Review of the effectiveness and validity of operations of the MAIF Agreement:Research Paper

4.2 What are the characteristics of the Australian marketing environment that affect the effectiveness of the MAIF Agreement?

Page last updated: 18 June 2012

The MAIF Agreement does not explicitly address advances in technology, particularly in relation to electronic marketing and the use of social media. Whilst the rise of these practices raises concern for some stakeholder groups, the Review found that the effectiveness of the MAIF Agreement is relatively robust and should not be affected provided that the APMAIF can make timely interpretations and develop clear guidelines for industry marketing activities.

The advent of toddler milk drinks has led to the development of brand line extension strategies, whereby infant formula and follow-up formula are marketed as the initial stages. Some stakeholders view this practice as being outside the scope of the MAIF Agreement while others have suggested the practice undermines the effectiveness of the MAIF Agreement.

Some stakeholders suggested that the absence of restrictions on the import of products for personal use combined with the exponential growth in global e-commerce is a growing concern. It is difficult to measure the impact that this is having on the effectiveness of the MAIF Agreement in achieving its stated aim but it is an issue that should be closely monitored in years to come.

These issues are discussed in more detail below.

4.2.1 Marketing practices have changed significantly since the MAIF Agreement was drafted in 1992

Review questionInsights:
What are the observable changes that have occurred in industry marketing practices throughout the life of the MAIF Agreement?
  • Consumer expectations towards product quality, protection and disclosure have increased significantly, with higher expectations for a timely response to complaints.
  • Composition of the infant formula market has changed, with shifts in the structure of the supply chain creating significant challenges.
  • Brand-line extensions enable manufacturers to use toddler milk drinks as de-facto advertising for infant formula.
  • Electronic media and social marketing have led to significant changes in consumer access to information and the ability of manufacturers to market products to consumers.

Significant changes have taken place in the Australian marketing environment since the MAIF Agreement came into effect in 1992. The Review investigated changes in the following areas:
1. Shifts in consumer attitudes and expectations
2. Structural changes in the market
3. Developments in marketing approaches and tactic.

The findings of these investigations are outlined below.

Greater consumer power has increased consumer expectations

The balance of power has shifted significantly from marketers to consumers over the past two decades (Ward 2011). Greater access to information, higher expectations towards product quality and protection and increased scepticism towards marketers and company profits have led to greater demands for product safety, disclosure and information. These expectations have been accompanied by greater health consciousness and concerns about food composition.

Aligned with these shifts in power has been a lower tolerance amongst consumers of inappropriate marketing practices and greater expectations for timely responses to demands and feedback (Ward 2011). Particularly in environments of self-regulated advertising (Kerr et al 2002), consumers are demanding effective mechanisms for lodging complaints and observing responsive actions to their concerns.

There have been changes to market composition and the supply chain

Since 1992 the structure of the infant formula market has changed significantly. There are currently six signatories to the MAIF Agreement:
  • Abbot Australasia Pty Ltd
  • Bayer Australia Ltd
  • H J Heinz Company Australia Ltd
  • Nestle Australia Ltd
  • Nutricia Australia Pty Ltd
  • Pfizer Australia Pty Ltd.
All are multinational, diversified companies and collectively they account for the majority of infant formula sales in Australia. Bayer is the most recent entrant into the market, signing the MAIF Agreement in 2007.
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Since 1992 a number of changes have occurred to the structural composition of the market:
  • Bellamy’s Organic, an Australian manufacturer operating from Tasmania, entered the market and is currently a non-signatory to the MAIF Agreement
  • A number of producers have emerged in Australia that primarily or exclusively service the Asian and Middle Eastern markets and are not current signatories to the MAIF Agreement (e.g. Formula One Gold, Tatura and Infant Formula Australia).
  • Amcal withdrew as a signatory to the MAIF Agreement in 1999 and currently sells private label infant formula through its pharmacy outlets.
Amcal’s withdrawal from the MAIF Agreement demonstrates the challenge caused by increasingly complex product supply chains. Greater integration of the supply chain (manufacturers, importers, wholesalers, retailers) over the past two decades has enabled market players to adopt multiple positions within the value chain. As mega-retailers increasingly generate and sell their own home-brand products, they argue that production of their products by a third party exempts them from requirements of the MAIF Agreement. This presents a significant challenge to the coverage of the MAIF Agreement.

Alongside these market shifts has been the introduction of stronger guidelines for infant formula under the Food Standards Code. In 2000, Food Standards Australia New Zealand introduced Standard 2.9.1, outlining the compositional and labelling requirements for foods intended or represented for use as a substitute to breast milk. The Code applies to all infant formula products including powder, liquid concentrate and ready to drink formats and covers infant formulas provided for infants with special nutritional requirements. Areas covered under the Code include (FSANZ 2003):
  • Permitted and restricted substances for the composition of infant formula
  • Requirements for warnings, nutritional information and prohibited representations on the labelling of products (including prohibition of pictures of infants or pictures that idealise the use of infant formula product)
Nutrition requirements for formula products

Marketing approaches and tactics have become increasingly sophisticated

In response and anticipation to changes in the broader macro environment, companies often consider strategies within the context of the marketing mix – a set of decisions related to price, channels of distribution, product, communications and customer relationship management. Part of this marketing mix is the four Ps of marketing:
  • Product - the combination of product attributes (e.g. packaging, size, quality and design) which differentiates the product from those of competitors and satisfies consumer need
  • Price - encompasses variables in list price such as discounts, payment terms and allowances to maximise the target market’s willingness to pay
  • Place - refers to distribution channels and coverage and how consumers access the product
  • Promotion - methods used to generate brand awareness and influence purchase through the use of advertising, sales promotions and sales force, PR and direct marketing.
Since the introduction of the MAIF Agreement in 1992, a number of trends have occurred in relation to the four Ps. Table 5 outlines a number of key trends relevant to the infant formula market.

Table 5: Key marketing trends



P
Market trend
Relevance to Infant formula
Implication
ProductIncrease in the use of brand line extensions by manufacturersToddler milk drinks are marketed with similar product identifiers to infant formula (e.g. Heinz Nurture Original labels products as stages 1, 2, and 3). Regulatory environment should consider all products sharing a common brand identity.
ProductIncrease in product modifications and functional foods to differentiate products from competitorsOptional substances are being added to infant formula to offer additional health benefits and reflect composition of breast milk.The use of labelling claims for product differentiation requires consideration.
ProductProduct positioning by manufacturers to distinguish products in the marketManufacturers are targeting products as having scientific benefits or creating trust amongst mothers.Product labelling and scientific claims have the capacity to differentiate products.
PromotionIncreased use of internet and social media for marketing, enabling more subtle and indirect approachesProduct review websites, Facebook, Twitter and online forums are being used as an avenue to promote infant formulas.Guidelines and interpretations require flexibility to accommodate ongoing changes in marketing media.
PlaceIn-store presentation by retailers to increase accessibility and association of productsInfant formula displays are being placed near point-of-purchase or normalised through placement next to other baby products.Manufacturers can use retail channels to promote infant formula products.
PriceDiscount incentives are being provided by retailers and price used for market validationPharmacies and retailers are using active discounting to promote products.The regulatory environment should not inhibit competitive prices.

These trends are discussed in more detail in Appendix D.
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4.2.2 Electronic marketing and e-commerce present significant challenges to the future effectiveness of the MAIF Agreement

Review questionInsights:
What are the possible future developments that may alter the operations of the Australian marketing sector and thereby affect the effectiveness of the MAIF Agreement, and to what extent can these be anticipated and accommodated?
  • Future developments in electronic marketing will enable more direct, personalised marketing approaches.
  • Global e-commerce presents challenges in monitoring adherence to the MAIF Agreement.
  • The MAIF Agreement needs to be sufficiently robust and flexible to accommodate future environmental changes.

Future developments in electronic marketing present a significant challenge for the effectiveness of the MAIF Agreement. Online marketing media are expected to continue advancing and growing in coming years, providing marketers with the ability to market directly to consumers both domestically and internationally.

Stakeholders identified the growth of e-commerce as a particular challenge. Greater access to online information increases the global reach of manufacturers and the transferability of marketing between products. The ability of consumers to purchase products online direct from manufacturers (both local and international) creates a significant challenge in monitoring compliance with the intent of the MAIF Agreement.

Advances in electronic marketing also present greater opportunities for manufacturers to apply targeted marketing approaches. Interconnection between electronic media and information supports the use of customer profiling and relationship marketing, enabling retailers to effectively segment the market and apply more personalised marketing techniques. The ability of search engines such as Google to store and use previous customer searches to advertise products targeted at personalised interests presents new opportunities for manufacturers of infant formula to reach potential customers. Marketing through text messages, increased use of social media and applications on smart phones all present manufacturers with the opportunity to adopt a direct and personalised approach to market their products. This presents a challenge to monitoring adherence to the MAIF Agreement due to the difficulty in detecting such direct marketing, and consequently a heavy reliance upon submissions of complaints by individuals.

To accommodate future developments in electronic marketing, the MAIF Agreement needs to be flexible and robust enough to adapt to environmental changes. Stakeholders identified a need for guidelines to outline what is considered acceptable practice and to guide interpretation and application of the MAIF Agreement to the modern marketing context. Additionally, effective mechanisms for monitoring developments in the marketing environment need to be developed and implemented.