MILKPAK: THE KARACHI MARKET

In early 1984, Omar Raza, the Marketing Manager of MILKPAK (Pvt) Limited, was sitting in his Lahore office perusing the results of a consumer survey conducted recently in Karachi, Pakistan. Omar wanted to use the survey results to improve the companys sales strategy in Karachi for the current year.

COMPANY BACKGROUND
MILKPAK started operations on September 1, 1981, in Lahore, the second largest city in Pakistan, in collaboration .with Tetra Pak of Sweden and Packages Limited. Packages was a company which produced and printed paper and board material. This material was used by several companies and organizations for packaging their products. In 1978, Packages Limited test marketed a hygienically- packed ultra high temperature (UHT) homogenized milk, under the brand name of MILKO, in Lahore to determine the demand for such type of milk in Pakistan. The UHT process involved raising the temperature of milk to 145C and holding it there for 3 seconds. At this temperature all bacteria die. The milk was then homogenized by forcing it through a very narrow slit. The success .of MILKO in Lahore led to the creation of MILKPAK, which started marketing the UHT milk under the brand name of Milkpak. This milk was packaged in various sizes of 200, 250, 500 and 1000 milliliter tetrahedron (tetra) and brick packs made of laminated paper. This laminated paper was provided by Tetra Pak of Pakistan, a joint venture between the Swedish parent company and Packages Limited. The paper could be used to package any type of food product including sterilized milk. The initial investment cost of M1LKPAKs plant was Rs 9 million. The plant had a production capacity of 100,000 liters of milk per year, and was located 50 kilometers from Lahore. The location of the plant was chosen for its proximity to the dairy farms as well as the urban areas. It was expected that most of the demand for Milkpak was to come from the city. The location also made it possible to attract managers to work for MILKPAK, as they could commute easily to the plant daily from Lahore. Since the plant was located in the industrial development zone, there was no duty on the import of machinery. (The organization chart of the company is provided in Exhibit 1). In 1982, MILKPAKs nation-wide milk sales were 16.88 million liters. By the year 1983, sales had grown to 23.3 million liters (see Exhibit 2). In 1984, MILKPAK expanded its product line by introducing a packaged fruit drink named Frost in 250 ml packs. MILKPAK had plans of extending their product line even further by introducing other packaged dairy products such as butter, desi ghee (clarified butter)

and yoghurt. THE PRODUCT Being a perishable product, fresh milk had virtually no shelf life without refrigeration. Pakistan experienced long and hot summers. The prolonged heat greatly limited the marketing of unpacked milk. Pakistan was also a low per capita income country. Most people could not afford refrigerators to store milk, thus necessitating its daily purchase. Prior to Milkpaks entry into the market, the major milk suppliers were the traditional gowallas (milkmen), who provided unpacked fresh milk from their buffaloes. The majority of fresh milk sales were made by gowallas supplying directly to consumers in their home. Milk was sold in shops that also retailed other freshly made dairy products like cream, yoghurt, lassi and occasiona1ly some traditional sweetmeats. These shop owners and the gowallas were generally known to adulterate milk with water. This adulteration increased the volume of milk enabling them to meet the excess demand. Because of adulteration there was no consistency in the quality of fresh milk available to consumers. Middle and upper class consumers considered fresh milk to be unhygienic. They boiled the milk after purchasing it to ensure its safety for consumption. Given these circumstances, MILKPAK identified a demand for high quality, bacteriafree milk which could be stored over a long period of time without refrigeration. MILKPAK proceeded to position itself as a producer of pure, hygienically-packed, long-life milk. The UHT treatment sterilized the milk without altering its taste too much and rendered it safe for direct consumption. The biggest advantage of the packaging was that the shelf-life of this milk was prolonged to three weeks without refrigeration. The shelf-life of milk packaged in this manner depended on the type of lamination used on the packaging paper. Till 1984, MILKPAK used plastic lamination which gave a shelf life of three weeks to the milk. If more expensive aluminum lamination was used, the life of the milk could be extended to three months.
COMPETITION IN KARACHI

MILKPAK faced competition from imported powdered milk, fresh milk and other brands selling similarly packaged UHT milk.
Powdered Milk

In 1971, when East Pakistan was separated from West Pakistan, many private trading

companies diverted shipments of powdered milk from East Pakistan (now Bangladesh) to Karachi. This introduced powdered milk to people in Karachi. In 1974 when the monsoon floods hit Pakistan, the traditional channels of milk distribution, the gowallas, broke down and powdered milk was imported to overcome the milk shortage. Hence, Karachi was the first market for powdered milk in Pakistan. Because the people in Karachi had earlier sampled powdered milk, they were more amenable to its use. By 1980, powdered milk had firmly established a place for itself in the Pakistani market, especially in Karachi. Despite tariffs and duties, the prices of the imported powdered milk were much lower than the prices for locally produced UHT milk because the EEC countries were generously subsidizing their milk industry. The margins that the distributors and retailers received from the, importers of powdered milk were 5-15% more than what MILKPAK offered. Omar felt there was a high degree of brand awareness and product category acceptance of powdered milk among consumers because many of the powdered milk importers advertised heavily on television. According to Omar, the fresh milk market in Karachi was 1 million liters per day representing 60% of the total milk market. The rest of the market was shared between powdered milk (35%) and UHT milk (5%). The relative share of UHT milk in Lahore was much higher, being about 15% of the total milk market. Fresh Milk Fresh milk constituted the bulk of the milk market all over Pakistan. In Karachi, unlike Lahore when Milkpak was introduced in 1982, the traditional channels of milk distribution were already established. Over the years these channels had improved, and in many residential localities, people from neighboring villages would sell milk daily by truck-loads to residents of the locality. In 1984 the price of fresh milk in Karachi was Rs 5.00 per liter. This price was lower than that of any other type of milk available. Contrary to MILKPAKs experience in other cities, the quality of fresh milk provided by gowallas in Karachi was found to be high, and a thick layer of cream (a mark of quality) could be seen on its surface. This was discovered when MILKPAK conducted a study on the quality of fresh milk from various areas in Karachi (see Exhibit 3). In fact in 1982, after the introduction of Milkpak in Karachi, the gowallas stopped adding water to milk because Milkpak had started to fulfill the excess demand which the gowallas previously handled by adulterating their milk with water. As a consequence, the quality of fresh milk improved considerably. UHT Milk In 1982, MILKPAKs Karachi sales were 2,384,834 liters. By the end of 1983 the sales

shot up to 4,450,907 liters. Nevertheless, MILKPAK felt it had hardly created a dent in the total milk market of Karachi. Management had assumed that a larger portion of the population would buy Milkpak in preference to the milk they ordinarily consumed. In December 1983, Milkpak faced direct competition for the first time in the UHT milk category in Karachi from Milkpure and PuraBrand. Milkpure and PuraBrand not only competed directly with Milkpak but started spending huge amounts of money on tradepromotion, thus beginning a trade-war. They offered incentives ranging from free tea bags to raffle draws of free air tickets to lure consumers from Milkpak. Trade incentives, like higher margins and gifts of video cassette recorders, were given to retailers and distributors to encourage exclusive distributorships. Despite the differences in the margins, market prices of Milkpure and PuraBrand were generally the same as Milkpaks. MILKPAKS MARKETING STRATEGY Price
In 1981, Milkpak was introduced at Rs 4/liter at a 20% premium over the price of fresh

milk in the market. Milkpak was also priced higher than most of the powdered milks available in the market, with the exception of Nido instant milk, which had the same price per liter as Milkpak. In 1984, MILKPAK fixed the price for a liter of milk at Rs 6.50 in Karachi and Rs 6.00 in Lahore. According to Omar the additional amount of Rs 0.50 fully covered the extra expenses of transportation to the distributors go downs, payment of taxes (octroi) and the spoilage costs to be borne by MILKPAK during transportation of the product from Lahore to Karachi. Distribution MILKPAK first marketed its product in Rawalpindi in September 1981. Firstly, Rawalpindi was considered by MILKPAK to be an easier market to introduce Milkpak, since it was a smaller city than Lahore. At that time MILKO was still in the process of winding up its operations in Lahore, and management felt the introduction of Milkpak was likely to cause brand confusion among consumers. Milkpak began to be marketed in Lahore in the second week of October, 1981. By the end of 1981, the distribution had been extended to Gujranwala, Faisalabad and Peshawar. All these cities were within a radius of 500 kilometers from the Milkpak plant in Lahore. In early 1982, MILKPAK commenced its operations in Karachi. MILKPAK marketed its product in each city through independent distributors, who in turn sold it to retailers. The usual retail outlets were bakeries, groceries and general stores. These stores carried all brands of UHT milk. In Karachi, the supermarkets were also an important outlet for sales of UHT milk. Initially in 1982, MILKPAKs

distributors serviced 2500 retail outlets in Lahore and 600 in Karachi (see Exhibit 4). MILKPAKs retail margin in both the cities was Rs 0.32 per liter. On the other hand, the margins given by MILKPAK to its distributors varied from city to city. The margin given to a distributor was Rs 0.15 per liter in Lahore and Rs 0.20 per liter in Karachi. This differential was mainly due to longer distances in Karachi entailing higher transport costs for the distributor. Yet the margins given by MILKPAK were 5-15% lower than that offered by competition to its distributors in Karachi. Before any price increase, the importers of powdered milk would allow their distributors and retailers to buy up as much stock as they could at the old price. Later these distributors and retailers were allowed to sell the powdered milk at the new price, thus automatically giving them greater margins. Advertising Considering MILKOs success in the market without the aid of advertising, MILKPAK management believed advertising would produce sales of such large volume that the Lahore market alone would absorb the total initial production of the, plant. Though MILKPAK supported its sales launch in Lahore with media advertising, sales did not reach expected levels. Consequently, MILKPAK decided to market its product in other cities earlier than originally planned. The management continued to support Milkpaks expansion to other cities with media advertising. In 1982, Milkpaks introduction in Karachi was supported by heavy advertising on local television, in various Urdu and English magazines, and at points of sale. In view of the low profit margins in the industry, consumer discounts were not given. MILKPAK increased its advertising budget in the next two years. In 1983, a special television campaign was started in Karachi to boost Milkpaks sales. The expenditure on advertising was increased substantially for Karachi that year. Approximately 50% of MILKPAKs annual national advertising budget went into this campaign. In 1984 Karachis share, of the total advertising budget was 30%. Of this amount, nearly 4050% was allocated for Milkpak. THE KARACHI CONSUMER Karachi was a rapidly expanding, ethnically diverse port city. It was Pakistans major industrial centre drawing migrants from all parts of the country. Omar felt that the money the Karachiites saved was invested either in business or was sent back home to the northern region of the country. On the average, a family of seven persons in Karachi earned Rs 2111 per month or Rs 304 per person. The poorest stratum of society earned Rs 160 per month per person. MILKPAKs estimate of the per capita consumption of milk in various cities of Pakistan has been given in Exhibit 5. MILKPAKs target market was essentially the middle class and the lower middle class.

Omar was aware that the milk consumer was price sensitive. They tended to buy either the lower priced fresh milk or powdered milk which could be bought in bulk, packed in cheap polyethylene bags, resulting in price savings. The consumer judged the quality of milk from the thickness of the balai (Cream) which gathered on its surface. By this standard, the fresh milk in Karachi was found to be of high quality. Omar believed powdered milk was popular in Karachi, because the residents had become accustomed to it. Powdered milk was also in significant demand in offices, where it was convenient to use as a tea whitener. It was difficult for the consumer to judge the quality of Milkpak. No balai appeared on it because it was homogenized, and its sterility could also not be perceived. Omar also felt that Milkpaks reputation had suffered when the company had used skimmed powdered milk as a constituent to meet government specifications. The government required fat content in the milk to be 3.5% and the solid content 8.9%. Usually the milk that MILKPAK received for production purposes was somewhat diluted and had only 7.5% solid content. This was because the ice added to the milk to keep it cool melted during transportation. Hence, skimmed powdered milk had to be added to bring the solid constituents to the required level. Omar realized that the consumers felt that if they were going to get powdered milk, they would rather buy it cheaply, conveniently, and in its original form from the market rather than consume it through Milkpak. Also, Milkpak was a relatively new product, it was still regarded with suspicion by the consumer. Part of this suspicion arose because people felt that Milkpak was not truly natural as it was produced by tampering with fresh milk. THE SURVEY At MILKPAK, the criterion of success in a city was that everyone should buy Milkpak because it fulfilled all the needs of the consumer. Ever since MILKPAK started operations in Karachi, the sales had never really picked up according to the management. MILKPAK had been expecting a breakthrough in Karachi and when this did not happen, measures were taken to assess the reasons for failure. MILK.PAK sent a team to Karachi in 1984 to investigate the causes of low sales. This investigation was to ascertain opinions and buying habits of consumers regarding Milkpak and other types of milk available in the market. The team first prepared a questionnaire to examine the household consumer market. The questions were deliberately kept openended because it was felt that close-ended ones would not portray the consumers real state of mind. Next, they commissioned a professor from the Karachi University to assist them in the formulation of a sampling design and apprised her of their target market - the middle income groups. The professor then decided on the total sample size, and accordingly allotted weights to the priority segments given to her by the team. A total of four segments, A, B, C and D, were created by stratifying the population according to localities. This stratification had two assumptions. First, there was a correlation between the income levels and the residential localities. Second, a relationship existed between the buying behavior of consumers and their income level.

The segments ranged from the higher to the lower classes, with A representing the top of the range, and D representing the bottom of the range. Next a team of field workers was sent out to conduct a random door-to-door survey. The field job was completed within a week. Afterwards the data was analyzed by developing different attributes which best described the consumers attitudes to all types of milk. The total money spent on this survey amounted to Rs 15,000. For survey results refer to Annexure A. THE PROBLEM Since its inception in Karachi, MILKPAK had expected to absorb the majority of the citys demand for milk. It was thought that Milkpak could displace powdered milk and fresh milk because it was superior to both. This ambition was based on the assumption that Milkpak was a better substitute product. When the expected sales, did not occur, Omar considered alternative strategies for the remaining year. He was also concerned whether Milkpak had established a market niche. He was beginning to doubt whether Milkpak could ever displace other sources of milk as originally conceived. Omar was also concerned about the criterion of success used at MILKPAK. Lastly, he was worried about the impact the new competition would have on MILKPAKs sales. Omar turned to the survey results hoping to get some inspiration which might help him understand the Karachi market, leading to development of a better plan for Milkpak.