it may be less threat to Arla. But opportunities are bigger then threats and weaknesses, like increasing number of middle class in the country and 98% vacant formal milk processing market are very big opportunity for Arla to establish its business and apply its specialities in product development according to situation and hi tech production facilities. Entrance of Arla will give tough time to Nestle in future who is enjoying a monopolistic atmosphere in Pakistan. Further marketing mix activity gives a view of Pakistani market in context with products, price, place and promotion .Pakistani dairy farming industry offering very nominal prices

of milk even lower then Bangladesh where prices are slightly higher for raw milk and Arla is already present in Bangladesh. Business market environment described for potential and the size of the market. Entry mode selection is one of the important issue of the report. If Arla goes to Pakistan what may be the possible entry modes for Arla to enter in this potential market. A joint venture is suitable for Arla with a local company or the direct investment entry mode is best for Arla to enter in Pakistan. Competition situation in the market shows that there is only 2 active players are present in the market, Nestle a Swiss multinational and Haleeb a local manufacturer. Nestle getting most of the share of this market because of effective product development, distribution channel and huge investment in the market. Haleeb a local company has good reputation because of its products and effective marketing strategies in the market. Arla now present in Pakistan so what may be the marketing program for Arla in that market. Objectives for Arla in Pakistan is to create its brand presence in the market through quality products launch in Pakistan and can create good positioning in the mind of local consumers by offering their products at very reasonable price.Arla should launch a strong media campaign in Pakistan through TV and print media. This will create the image of the company as well as awareness about the products in the mind of potential customers to Arla. 1.2 Introduction Arla foods is 2nd largest dairy company 1in Europe and has operation throughout the world with 26 sales offices around the world with 10 production plants in different countries . Arla Foods Established in the spring of 2000 through the merger between the Danish MD Foods and the Swedish Arla, Arla Foods is a co-operative owned by approx. 7,200 Swedish and 8,300 Danish milk producers. In the financial year 2004/05 the group , received around 8.4 billion kilograms of milk per year and a turn over of DKK 38 billion.

1 http://en.wikipedia.org/wiki/Arla_Foods

At its plants in Denmark, Sweden and the United Kingdom, Arla develops approximately 200 new products annually. The company prides itself on providing the freshest milk products on the market through a concept called the Arla Express, which delivers milk from the cow to the grocery store shelf within 12 hours. The company controls 95 percent and 65 percent2 of the dairy production markets in Denmark and Sweden, respectively. Yet these countries represent only half of Arla Foods Dkk 38 billion ($4.66 billion) in annual sales. The United Kingdom is the company's third-largest market, accounting for 16.8 percent of sales; Germany and the rest of Europe add 18 percent of sales; while the company is also active in the Middle East and Asia, which together provide more than 11.5 percent of sales. Fresh milk products are the company's largest product segment, with more than 40 percent of sales. Cheese, including the international brand success Rosenborg, provides 28 percent of sales. Arla Foods is also one of the world's leading suppliers of powdered milk products, which add 15 percent of sales, and a strong player in the butter market, particularly under its 100-year-old Lurpak brand. Butter and spreadables generate 11 percent of sales.

2 http://www.arlafoodsuk.com/appl/GB/gb060AFU/gb060d01.NSF?OpenDatabase

1.3 Statement of purpose Arla Foods Group is 2nd largest dairy company in the Europe. Arla Foods products can be found across the dairy category in many international markets. Since I believe that Arla is not present in the Pakistani market I would find it very interesting to prepare an evaluation of Arla's potential in Pakistani market. Base on my analysis I would then be able to present a proposal for a possible introduction into Pakistan. The following issues will be analyzed in the report. Situation of Pakistani milk market (Past,Present,Future) Size of Pakistani market and its growth. The Potential of processed milk and its logistics in Pakistan. Major competitors to Arla in Pakistan? Their strategies, market share, growth rate. Who are customers to Arla? Their specific preferences.(Buying behaviour) What product assortment would be relevant to introduce in Pakistan. What should be the suitable entry mode for Arla to enter Pakistani market? What may be the suitable distribution channels for Arla in Pakistan? Factors which will influence the sales potential of Arlas products. What will be marketing mix strategies for Arla in Pakistan?(pricing and packaging)

1.4 Methodology Information needed Source of information Method Pakistani milk market. Potential of the market Size of the market. Competitors Logistic system for processed and non processed milk. Products suitable to be lunched in Pakistani market. Buying behaviour of potential customers. Selection of suitable promotional media. Companys financial situation. Business Journals and news papers and different books. Relevant Models and study from Text book to be used in reports and in the analysis. Internet Dairy development Board of Pakistan. Visiting different shops and supermarkets. Desk research that will include the companys website, journals and books. I will also contact the Dairy development board of Pakistan. Field research will also be performed (if required) to find out the information about the competitors and customers buying behavior. The field research will include visits to the shops and superstores. If necessary, the questionnaire will also be prepared to find out the information about the consumers buying behavior

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1.5 Delimitation My focus will be on the Potential of processed milk and its logistics in Pakistan and more specifically the areas mentioned in the statement of purpose. This report will not analyze the whole system to establish a factory in Pakistan and the finances required for Arla to this project. My all research based on secondary research because there is no official data available on the dairy market on internet or by physical appearance and other figures are totally depends on internet based research. The internal analysis will be based from the companys website because company does not provide any information and no answers to the emails. So there is no contact with company. 1.6 Aim of the project Arla wants to enter Pakistani market. For the purpose I will analyze the Arlas internal situation ,its mission and the current position at home. Then the report will find the opportunities for Arla in Pakistan by making external analyze. 2 Internal analyses 2.1 Arla mission Arla offer modern consumers milk-based food products that create inspiration, confidence and well-being" Arla Foods primary objective is to meet consumers wishes and requirements. Its mission underlines the companys focus on the consumer. Modern consumers covers consumers of all ages who look for inspiration, variety and innovation. Arla has a good corporate mission contain some important points. They shows that who are the target group and which customer whishes or needs should company meet and how can they satisfy this, Arla Foods is committed to providing consumers with inspiration by

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offering a multitude of ways of utilizing its products. Arla wants "to be the leading Dairy Company in Europe through considerable value creation and active market leadership" Through its vision, Arla Foods wishes to demonstrate that its activities are designed to create value for both the company and its owners. 2.2 Company Perspectives Arla Foods' objective is to be the consumers' and customers' preferred dairy. In Northern Europe--with a wide range of dairy products. In Southern Europe--with selected ranges of cheese and butter. Outside Europe--with a product range adapted to the individual markets. Moreover, Arla Foods intends to maintain and develop its position as an innovative global supplier of added value, milk-based ingredients for leading food producers throughout the world. With Northern Europe as its natural domestic market, Arla Foods is dedicated to providing consumers with a broad range of high-class dairy products. From a solid base in Denmark and Sweden, where the Group has its roots, Arla Foods aims at maintaining close links with customers in all key export markets through a network of sales companies. In addition, through Arla Foods Ingredients, the Group is one of the world's leading global suppliers of added-value, milk-based ingredients to selected sectors of the food industry. Arla Foods nearly 15,000 dairy farmer owners have helped make it one of the world's leading dairy products manufacturers and the leading dairy group in Europe. Like other successful manufacturers, Arla Foods continues to face price pressure from global markets, forcing constant reduction of production costs. Time-to-market and timeto-volume remain critical factors in meeting customer demands for increased complexity in product mix and timely supply. Also like other manufacturers, Arla realizes that sustaining profitability and success in the marketplace is no longer just about controlling costsits about speed. Arla Foods needs the ability to respond rapidly and cost-effectively to demand and supply variations,

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and at the same time understand how actual performance and current operational activities align with business objectives. But more than just reacting to changing market conditions or operational losses after the fact, Arla Foods needs the ability to exploit new opportunities for making profits before they vanish. 2.3 Competitive strategy of Arla If we analyze the Arla foods, we see that they are present two types of market domestic market which consist of Denmark ,Sweden and UK and other is Global market with 23 other countries. 2.3.1 Home market Arla is market leader at home(Denmark, Sweden, UK). They are gaining approximately 73 % of market share3 from home . They are producing high quality products with product innovation and price making process. Fresh products are produced at five plants in Denmark and eight in Sweden. Consumer Nordic also has global responsibility for fresh products, including production, marketing and innovation. Consumer Nordic employs a workforce of 4,500 and has an annual turnover of DKK 16.2 billion. In Arla Foods third domestic market, the UK, Arla Foods UK plc, in which Arla Foods has a 51% stake, primarily produces fresh milk and cream products at 12 plants. Overall, Arla Foods UK plc has 35%4 of the British market for fresh milk, each day supplying 2,200 British supermarkets nationwide under the multiples own label, a particularly competitive area. Nevertheless, Arla Foods UK plc has succeeded in marketing its own milk brand, Cravendale, with considerable success. Cravendale milk undergoes a unique filtration process, which results in a fresher, creamier tasting milk that lasts longer than conventional fresh milk.

3 http://en.wikipedia.org/wiki/Arla_Foods 4 http://en.wikipedia.org/wiki/Arla_Foods

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In the 2004/05 financial year, Arla Foods UK plc received 2.2 billion kg milk. 70% of the milk is purchased from Arla Foods Milk Partnership whose 1,600 members are exclusive suppliers to the company. The rest is bought in the open market. Consumer UK has a turnover of DKK 15 billion and employs a workforce of 6,300. Arla Foods UK plc operates 12 dairies in the UK. 2.3.2 Global market Arla International is responsible for all exports of butter and cheese to markets other than the three domestic markets of Denmark, Sweden and the UK. This provides a platform for the globalization of Arla Foods products and brands and, where possible, for creating a uniform range. Spearheaded by the umbrella brand, the red Arla Master Brand, Arla intends to strengthen its marketing in European markets. Exports to other EU countries primarily consist of firm cheese, cream cheese, including the Buko brand and mozzarella/shredded cheese. In several European markets, Arla Foods also has a substantial market share of feta sales through the Apetina brand. Other EU countries account for 31% of Arla Foods cheese sales, with Germany as the largest market by far. The United States and Canada are also important markets for exports of, particularly, cheese, and Lurpak butter. Arla Foods recently established local production in the US and Canada through the acquisition of the Canadian cheese importer and producer, National Cheese Company (2004) and the White Clover Dairy in Wisconsin in the US (2006). In addition, the Russian and Eastern European markets are showing significant growth. In early 2006, Poland was made the centre for sales to East European markets. Consumer International has global responsibility for the production of butter and cheese. Arla Foods produces/packs approximately 330,000 tons of cheese at 16 plants in Denmark, three in Sweden and one in Poland. Around 185,000 tons of butter and blends are produced/packed at two plants in Denmark and one in Sweden. Outside the three

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domestic markets, Arla Foods is represented in 23 countries. Consumer International employs a workforce of 5,900 and has an annual turnover of DKK 8.1 billion. 2.4 Possible strategies Expansion of the whole market : they have to gain new markets and to gain new customers by entering into potential new markets like Pakistan. Protection of current market: Arla doing well at the moment and they have to anticipate the offence with new products. International markets: Arla food is the second largest dairy company in Europe. In this regard we can say Arla is market challenger. If we analyze the worlds top 20 dairy companies, the challenger companies try to enlarge its market share. This policy depends on how big the lag from the market leader is. They have to attack: for instance they to develop new products which is lacking in the portfolio of market leader. 2.5 Sub Conclusion Arla has a special completion situation, as we see they focus on two different markets. In home market the company has to protect its market position and in the export market they have to attack the market leader by entering into new markets like Pakistan where world No.1 food company Nestle already present .

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3. External analysis 3.1 Pakistani market Arla wants to enter Pakistani market for the reason we will make extensive market research for Arla finding the possibilities for Arla in this regard we will follow some models, analyses Arlas marketing program and at the end a SWOT analysis for overall conclusion to find the potential of the market. 3.2 Important Facts about Pakistan5 Area 803,940 Sq Km. Land 778,720 Sq Km. Population Independence day Capital Other big cities Currency Exchange rate Business Hours Language Ports and harbors water 25220 Sq Km.

164.75 Millions (estimated in July 2007) 14th August 1947 (UK) Islamabad. Karachi , Lahore, Faisalabad, Peshawar , Quetta. Pakistani rupee (1 Rs= 100 Paisa) 1 USD = 60 rupees Monday- Saturday, 08:00 to 17:00 Urdu and English ( as official language ) Krachi , Gawadar

Climate

Mostly hot , dry desert , temperate in north west, Arctic in north west.

Literacy rate

49.9% (Male 63 % , female 36 %)

5 https://www.cia.gov/library/publications/the-world-factbook/print/pk.html

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Ethnicity/ Race

Punjabi, Pathan, Balouchi, Sindhi

For the location where is Pakistan situated is in the globe, a map is putted in the appendix1. The following table shows some of the important economic indicators of Pakistani economy. Table 6 Key economic Indicator Year 2006 Real GDP growth (USD billion) Industrial production growth Unemployment rate (average) Consumer price inflation (average; national measure) Exports of goods f.o.b. (USD billion) Imports of goods f.o.b. (USD billion) Exchange rate Pak Rs.= USD (average) 437.5 6 %

6.5 % 7.9 %

19.24 26.79 60.35

The economy of Pakistan is 25th (7) largest economy in the world as measured by Purchasing Power Parity(PPP). With the world 6th (8) largest population ,Pakistan is developing highly skilled labor force with business friendly policies. Economic growth is

6 https://www.cia.gov/library/publications/the-world-factbook/print/pk.html (7-8-9) http://en.wikipedia.org/wiki/Economy_of_Pakistan

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6-7 % and strong foreign investment is the main issues of the Pakistani economy. Pakistani GDP is $475.5 Billion9 in year 2007 3.3 Definition of Overall Market. Pakistan is a developing country with the population of 164 million people. Pakistan is the 5th biggest10 milk producer of the world. Its massive herd of 47 million 11cows and buffaloes produced 30 billion liters of milk in year 2002 which amount to 6 % of total world milk production. Significance of livestock industry cant be denied due to its mentionable share in Pakistan national economy. This sector accounts for 49.41% of agricultural GDP and 11.8% of total GDP. More than 34 million rural population is engaged in this sector for their livelihood. In livestock industry, dairy sector has a significant role by producing more than 30 billion liters milk per year. Although this level of milk production is more than adequate on a per capita basis for today population, lack of processing and poor distribution system in a long hot weather (milk has a shelf life of only four hours under moderate temperatures) keeps it from reaching consumers in areas that are either deficient in milk production, particularly the urban centers, or those that are difficult to access. Pakistan has tremendous potential to increase its milk production and a huge surplus for export of Milk and milk products by providing processing and packing facility which is lacking in Pakistani dairy industry. It need huge investment. It is a good news that foreign investors have shown interest in tapping Pakistan rich potential by establishing ultra modern dairy industry and to provide world class product to the Pakistanis. Livestock is the largest amongst the various agricultural sectors and milk claims the largest portion of it, accounting for 51 percent of the livestock sector. There is a consensus among the stakeholders and development experts that Pakistans dairy sector

10 http://en.wikipedia.org/wiki/Economy_of_Pakistan 11 www.loksujag.org

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has immense potential for growth. In the past however, the same has not been realized due to various gaps such as the absence of a shared vision and strategy for the development and the requisite initiative to drive it. This was further compounded by lack of effective collaboration among the stakeholders including support institutions and government agencies. However, it is quite a positive sign that the present government is now endeavoring to realize the real potential of the dairy sector and a multi-pronged strategy has been evolved for its uplift.

Source: Fao.org A complete market situations of Pakistan and worldwide in figures are explained in appendix-2. 3.4 Characteristics of Milk Production Systems in Pakistan The milk production system currently prevailing in Pakistan can be characterized by their location, herd size, feeding practices and marketing opportunities. Production systems based on rural and urban areas offer great potential for rapid growth in indigenous

milk production from their current lower milk yields by improving upon animal

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management and feeding practices in the short-run and by bringing about a marked improvement in the animal stocks in the long-run. 3.5 Rural Milk Production Systems: From 1996 to 2002 Pakistani milk production increased by 17 %. In rural areas of Pakistan, both subsistence and market oriented milk production systems are rampant. A common age-old practice for rural families was to keep milching animals to meet familys needs of milk and milk products whereby excess milk was converted in to butter or ghee for home consumption. At that time there was very little demand, if any, for commercial milk production within the village. However, with urbanization a vast market for milk and ghee gradually developed in most parts of Pakistan, which encouraged commercial milk production by subsistence as well as market oriented dairying household. The subsistence dairying households in Pakistan keep buffaloes and cows in smaller herd sizes while market oriented households keep larger herd sizes for commercial milk production. Up to 43% of the dairying households in Pakistan still operate under conditions of subsistence by maintaining herd sizes of one to two while another 27 to 28% of the households operate under conditions of near subsistence where the herd sizes range from three to four animals . The rest of the dairying households appear to be maintaining larger herd sizes of cattle and buffaloes located in rural and urban areas that operate essentially for commercial supply of milk12. The subsistence or near subsistence dairying households mostly consist of small farmers, tenants or landless laborers. These dairying households have very high stakes in dairy production because dairy income supplements their other income from farming or agricultural labor. Therefore, smallholder dairying is seen as a tool of raising effective

12 http://www.fao.org/ag/AGAinfo/projects/en/pplpi/docarc/wp3.pdf

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incomes of these impoverished rural households. Interventions in dairy economy aimed at benefiting these impoverished classes involve high returns from a policy standpoint. Because buffalo milk is richer in composition as compared with cow milk, consumers and dairy milk plants prefer it. About 66% of the milk available for human consumption is buffalo milk, 31.4% is cow milk and about 2.4% is goat and sheep milk [Government of Pakistan (2001)]. Due to higher demand for buffalo milk it sells at a higher price than the cow milk. Higher butter fat content in buffalo milk makes it attractive to milk processing units, which are located in irrigated areas of Punjab where milk production largely depends on buffaloes. Poor management and feeding of animals is one of the key characteristics responsible for lower milk yields in Pakistan. Artificial insemination can be extremely useful for breeding of cattle and buffaloes, but the farmers in Pakistan are still not inclined to accept this method for various reasons. The fact is that only 4% to 4.5% of dairying households in Pakistan use artificial insemination. 3.6 Industry Analysis (size and its growth) 3.6.1 Attributes of milk industry 70 % of the milk produced in Pakistan comes from Buffaloes while the rest from cows and other cattle. There are three generic types of milk available in market, UHT, Pasteurized and raw unprocessed milk. The last type is dominant in the market. Milk quality is most import in all above types. The raw unprocessed milk covers large segment of the market distributed by milkman who rides on a motorbike and distributes milk to consumer with a lot of adulterations. UHT and Pasteurized milk pose their own quality issues. But quality wise UHT milk is more than good from unprocessed milk because of it has a long shelf life and without mixing of water or other contamination. It is available mostly in Tetra Pack and priced

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relatively higher than unprocessed milk or Pasteurized milk. Pasteurized milk on the other hand has extremely short self life. It is available in poly Pack or plastic pouches. One of the most important attribute of the milk industry in Pakistan is the situation of the UHT milk market. UHT milk is the dominant milk product for upscale consumers. The high price of UHT milk however creates an artificial ceiling for its wider dispersal. In the dairy industry currently 17 units are working in the country13, among them 3 are multinational and other are working as local investors. A table is present as Appendix-3 for the companies name with their total output.

From the above table it is clear from the data presented that production of milk in Pakistan increasing on good percentage every year but lake of storage system and lack of processing facilities in the country only 2 % people are able to find processed form of milk in the country. However the processed milk consumption growing at the rate of

13 http://www.pakissan.com/english/issues/how.pollution.shtml

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20%14 every year. Pasteurized and UHT milk in tetra pack are very Popular products at the moment in Pakistan.

3.7 Milk processing industry in Pakistan With in the processed milk supply chain, in Pakistan milk processing units are of 2 types: UHT and Pasteurized. In Pakistan 17 units are currently working and they are producing UHT milk approximately more than a million litters a day and most dominating share of this capacity are produced through Nestle MilkPak with almost half of that capacity. UHT processing however the second generation of milk processing is attempted in the country. The first milk processing plants in the country were established in the early 1960s and by mid 1970s milk Pasteurization and sterilization plants were set up, with one exception all of them were closed due to lower consumer acceptance very short shelf life of the products they presented in the market and most important lack of trained man power. Future projection of UHT milk in Pakistan a detailed picture can be seen in appendix-4

14 PISDA-USAID- 2006

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4. Business market (The Potential of processed milk and its logistics in Pakistan) With an estimate of 160 million people Pakistan ranked as worlds 9th biggest market15.Measured by purchasing power, Pakistan has growing number of middle class with the estimate of 30 million16 people . This middle class has estimate earning about 10,000$ a year. In addition Pakistan has growing number of upper class relatively high per capita income. 4.1 Size and potential of the market Pakistan is 6th largest populated nation in the world with 164 million inhabitants17. The rate of this increase also one of the highest in the world with 2.1 %annually. A developing country but increasing number of middle class making the attraction for foreign investors in Pakistan. With increase of the income changing the life style and eating habits of the people. Asia is the largest dairy consuming Market in the world. It is also the largest importing region with over one half of global imports of dairy products (milk equivalent basis). Imports are continuing to grow as demand, driven largely by rapid income growth and urbanization is exceeding supply. At the same time, the Asian region is also expected to become the worlds largest production region in 2006, illustrating that supply growth, at over 5 percent per year, is also dynamic. Of course the situation varies significantly across the region. The demand for liquid milk and dairy products in Pakistan will definitely continue to increase, the most important reason being growth of the human population. Other variables influencing demand are the growth of personal incomes and the evolution of prices.

15 Pakistani retail food sector report by US. embassy Islamabad. 16 http://en.wikipedia.org/wiki/Economy_of_Pakistan

17 http://en.wikipedia.org/wiki/Economy_of_Pakistan

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Milk consumption in Pakistan has been traditionally very high in the past . Oldest accounts of Pakistans local life style documented as high milk consumption as 1.25 liters per person daily which indicates high usage of milk products in daily life18 . There were many pastoral tribes that had milk as their staple food. Per capita milk supply in Pakistan is 440 ml daily or 160.3 kg per year. This is almost four times the milk Consumption average of Asia or all developing countries put together. The countrys share in world milk production (5 percent) is double its share in global population. Milk is a very important food item in Pakistan as wheat and milk provide two third of the daily calories to majority population here. 4.2 Dairy farm structure Over 70 % of farms have less than 2 hectors and keep and average of 1-3 dairy animals per farm.19 4.3 Milk supply chain (Marketing channels for dairy products in Pakistan)

The journey of milk from the dairy farmer to the consumer in Pakistan can take one of three general routes. The most common is through Gawalla or milkman who delivers the milk to the consumer. Milkman in Pakistan delivers raw or unprocessed milk that is often adulterated. The second means of milk reaching the consumer is through retail outlets who sells the open milk to the consumer. Both these means of delivery are the informal milk sector of the country. In the formal sector, milk is processed through one of two methods: UHT (Ultra heat treatment) or Pasteurization.

18 www.loksujag.org 19 ifcn report 2003-www.ifcn.com

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4.4 Channels of milk flow in Pakistan

Source: strategy development in milk production and distribution (SMEDA report 2000)20

Milkman supply 90% of the milk market, while retail outlets have a 8 % share in the market .2% of the market is taken by processed milk( UHT+ Pasteurized).

20 http://www.regoverningmarkets.org/en/filemanager/active?fid=9

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5. Macro environment 5.1 Entry barriers: Entry barriers are always the element every company has to learn before entering a market. Arla is already present in the several countries of middle east and Asia . Specially Bangladesh which has same economic and geographical and political conditions as Pakistan for several years and their business in Bangladesh seems very satisfied. The launch of Arla food is planning in order to push the Pakistanis to use Arlas healthy products. The main factors which Arla can face in Pakistan can be analyse through PSET analysis. 5.2 PEST analysis The pest model is use full tool for understanding the market and its potential, market growth or decline and give direction to a business. Now Arla planning to move Pakistani market, before this we will make a PEST analysis to evaluate the potential of Pakistani market and factors that Arla can face in Pakistan. 5.2.1 Political factor Marketing decision can be effected by development in the political and legal environment. It is very impotent for Arla to know the legal and political factors of the market. Pakistan has long standing of conflict with India and the situation in the neighboring Afghanistan also should be keep in mind. The political situation in the subcontinent has some question mark for Arla after September 11. There is high bureaucracy in the system of the administration of Pakistani government. The company must be aware of some laws and regulation before entering the Pakistani market. Despite of all at the moment many companies investing huge investment in Pakistan, as Nestle has made an

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investment of US $ 70 million for the establishment of Asias largest milk processing plant21 with a processing capacity of 2 million liters of milk per day. 5.2.2 Economic factor Pakistan has the most liberal investment policy in the South Asia region. New incentives and further liberalization measures include to invest in Pakistan. Its good eye view for Arla before going to this market to look at Pakistans economic potential and the facilities and economic benefits government offering to foreign investors. Remittance of royalty, technology and franchise fee allowed to projects in social, service, infrastructure, agriculture and international chains food franchise, Abundant Land and Natural Resources Pakistan has plentiful natural resources to cover the demand of the market.

Strong Human Resources Cheaper labor force available. English speaking work force. Cost-effective managers and technical workers.

Large and Growing Domestic Market 164 million consumers with growing incomes. A growing middle-class moving to sophisticated consumption habits.

21
http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/MilkFactoryPaskistan.htm?Tab=2007

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Well-Established Infrastructure and Legal Systems Comprehensive road, rail and sea links. Good quality telecommunications and IT services. Modern company law. Long-standing corporate culture.

Strategic Location as a Regional Hub Principal gateway to the Central Asia Republics. Strong and long-standing links with the Middle East and South Asia. Comprehensive duty-free facilities for investors.

5.2.3 Social and cultural factor Different areas have different histories that make the culture. The Arla has to be aware of the different cultural factor when they go into new market and operate in them. As we know Arla already present in many countries in the world ,so since the internationalization of Arla the company has experienced different problems like the different way that different cultures act, work etc. so there will be no problem for Arla because as regarding to this factor because Arla is already present in Bangladesh and in middle east which has same cultural and religious values. 5.2.4 Technological factors Pakistan got independence from UK. In 1947 and it was a country without resources. But at the moment it has made great achievements in many field but it is still a developing country and still long way to go. Many field still waiting attention and among them also dairy sector.

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6. The Demand Pakistan is country where milk consumption high from the old time. This may be because of hot weather and in summer people use yogurt and drink of yogurt (LASI) on very regular bases and it is believe that the milk and yogurt give them energy in hot weather. Data from 1982-2001 shows that Pakistan ranked third to Ireland and Sweden in the per capita consumption of milk22 and milk products. About 30 % of small farmers produced milk for selling and per capita milk production increasing with an average of 6 % per year basis. 17 milk processing plants are working at the moment with the capacity of processing more than a million litters per day to fulfill the demand of the market. And recently Nestle installed a new plant in Pakistan which is ranked as worlds biggest plant23 and this is because of attractiveness of this market and to fulfill the demand of the market. Milk retail price fluctuated only marginally during 1982-2002(RS.3.59 - 4.07/litter)24, while nominal price showed large change in the same period(RS. 3.77- 18.23/ litter). The high increased of price was due to inflation. The income to price ratio of milk has been consistently improving, leading to improvement in the purchasing power of the consumers and hence increasing the demand of milk and its product. 6.1 Expenditure on milk by Pakistani consumer Official figures show that expenditure on milk and milk products by all in Pakistan is the highest among all major food items 22 % for urban families and 26.2 % for rural.

22 http://www.cababstractsplus.org/google/abstract.asp?AcNo=20053149686 23http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/MilkFactoryPaskistan.htm?Tab=20 07 24 http://www.cababstractsplus.org/google/abstract.asp?AcNo=20053149686

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Monthly share of expenditure of consumption of food items

Source : household integrated economic survey of Pakistan,(2001-2)25

from the above figure we can see Pakistanis spending biggest part of their expenditure among food items on milk and its products which indicate the demand of the milk and its products in Pakistani market. 6.2 Future demand for milk and dairy products Pakistan seems an emerging market for branded and packed dairy products especially in the urban areas, where branded and packed milk, yogurt and butter are rapidly capturing the market and indicators shows that good development in the processed form of dairy products in recent years. In fact the adulteration, germs, decade old style of improper handling of dairy products particularly loose milk and yogurt by milkmen and shopkeepers are forcing a large number of consumers in the country to say goodbye to the traditional milkman. Consumer preferences are changing in favour of packed and processed form of dairy products because in this way they ensure better hygiene and good value of money. Various kinds of health related fears and health hazards related to loose dairy items are steadily changing the mind of consumer. Seeing this changing and an enormous untapped
25 http://www.regoverningmarkets.org/en/filemanager/active?fid=93

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potential of growth in processed and packed dairy products in the country in future , several local and multinational companies have introduced their various products in the market in the recent past. The demand for liquid milk and dairy products in Pakistan will definitely continues to increase, and the most important reason for this growth is increase of population and other strong reasons are growing number of middle class people and growth in income of the people. Predicted results for demand26 in milk and dairy products are in the following table.

6.3 Market Structure (segmentation) Milk is a very important food item in Pakistan as wheat and milk provide two third of the daily calories to majority of population here, so biggest segment of Pakistani dairy is household use ,second is hotels and restaurant who uses large quantity of milk and its products and third segment is sweetshops and bakeries who use dairy products to prepare traditional sweets.

26 http://www.ilri.org/InfoServ/Webpub/Fulldocs/South_South/ch09.htm#P38_2944

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6.4 Consumption habits What are local taste? Pakistan is a country with mostly sunny weather whole year and in summer they have temperature from 40-50 degree Celsius in most part of the country so people have hobbit in their daily life to use yogurt and milk product because it is believe that to avoid this hotness they use Lasi (a yogurt drink). And they usually eat butter and ghee from dairy products in their daily life. Pakistan is a country with high consumption of milk so mostly people drink milk during the day for health reasons. One very interesting fact about Pakistan is that it is world third27 largest tea consuming country in the world and 99% Pakistanis use tea with milk. Many companies has introduced many kinds of milk use with tea in Pakistani market to capture this segment. Their preferences? Mostly people in Pakistan prefer fresh milk but because of adulteration and hygienic conditions people can be mold towards processed dairy products as people now prefer to use butter and ghee and many dairy products with a brand name . 6.5 Buying behaviour 6.5.1 Customers characteristics In Pakistan customers can be divided in to three major categories High income Middle class Low income

27 http://www.fao.org/docrep/meeting/009/j5278e.htm

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High income group can pay every thing for quality. Middle class in Pakistan is the major target group for various companies and also the target group for Arla. With creating awareness to use hygienic dairy products and promotion by current market players peoples buying behaviour and trends are changing as we see the demand for processed form of dairy products. However this trend will not change much quickly for drinking milk but trends in other products like butter, ghee and yogurt are changing quickly because of variety of the products are available in this category. 7. Competition Some business thinks it is best to get on with their own plans and ignore the competition, many business are happy simply to track the competition, copying their moves and reacting to changes. Competitor analysis has important role before going a foreign market. In Arla case we will see the key competitors that may face Arla in Pakistan and will analyze the marketing positions and their strategies. 7.1 Form of competition in Pakistan As we have learned that in Pakistan processed dairy business are on the bottom level (only 2 % market in the hands of processed milk manufacturer). People still have no more chances to buy processed milk products from the market and they are buying unhygienic milk and products for their use. Informal marketing channels (milk man or local retailer) has strong hold on the market but now people are getting more conscious about the health related issues and the market of the processed milk will increase on very high scale in near future .If we see the current market player only one player is so active in Pakistani market that is Nestle and this company enjoying a monopolistic market atmosphere. They are investing huge investment and recently they developed their new plant in Pakistan which is ranked as largest plant in the world has the capacity of processing 2 million litters of milk per day.

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Some local small players are also getting the attention of the customers. In the following we will discuss the important competitors in the market that Arla can face in future. 7.2 Identification of key competitors to Arla in Pakistan Arla is second largest dairy company in Europe yet getting small share in the profit form the market outside Europe that is only 27% of their total income. There are 17 companies are working in Pakistan (see appendix-3). Nestle MilkPak is the major and market leader in Pakistan, Haleeb milk is second biggest company , Noon dairies and many other small marketing player are present in Pakistan. 7.3 Nestle MilkPak The joint venture between MilkPak Ltd. And Nestle S.A. came about in 1988 and the company was renamed as Nestle MilkPak Ltd. Prior to that, MilkPak Ltd., produced UHT milk, butter, cream, ghee and fruit drinks at. 21 branded product lines were added during 1990 to 1998. Nestle MilkPak operates the largest and an extremely efficient milk collection system in the country, which enables it to collect the highest quality milk for production of UHT and powder milks as well as other milk based products. The company voluntarily provides extension services of farmers in the area of animal husbandry and livestock breed improvement. Nestle MilkPak entered the export market in 1993 with exports of Rs.3.2 million28 to Afghanistan. Growing steadily over the years, its exports stood at Rs.321 million by June, 1998. Currently, it's overseas markets include the UAE, UK, USA, Sri Lanka, Malaysia, Bangladesh, Afghanistan and Central Asian States. In the year 2002 total sales for the year reached. 9.2 billion Pakistani rupees , showing a value growth of 14.5% over last year. Net profit for this year stood at 651 million, an

28 http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/MilkFactoryPaskistan.htm?Tab=2007

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increase of 57.2%, which translates into a net profit margin of 7.1 % as against 5.1% in 2001.

Analysis and evaluation of competitors strengths, weaknesses 1. Nestle MilkPak. Strengths International brand Strong brand image in Pakistan Quality products Wide range of products offered in Pakistan Products contents according to local taste

Weaknesses Not having its own dairy farming system in the country High priced products

Strategies (marketing mix) Products Nestle offering wide range of products in Pakistan .they are operating very well established product development department in the country. They are not only engage in the dairy products but also other products like baby foods and fruit juices.

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Prices Prices of the products are quite high in Pakistan, so many products are out of range from the middle class and lower class. Places They have such nice and wide distribution channel in the country, even they are operating Afghanistan and treat it as a local market. Products are easily available on every stores and in super markets. Promotion Nestle promotes its products by itself in Pakistan. The promotion is done by the marketing division in the headquarter in Lahore. most effective promotion they make on TV and furthermore they have different brochures and leaflets. 7.3.2 Haleeb dairies

Second biggest company in the country, having good repute in the market and getting increase its profit share in the market, giving hard time to Nestle in the local level. Haleeb Foods was established in 1986 and its first product was Haleeb milk. Since then, it has continued to provide quality products to its consumers with product and packaging innovations. All this and more makes Haleeb Foods Pakistans fastest growing packaged food company. As of fiscal 2005, its annual turnover is Rs. 7.2 billion29. Apart from its extensive nationwide distribution networks, Haleeb Foods is also present in several export markets including South Korea, Bangladesh, Afghanistan and the Central Asian states.
29 http://www.haleebfoods.com/haleeb/

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Analysis and evaluation of competitors strengths, weaknesses Haleeb dairies Strengths Local brand Strong brand image in Pakistan Quality products Products contents according to local taste

Weaknesses Not having its own dairy farming system in the country. High priced products. Narrow range of products offered than Nestle.

Strategies (marketing mix) Products Building an excellent reputation over the years, Haleeb Foods continues to be at the forefront of product and packaging innovation. They have achieved market leadership in several food categories with a very strong portfolio, consisting of leading national and international brands. Prices Haleebs Prices of the products are quite reasonable in Pakistan, so many products are with in the reach of middle class in Pakistan.

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Places Haleeb have good and wide distribution channel in the country. Their products are easily available country wide even apart from its extensive nationwide distribution networks, Haleeb Foods is also serving several export markets including South Korea, Bangladesh, Afghanistan and the Central Asian states. Promotion Haleeb promotes its products by itself in Pakistan. The promotion is done by the marketing division in the headquarter in Lahore. most effective promotion they make on TV and furthermore they have different brochures and leaflets. 8. Dairy products distribution system in Pakistan. Pakistani dairy food market is dominated by only 2 companies (Haleeb and Nestle)and they have established a strong distributional channel in the market. Arla can adopt simple distribution channels that may be Three types of distribution channel for Arla are possible Manufacturer wholesaler _retailer -customers Manufactures retailers - consumers Manufactures supermarkets consumers

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9. SWOT. Strength Products : Wide range of products with strong product development department. Strong brand image in the Europe. Standardized and customized products for many related businesses. Marketing : Present all over the globe in 26 countries including many muslim countries. Very strong financial position. Cartoon controversy made some bad image in some muslim countries. Difficult to persuade 98 % informal market. Reliant on milk suppliers Marketing: Products: Offering small product line in other countries Products are little bit expensive in export markets. Weaknesses

Technology : They have latest technology in all production and product development steps. Production : Flexibility in their production line to produce customers needs. Opportunities Market demand: 98% vacant formal market. Excessive amount of availability of raw milk. Increased demand for processed

Threats Market demand: Pakistani customers have their own taste and preferences. Competition : Strong competition in Pakistan

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dairy products. High growth business opportunities in Pakistan.

because of presence of Nestle in Pakistan.

Variety of distributional channels are available. Gateway to Afghanistan and central Asian countries Variety of target market e.g. retail chains, hotels Low production cost in Pakistan.

Governmental policies Political instability in Pakistan

9.1 Conclusion: Arla is present in many countries in the world so if Arla goes to Pakistan, it can face good competition with Nestle and Haleeb dairies but 98% vacant market for processed dairy products are big opportunity for Arla to enter in Pakistan. But some governmental polices and cartoon protest is still in the minds of Pakistani people can be threats for Arla. The company can enter in to Pakistani market with several distributional channels like wholesalers, agents retailers etc.

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10. Marketing Program 10.1 Company objectives: After analyzing the market demand, companys strength and weaknesses and other macro economic factors it is essential to set the objectives for the company. The objectives should be SMART i.e. Specific, Measurable, Achievable, Realistic, and Timely. 10.2 Marketing objectives of Arla in Pakistan Arla foods has a well developed world wide network, which makes approximately 27 %30of their turn over. Arla foods present in 26 countries in the world ,starting in Europe and finishing in such as exotic countries as Qatar or Bangladesh. We have seen that Pakistan is a country where only 2 % of dairy business are formal (processed milk products), 98 % market still waiting for quality products and only 2 main player of the market (Nestle and Haleeb) are capturing the maximum share of the market. Pakistan is big country with 160million peoples population and most of the population are still forced to consume the open unhygienic milk and other products. There is too few market players serving this nation which has good progress towards economic development now a days with latest economic reforms. The parent company which is located in Sweden-Denmark dairy cluster will provide Arla Pakistan a specific advantage over its Pakistani competitors. Through the access to the parent company, the sophisticated inputs and technology, specialized information and reputation developed from the cluster location may transfer to the subsidiary in the Pakistan . The farming and food industries in Sweden and Denmark may greatly enhance the reputation of Arla in the Pakistan. These advantages have been shaped by a large group of Nordic organizations and for decades, so it is difficult to be imitate by Pakistani competitors.

30 http://www.arlafoods.com/APPL/HJ/HJ202COM/HJ202D01.NSF?Open

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Pakistani milk food market is not yet saturated and has a great potential. Keep in view the situation is suggested if Arla make proper sales and promotional arrangements it can achieve great Share of the existing market as well due to its quality products can make reasonable growth in the market. 10.2.1 Main objective The objective is to create awareness about the Arlas products among the Pakistani people and purchasing agents, wholesalers and big super markets and then create a good business base for the company. The objectives are also to highlight the feature and benefits of the companys products, flexibility in production, prices and packing awareness.

10.3 Core strategy Arla can start with few products to emphasis on the short product line to attract the new market by establishing brand image in the minds of people. They can introduce their other products after establishing the market and making the brand image in the mind of Pakistani people. To get maximum attention in the mind a burst marketing campaign and same quality as they are offering at home with low prices can be a good starting strategy for Arla. 10.4 Generic strategy Arla can achieve competitive advantages essentially by differentiating their products and services from those of competitors and through low costs. Arla can target their products by a broad target, thereby covering most of the marketplace, or they can focus on a narrow target in the market. There are three generic strategies that a Arla can undertake to attain competitive advantage: cost leadership, differentiation, and focus. Arla can maximize performance by striving to be the cost leader in Pakistan , by differentiating its products or services from those of other companies, and by focusing on a narrow target in the market.

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11. Marketing Mix strategies When entering a market, the company must consider the present marketing mix. 11.1 Product strategy Arla should launch same quality of the products as they are offering to the home consumer at home market . As mention before ,that they can start with few products to get the attention of Pakistanis, after positioning the product concept they can launch full product line in Pakistan. Meeting the needs and taste of the Pakistani consumer include quality, appearance ,packing, service and brand they can easily get the maximum share of the market. As we know Arla is second biggest dairy company in the Europe has excellent products development facilities and Arla can develop the products according to this markets taste, habits, liking, preferences of the people. Packing should follow the Pakistani rules, the government has some specific rules for food items packing. Because of hot weather, other dairy processing units are mostly using Tetra packs for their milk products. Bottles are also available media for packing of dairy products. The company should follow the rules about labelling of the products like expire dates , information in local language on the pack , storing temperature etc. 11.2 Price strategy Price is a very important issue to enter in Pakistan, because making a decision to enter this market, Arla should take into account the profit margins and suitable pricing response of competitors. The company should keep the prices of its products competitive. At initial stage of the company launch in Pakistan, company can give some extra discounts or other incentives to consumer or to retailers and wholesalers to attract the market.

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11.3 Place/distribution strategy This factor is very essential for Arla because it is associated with decisions of channels of distribution that works as the ways of getting the product to the target customers. As we know its big market of 164 million people for Arla, so at initially they can hire the services of a commission agent because this will help to make know how about the market and to sell the products to many small retailers in Pakistan. The company should also adopt direct selling strategy to big retail chains in a big geographical location like Pakistan. Direct selling will also reduce the cost of distribution. Other possible distribution channels can be big hotel chains, sweets and bakery chains, ice cream producer companies to sell the products. 11.4 Promotional strategy Arla should launch a strong media campaign in Pakistan through TV and print media. This will create the image of the company as well as awareness about the products. To make sure that they send out the message properly they have to have a good and strong communication plan. This includes identifying their product, target group, competitors and the message they want to send. And then this message must be transformed into an advertising that shows their message and the value they can add to the customer. The advertising must be based on both rational and emotional feelings. The rational part could show all the facts, and the emotional part could show all the benefits. Strategy: As the target group of the companys products are big hotel chains and retail chains selling dairy products i.e. B2B market, therefore the company should adopt Push promotional strategy. The push promotional strategy will help the company to create awareness and knowledge among the target group about its products and ultimately the customer will buy the products.

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11.4.1 Promotional budget The company should allocate enough budget to create awareness of the Arlas products on promotional activities in Pakistan. 11.4.2 Promotional mix strategy Advertising is a good promotional strategy to create awareness among the target group. The company should advertise about its capabilities, its product assortment, price and quality aspects. News papers, business journals, magazines and directories are good advertising tools. Electronic media Pakistan is a country which has several popular TV channels among the people, so Arla can make an electronic marketing campaign to introduce Arla in Pakistan. Sales promotion The company should also print some informative broachers about the products, and can distribute among the general people and big buyers. Discounts and rebate are also one of the effective tools to get the short term business quickly.

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12. Action Plan Arla will fix a short term, action plan in Pakistan for 12 months that will indicate specific marketing decisions. The marketing plan will be divided into 4 sales cycles during the year.

12.1 Product assortment Arla can introduce some of its products initially in the first year time. Main product line to introduce in Pakistan Milk Skimmed milk Milk for tea Yogurt (flavored, simple) They can further Yogurt drink (Lasi) Butter Cheese Ghee

12.2 Price structure The price structure of dairy products varies according to the product. A general guideline of the pricing structure for Arlas products in Pakistan. Price calculation and profit margin for one litter processed Milk for Arla in Pakistani Rupees. Variable cost of Raw milk Fixed cost (100-200 %) Total cost (full cost) processed mil Mark up (10%) 1631 RS. 16 32 03.2 35.2 05.2 Rs. Rs. Rs. Rs. Rs

Price (total cost +markup) VAT (15 %)

Selling price to the consumer

40.4 Rs.

31 Price from= http://www.pide.org.pk/pdf/PDR/2004/Abid%20A.%20Burki.pdf

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12.3 Distribution channel selection Pakistani dairy food market is dominated by only 2 companies (Haleeb and Nestle)and they have established a strong distributional channel in the market. Arla can adopt simple distribution channels that may be Three types of distribution channel for Arla are possible: Manufacturer --------wholesaler ---------retailer -------customers Manufactures-------- retailers------- - consumers Manufactures------- supermarkets ---consumers 13. Sales cycle The sales cycle of Arla divided into 4 sales cycles during the year i.e. 4 quarters in one year from Jan 2008-Dec2008)

Q1= 15%

Q2= 25%

Q3= 30%

Q4= 30%

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13.1 Quarterly sales cycle plan (Pak RS. Million)

Q1 (15%) Jan Product Milk Yogurt Butter cheese Target/ month 4% Feb 5% Mar 6% Target Q1 2.25 1.20 0.30 0.15 3.90

Q2 (25%) Apr May 7% 8% Jun 10% 1.5 0.80 0.20 0.10 2.60 Target Q2 3.75 2.00 0.50 0.25 6.50

0.60 0.75 0.90 0.32 0.40 0.48 0.08 0.10 0.12 0.04 0.05 0.06 1.04 1.30 1.56

1.05 1.20 0.56 0.64 0.14 0.16 0.07 0.08 1.82 2.08

Q3 (30%) Jul Product Milk Yogurt Butter cheese Aug Sep Target Q3 4.50 2.40 0.60 0.30 7.80 Oct

Q4 (30%) Nov Dec Target Q4 4.50 2.40 0.60 0.30 7.80

10% 10% 10% 1.50 0.80 0.20 0.10 1.50 0.80 0.20 0.10 2.60 1.50 0.80 0.20 0.10 2.60

10% 10% 10% 1.50 0.80 0.20 0.10 2.60 1.50 0.80 0.20 0.10 2.60 1.50 0.80 0.20 0.10 2.60

Target/month 2.60

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13.2 Time Table for Scheduled Marketing Activities: Month Activity Planned Budget million (Rs.) Jan Sales presentations by the marketing manager to the potential customers to highlight companys products and image. Feb Mar. Apr. May Jun Jul Aug Sep Oct Nov Ads in the Pakistani business magazines. Brochures about companys products, product samples. Participation in the Karachi dairy trade Fair . Meetings with the target customers and follow up Ads in the Pakistani business magazines Business letters. Direct mailing. Tele phone calls Sales presentations. Samples and brochures Ads in business and fashion magazines. Direct mailing and phone calls Sales presentations. Samples and brochures Follow up of the presentations and ask for business Ads in business magazines meetings with the target group. Samples and brochures. Follow up after the trade fair. Telephone calls and direct mailing. Business letters and Ads in the magazines Participation in Lahore International dairy industry Fair and meetings with the target group. Dec Follow up after the fair and sample and brochures .5 2 .4 .1 4 1 2 2 1 2 .5 2

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14. Prerequisites for Plan: Marketing manger should have solid knowledge of companys products and capabilities, and the competition before organizing a sales presentation to the target group. Ability to highlight those features and benefits of the products that satisfy the target groups need. Arla has to make good planning before the trade fairs. Awareness about the business culture of Pakistani buyers and negotiation techniques. Well planned sales presentations and well designed promotional material e.g. advertisements. 15. Follow up: Strong follow up is the key to success of the marketing plan and to get the required business from the Pakistani markets. Key follow-up activities are, Review of the performance of the marketing people at the end of each month. Sales meetings at the end of each quarter to discuss the achievement of sales target. Discussion about the implementation of promotional activities Adjustments in the sales target according to the achievement.

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16. Overall conclusion According to our conclusion Arla is currently a very strong company which is moving forward in most of its business areas and growing to an bigger size. Its structure of cooperative ownership has proved to be a great strength of the company. The key competence of Arla are its high quality products and their ability to meet customers needs and taste and has been able to maintaining high quality standard for its suppliers. In case of Arla foods the technological development means innovation in dairy field. On the world market there is still a huge opportunities for Arla. The group can make the use of its advance production method and excessive experience with in the field of dairy production, both to move into new markets and also to create new products which they could add to their already very extensive portfolio. In this connection now Arla wants to enter in Pakistani market and we made some analysis in this regard to explore the possibilities for Arla in Pakistan. Pakistan is a country which has adequate milk resources in the country and ranked as 5th largest country in the world but lake of processing facilities and latest technologies in the industry, there is a huge gap between processed milk productions and non processed milk sales in the country which is 2 % and 98 % respectively. People are still purchasing milk from centuries old tradition from milk man and this milk are full of unhygienic products. Now if Arla goes to Pakistani market there is a lot of opportunities for Arla to stay in this potential market. Governmental policies are in favour of investors and the growing number of middle class are the real target group for Arla in Pakistan. Cheap labour rates and skilled labour force are making the business in favour of Arla. Arla already present in many Muslim countries make sense to enter Pakistani market but with some threats regarding cartoon controversy. Nestle MilkPak and Haleeb are the big players in the market can give tough time to Arla in Pakistani market.

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Demand for processed dairy products will remain high due to lake of formal dairy business in Pakistan. The strong market potential can be found in the growing middleclass. In general Arlas high quality products hold great appeal to Pakistani consumer and they maybe the best seller in Pakistani market too as they are doing well at home. As a result there is strong possibilities are present for Arla in Pakistan.

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Appendixes

Appendix-1

Pakistani map

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Appendix-2

Pakistani milk market

source:www. fao.org

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Appendix-3 Processor capacity of various milk processing companies Processors Nestle HFL Millac Vita Halla Prime Nurpur Nirala Dairy Crest *Engro K&K Butt Dairies Munno Dairies Khi Dairies Military Dairy Farms Total *planned Source: SWOG estimates Capacity (million litres) 1.3 0.9 0.3 0.05 0.15 0.1 0.15 1 0.15 0.35 .04 0.04 0.06 0.1 0.18 5.21 Capacity utilization Flush Lean 1.3 0.78 0.9 0.54 0.3 0.18 0.03 0.018 0.15 0.09 0.1 0.06 0.15 0.09 0.1 0.06 0.15 0.09 0 0 0 0 0.06 0.036 0.02 0.012 0 0 0.18 0.105 3.44 2.064 Monthly average 1.04 0.72 0.24 0.024 0.12 0.08 0.12 0.08 0.12 0 0 0.048 0.016 0 0.144 2.752

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Appendix-4

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Appendix-4

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Bibliography References used while making the reports and their links: http://en.wikipedia.org/wiki/Arla_Foods1 http://www.arlafoodsuk.com/appl/GB/gb060AFU/gb060d01.NSF?OpenDatabase1 https://www.cia.gov/library/publications/the-world-factbook/print/pk.html1 http://en.wikipedia.org/wiki/Economy_of_Pakistan
http://www.loksujag.org http://www.fao.org/ag/AGAinfo/projects/en/pplpi/docarc/wp3.pdf

http://www.pakissan.com/english/issues/how.pollution.shtml http://www.regoverningmarkets.org/en/filemanager/active?fid=9
http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/MilkFactoryPaskistan.htm?Tab=2007

http://www.cababstractsplus.org/google/abstract.asp?AcNo=20053149686 http://www.ilri.org/InfoServ/Webpub/Fulldocs/South_South/ch09.htm#P38_2944 http://www.haleebfoods.com/haleeb/ http://www.pide.org.pk/pdf/PDR/2004/Abid%20A.%20Burki.pdf http://www.arlafoods.com/APPL/HJ/HJ202COM/HJ202D01.NSF?Open Books and literature used.

Marketing Management 12th edition-Philip Kotler and Michael Keller. Blackboard Course Material. Brochures from Arla. Global Marketing Second Addition svend Hollensen. Principles and Practice of Marketing, 4th Edition, by David Jobber. Cross Cultural Business Behavior, by Richard R. Gesteland. ISBN 87-6300093-8. Essentials of Economics, 3rd Edition by John Sloman.

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