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Contemporary Issues in MarketingThe Organic Food Industry in United KingdomN0466534Submission date: 23/07/2013Word count: 4,200Table of Contents TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc361858965 \h 32. Context PAGEREF _Toc361858966 \h 43. Analysis of the External Environment of the Organic Food Sector PAGEREF _Toc361858967 \h 43.1. PESTLE Analysis Summary PAGEREF _Toc361858968 \h 54. Why the Social Factors? PAGEREF _Toc361858969 \h 64.1. Is Marketing Influencing the Customers or the Customers are Influencing the Marketing? PAGEREF _Toc361858970 \h 65. How Organizations Changed Their Marketing Strategies PAGEREF _Toc361858971 \h 75.1. The use of social marketing for changing behaviors PAGEREF _Toc361858972 \h 75.2. The Marketers` Involvement with the Customers PAGEREF _Toc361858973 \h 85.3. The Relationship Marketing (RM) PAGEREF _Toc361858974 \h 85.4. From 4Ps to 4Cs PAGEREF _Toc361858975 \h 95.5. The Information System Development (ISD) PAGEREF _Toc361858976 \h 95.6. Co-Production PAGEREF _Toc361858977 \h 105.7. Different Segmentation Criteria PAGEREF _Toc361858978 \h 115.8. Trust Issues in the Certification and Authenticity PAGEREF _Toc361858979 \h 115.9. Big Retailers and Home Delivery: Fierce Competition for Farmer`s Shops and Farmer`s Market PAGEREF _Toc361858980 \h 125.10. Ocado: A Striking Success Story and a Considerable Competitor PAGEREF _Toc361858981 \h 135.11. How the Big Retailers Responded to the Growth in Demand PAGEREF _Toc361858982 \h 156. What Marketers Need To Do to Adapt PAGEREF _Toc361858983 \h 166.1. Market Research PAGEREF _Toc361858984 \h 166.1a. The Consumers` Motivation in Purchasing Organic Food. A Means-End Approach PAGEREF _Toc361858985 \h 166.1.b The Concept of Ethical Self Identity Association PAGEREF _Toc361858986 \h 196.2. Build Trust PAGEREF _Toc361858987 \h 196.3. Find New and Appropriate Segmentation Criteria PAGEREF _Toc361858988 \h 206.4. Provide Customers with a Wider Variety of Products (Big Retailers) PAGEREF _Toc361858989 \h 206.5. A Heavier and Better Directed Promotion PAGEREF _Toc361858990 \h 217. Conclusion PAGEREF _Toc361858991 \h 21References PAGEREF _Toc361858992 \h 22Appendices: PAGEREF _Toc361858993 \h 26Organic Food Industry in United KingdomWith a Focus on the Big Retailers1. IntroductionThe report has as a topic the Organic Food Industry in United Kingdom, more exactly, the way in which the sector has been changing during time. Moreover, an analysis of the external factors was made, using the Pestle framework and the focus of the report is on the social factors. After the first part, which contains a context of the current situation of the organic food industry, two main chapters follow. The first of the two refers to the way organizations adapted their marketing strategies due to the changes in the industry and the second one presents what the marketers need to do in order to target the relatively new category of customers (Pearson, Henryks, and Jones :2010), effectively. Moreover, different visual representations will be used for a better and more detailed understanding of the subject, together with the Pestle framework that can be found in the appendices. A variety of authors and theories have been used for a broad and deep analysis with the aim of finding the most applicable and relevant information and creating an appropriate set of recommendations for the marketers. 2. ContextAccording to Murray –White (2013), the notion of organic food has a closely tied connection to the “green movement” and the industry encountered a rapid growth, more exactly by approximately 20% per year in US (Dimitri and Green: 2002). To be more specific, the UK organic food market occupied the third place worldwide in terms of development and popularity with an increase of 10% yearly, in the year 2007 (Sahota:2007). But nowadays the facts are not too different, even though the impact of the crisis affected many sectors (Soil Association, Organic Market Report: 2013). Moreover, even though there was a small decrease in the organic food sector over the past year, according to Smithers (2013), for Guardian, an anticipated growth exists for this year, especially for the online purchase ( Murray-White:2013). In addition, there are currently 8 supermarkets, more exactly , the leading ones, that have been increasing their sales of organic products, the market leaders in terms of organic food shares being Ocado, with 9%, followed by Waitrose (4.8%), Sainsbury`s (2%), Tesco (1%), M&S (1%),etc. (Soil Association, Organic Market Report:2013).3. Analysis of the External Environment of the Organic Food SectorThere are a variety of factors that affect the organic food industry and as Wright and McCrea (2007) explain, the importance of the sector is not only seen from economic point of view, justified by the high amounts of yearly profit, but it also represents the society concerns in terms of food production, consumption, being perceived as a component of lifestyle. Also according to Wagner?? Tsukamato?(2006), there is a personal, social and environmental impact and even though the leading producers of organic food were doing it for environmental campaigning, as a result of their success, are currently perceived as models?of commercial business success?than political commitment?(Wright and?McCrea?:2007). As can be seen in the Appendix 1, the Pestle framework has been used in order to analyze the external factors that have an impact on the organic food industry because is the most appropriate matrix for analyzing the factors that cannot be controlled, from the macro environment (Jobber:2010), providing a “satellite view” (Ward and Rivani : 2005:p.203). 3.1. PESTLE Analysis Summary Referring again to the Appendix 1 and to K?yr? and Suomikallio (2012), the political-legal factors can have a decisive impact on how a business operates, on different levels, depending on the variety of laws and legislations in terms of agriculture, taxes, restrictions, etc. in accordance to the Health and Food Ministry departments. In addition, the economic factors represent another influence because as Keller and Kotler (2004) state, the purchasing power should be in marketer`s close sight and this power depends on the home economy level and personal income level. Also, according to Morrison (2006), the economic level influences the society lifestyle as well, so as can be seen in the Appendix 1, factors as recession, GDP, inflation, etc, could affect people`s decision making process of purchasing organic food. The social factors represent the focus of this report and a variety of them can be found in Appendix 1, being related to consumers` behavior, the change in lifestyle and eating trends and of course the increase in the number of ethical consumers, being influenced by health, environment and taste (Soil Association, Organic Market Report:2013). In addition, a growth in the younger shoppers (under 35 years old: “Jamie`s Generation”) of organic food category has been noticed, representing 16% of sales, because of the increasing awareness of its benefits (Soil Association, Organic Market Report: 2013).Last but not the least, are the technological and environmental factors. The key factors in terms of technology that impact on the organic food sector are the producing/distribution/procurement maturity and capacity process as its effectiveness and innovations influences the costs and the wastage. In addition, the competing technology development has a high importance as well, like the possibility of purchasing online or by using mobile application and related to this aspect, is shown that that even though a drop in organic food sales has been registered because of the recession, an online boom regarding purchasing from the major retailers has been noticed (from 5.7% to 10.1 %), according to Smithers (2013).In terms of the environmental factors (see Appendix 1), the key point is the fact that the pest management is an important influence that affects the sector, together with the way and level of farming, pollution and the way the climate and weather are.4. Why the Social Factors?4.1. Is Marketing Influencing the Customers or the Customers are Influencing the Marketing?It is considered that the social factors are the main ones that have been influencing the growth in popularity of the organic food and this will be explained in detail in the following two chapters. More exactly, the rational of why society has been turning more and more to the healthy lifestyle, including of course the organic food is due to the effect and consequences of the commercial marketing, according to Mahoney (1994). An argument is offered by Tadajewsky and Brownlie (2008), who explain how the commercial marketing promotion of unhealthy nutritional patterns and unsafe food technologies lead to obesity, and as the report focuses on the UK situation, should be said that the problem is acute in US and UK. Also, marketing promotes fast foods, being very popular and benefiting of a good promotion and exposure especially in the Western countries (Evans and Moutinho (1999). But when the obesity, malnutrion, genetically modified foods, fast food, etc, became controversy subjects and at the stage when society tried them, saw the effects and some even changed the decision making process based on the negative effects, the marketers as well responded .On the other hand, another reason of why the marketers changed their strategy and why brands started promoting healthier food, such as McDondalds, Kraft, Frito-Lay, etc, is the political one, more exactly, because the threat of liability lawsuits, in US and not only and because they have to respond and adapt to the trends that customers set (Bone and France:2003). 5. How Organizations Changed Their Marketing Strategies5.1. The use of social marketing for changing behaviorsThis topic is of interest because of the focus of social marketing. Social marketing was created with the aim of influencing behaviors of the target market for the personal welfare and the one of the society and to deal with the negative effects created by the commercial marketing, according to Andreasen (2002). More detailed, governments have been discouraging the intake of sugar, fats and has been encouraging the consumption of fruits and vegetables (Ross: 2004), representing another reason why the marketers had to change their strategy in order to adapt (Gordon et al :2006).So besides the commercial marketing, more exactly, the negative type that only intends to sell without an interest to how people are affected in terms of health, and the social marketing, that only has the aim of changing behaviors, without being ethical, CSR or social advertising, is the ethical marketing (Honkanen, Verplanken and Olsen:2006). And for the marketers to promote organic food they must be ethical in creating their strategy (Baker et al: 2004).More exactly, to complete the theory, according to Dann (2010), social marketing is the adaption and adoption of the commercial marketing techniques and principles in order to induce behavior change with the aim to achieve a social goal, which in this case is healthy eating. Moreover, it is very important for the marketers to be aware of the changes in the customers` ethical beliefs, perceptions and values, and an example of those not being respected is offered by Sanyal (2000) that explains how the customers’ organizations boycotted as a result of marketers not having a profound understanding of their values. This proves that even though the customers` lifestyles can be influenced in a damaging way by the negative type of commercial marketing (GM foods, obesity, fast food, etc.), in the same time, the marketers are influenced in leading their businesses by the customers` demands.5.2. The Marketers` Involvement with the CustomersArguments have been offered to the theory saying that the society has been influenced by the commercial marketing, by adapting unhealthy eating lifestyles, promoted by this type of marketing, but on the other hand, the social marketing`s downstream campaigns have been having an effect as well, and the result is the popularity of healthy eating nowadays (Kotler and Lee: 2008). 5.3. The Relationship Marketing (RM)An example of this being done by the marketers is Brodie`s et al (1997) model in terms of relationship marketing (RM), which is suggested to be applied at four levels as can be seen in Figure 1. Fig.1 “Relationship Marketing definitions”, Brodie et al (1997)According to Egan (2008) in terms of Brodie`s (1997) model, it is said that the middle levels are the most accepted definitions in general. The model shows the importance of the RM and the fact that the business/customer partnering is one of the most applied theories, focusing on the customers’ retention, together with the customer partnering, to an even higher level, showing that the buyers are “cooperatively” involved in the design of the product/service, presenting higher seller-buyer interaction (O`Malley and Tynan:2000). The model proves how involved the marketers are with the changes in the customers` trends and the involved relationship they had, representing a base for the decision of marketers to adapt to the social changes by creating new strategies. As an example, according to National Consumer Council (2007), the supermarkets adapted to the customers` eating trends by making efforts to both stock organic and locally-grown produce, and to become more sustainable and ethical.5.4. From 4Ps to 4CsAnother fact that proves the development of RM so it would meet the customers` needs, demands and trends is the one offered by Kotler et al (1999), more exactly, because the 4 P`s were thought to be created from the sellers` angle, the author (1999) created the 4 C`s, coming from a customer-orientated perspective., as can be seen in the Figure 2.1390651590550257175011430Cost to customer00Cost to customer25717501905GVCHGHG00GVCHGHG-4762559055Price00Price139065132512002581275229870Convenience00Convenience2571750229870Convenience00Convenience-47625229870Place00Place2552700942340C00C2562225400050mb00mb-47625942975Promotion00Promotion-47625390526Product/Price00Product/Price13906501631950257175077470Customer needs and wants00Customer needs and wants2561590297180Communication00Communication1390650882650 Fig.2 From 4Ps to 4Cs (Kotler et al :1999,P.110)5.5. The Information System Development (ISD)Also according to Schwalbe (2010), another example of how marketers adapted their strategies to the customers` demands, is the Information System Development (ISD), more exactly, representing a method in which both the producers and the users take part in the design and development of a product/service. According to He and King (2008) the users are asked to take part in the ISD is because they possess knowledge and perspectives that the developer do not have. In addition, referring to Harris & Weistroffer (2009) this model has been used because the “high project failure rate and low user satisfaction” (2009, p. 142). 5.6. Co-ProductionAccording to Mittal (1989) and Smith & Carsky (1996), another way of involving the customers is by using the theory of co-production, which is not too different than the ISD. More exactly, this theory has at the base the intensive collaboration with the customers when creating a product in terms of product selection and purchase decision in order to improve the products and to increase the customers` support of this products (Tiwana & Mclean, 2005). In addition, according to Kahn (1990) the intensive collaboration between the producers and customers is called job engagement, as can be seen in the Figure 3. Fig. 3 Model of Co-Production, Markus and Mao:2004The theories and models from above were presented in terms of the relation they have to the reasons of why customers chose to purchase organic food. Besides the external influences exercised by the social marketing`s downstream campaign which encourage healthy eating, there are some other implication to the customers` decisions. 5.7. Different Segmentation Criteria According to Pearson, Henryks, and Jones (2010) as the segment of organic food customers is not saturated and there are not too many trends known about this category, it is not relevant to look only to the usual segmentation criteria as education, age, income, etc. So marketers had to find new ways of targeting their customers. So different segmentation parameters are used, for example, segmenting the target market based on the level of how “green” they are (from uninterested to very green), taking into consideration combinations of attitudes and behaviors (Achilleas and Anastasios: 2008). Different marketers use different segmentation parameters as: the level of awareness that customers have regarding organic products, if they are light or heavy buyers (Pearson, Henryks, and Jones :2010)As the marketers are still in the process of understanding the organic food customers, there are also other criteria that help them in knowing their target market, for example according to the Lifestyle of Health and Sustainability (2010) (LOHAS), profiles were created for the customers, such as “Leaders through to Learning, Learners and ?nally Laggards” (2010, p.5)5.8. Trust Issues in the Certification and Authenticity According to Gerrard et al (2013), the sale of organic food will only take place if the customers believe in the products being organic and in the products` value and benefits, more exactly, the concept of trust. But being a relatively new category of customers and because marketers are still in the process of knowing their organic food target market as how Pearson Henryks, and Jones (2010) stated, still finding the most effective way of segmentation, building trust is something in the process of making. More exactly, according to Clarke et al (2008), as a so-called “credence good” (2008,p.730), this category of food is susceptible to skepticism and the customers show lack of trust due to the fact that they have no direct means to verify if the goods are truly organic and moreover, are a variety of certification. Also, as how Eden et al. (2008b) explain, another issue regarding the customers in UK is that they support the principle of certifications but are again skeptical in terms of the level of assurance it offers. Moreover, as how Yiridoe et al (2005) explains, a study showed that the customers prefer the products that are produced locally and not the imported organic food, but on the other hand, according to Green (2004), 60% of the organic products sold are produced in the UK are the remaining 40% is imported, so this can become a barrier for the marketers. In addition, according to Gerrard et al (2013), after a focus group research has been proved that the authenticity of the organic food was indeed an issue, most of the participants being unaware that a certification system exists, and being under the impression that the organic food sector is not regulated and that anyone can place the organic label on their products, also several of the participants feeling that organic is a marketing tool. 5.9. Big Retailers and Home Delivery: Fierce Competition for Farmer`s Shops and Farmer`s Market Moreover, according to the Soil Association (Organic Market Report: 2013), the leaders in the UK organic market in the 2011, 2012 are the big retailers, followed by home delivery/mail order and by the farm shops and farmer`s markets, making it even more difficult for farmers and for independent retailers to sale their products having as competitors the convenience of the big supermarkets and that of ordering online. In addition, another relevant information offered by the Soil Association (Organic Market Report:2013 ) is that, , customers prefer branded products rather than own labeled products, representing an advantage for the big retailers, which can use their reputation and their already built trust to sell the products and, on the other hand, declining the sales of own label products, assumingly because of the certification, authenticity and trust issues. The result can be seen in the fact that the braded sales increased by 2.2%, while the own-label sales declined by 11.2% (Soil Association:2013).As can be seen in the Figure 7, the shares in the organic food market in the 2004-2012 period show that the market leaders are the big retailers, but even though their sales are decreasing over time, the online sales are boosting from 2.6% in 2004 to 10.6% in 2012, representing competition for the multiple retailers and not only. Fig7. Share of the UK organic market 2004-2012, Soil Association (2013)5.10. Ocado: A Striking Success Story and a Considerable Competitor According to Ocado`s Annual Report and Accounts (2011) and to Soil Association Market Report (2013), Ocado online grocery store is the market leader from all the big retailers, representing of course a fierce competition in the organic food sector for retailers such as Waitrose, Sainsbury’s, Tesco, etc. Their success, as how the Chie Executive , Steiner (2012) explains in the Annual Report and Accounts (2011), is the result of their ability to react fast to the changes in the market place, more exactly, the awareness of the online benefits, as can be seen in Figure 8. Fig 8. Improved Range and Price drives Channel Shift, Ocado Annual Report and Accounts (2011).Figure 8 shows the best example of how this retailer saw the advantages of the online selling and transformed them into an improved shopping experience, saving a very important element nowadays, the time, while offering a wide range of products. In addition, as can be seen in Figure 9, in the year 2012, Ocado was the sales leader, even though, as can be seen in the Figure 10, the brand was not the leader in having own labeled products. But the strategy they adapted (Ocado`s Annual Report and Accounts :2011), moving from the store selling to offering next day delivery for a wide variety of products, good service, convenient , matching the competitors` prices, proved to bring excellent results, representing an important competitor. Fig 9. Organic sales online. Soil Asociation (2013)Fig 10. Own-label share of organic sales 2012. Soil Association (2013)5.11. How the Big Retailers Responded to the Growth in DemandAs can be seen in the Figure 11, according to the Food Industrial Management Program (2010), there is an increasing demand over time for the organic food, fact that demands the retailers and the marketers to research their new target market and to find strategies that offers them trust. Fig 11. Sales of organic fruits and vegetables 1990-2000 (Food Industrial Management Program :2000)As a result to the demand growth, as can be seen in the Figure 12, the conventional retailers adapted and have been offering a wider range of organic products along time, in the year 2000 offering the same range as the natural products retailers in order to satisfy the customer`s demands and not to be left behind. Fig 12. Share of organic sales by venue. Natural Food Merchandizer (2010)6. What Marketers Need To Do to Adapt6.1. Market Research6.1a. The Consumers` Motivation in Purchasing Organic Food. A Means-End ApproachAccording to Zanoli and Naspetti (2002), there is a means-ends approach to the purchasing of organic food, more exactly, the customers “think about product characteristics or attributes in terms of personal consequences. These may be perceived as positive (benefits) or negative (risks)” (2002, p.644). For a better understanding see Figure 4. Fig.4 Means-End Approach (Gutman: 1982)As the customers are proved to associate their personal experiences so much to the purchasing of an actual product as the research made by Zanoli and Naspetti (2002) showed, a recommendation made to the marketers in order to keep up with the changes, is to follow the customers` demands and the actual eating trends, in an ethical way, and the best way to do this is by being as involved as possible to the target market.Also, in order for the marketers to find a way of creating their strategies and their products/services with a higher chance of satisfaction is with the help and participation of the customers. More exactly, as explained by Mittal (1989) and Smith & Carsky (1996), a way to do this is by using the either the Co-Production theory (see Fig. 3), The Information System Development (ISD) (Schwalbe :2010) or the Relationship Management (see Fig.1), models that are already used in the other industries and sectors, proving to be successful. In addition, to complete the theory, Figures 5 and 6 will show the values that represent the most important motivations of why consumers buy and do not buy organic food. Fig.5 Hierarchical value map of positive ladders of the regular consumers, Zanoli and Naspetti (2002)Fig. 6 Hierarchical value map of negative ladders of regular consumers, Zanoli and Naspetti (2002)Referring to the reasons of why customers buy or do not buy organic food, another recommendation for the marketers is to focus on the market research in order to know better their customers in terms of the reasons of purchasing, the decision making process and the associations made with the purchasing. with the aim of an more effective targeting. 6.1.b The Concept of Ethical Self Identity Association Also, a similar way that justifies the customers` motivation of buying organic food is the one related to the concept of ethical self-identity and the importance people attribute to health issues and food concerns and can be seen in Figure 7. In addition, according to Dimitri and Green (2002) the organic food customers want to benefit of the healthy attributes without giving up to the pleasure of life, being the taste, challenging the marketers in offering organic products for the best affordable prices, having a good variety and which taste good as well. Fig 7. The process of purchasing organic food, Michaelidou and Hassan (2011)This information is relevant for marketers because it shows again that they must know their relatively new (Olson, Grunert:1999) and in developing process target market by market research, in order to target them more efficiently as explained above and also in order to adapt and find a successful strategy.6.2. Build TrustReferring to the trust issues in the certification and authenticity that the customers that marketers face currently in the organic food sector, a recommendation is the built that trust for a long-term period in order to reassure the customers that paying extra justifies the value and benefits of the goods and of course their authenticity.6.3. Find New and Appropriate Segmentation CriteriaAs explained above in the report regarding the segmentation criteria, marketers still do not know the organic food customers entirely and the segment is still in a process of being entered in the most effective ways. Also, taking into consideration that already some different segmentation criteria have been created for this market, such as “how green a customer is “(Achilleas and Anastasios: 2008), the level of awareness they have about organic food, if they are heavy or light users (Pearson, Henryks, and Jones :2010) or different profiles were created (Lifestyle of Health and Sustainability), a recommendation is that marketers should keep on creating segmentation criteria and make research regarding which of them are less or more effective. 6.4. Provide Customers with a Wider Variety of Products (Big Retailers)As seen in Fig. 11, the sales of organic food from the year 1990 until year 2000 increased considerably (Food Industrial Management Program: 2010). Also, as seen in Fig. 12, the big retailers have the same share of sales as the natural products retailers in the year 2000, but at the moment, in the year 2013, the leader in the organic food sector is the online supermarket, Ocado (Soil Association Market Report :2013). Based on this information, a recommendation for the marketers is to be aware of the Ocado`s striking success story and try to provide customers with a wider variety of products in the supermarkets, as the demand is in growth (Soil Association Market Report: 2013) and on top, to create special offers for the organic products and have them advertised on their official websites in a way that is easy to notice and in a way that attracts the customer`s attention regarding their benefits. Moreover, taking into consideration that depending on the seller, the organic food price can be from a few pence more, up to 50% more than non-organic food (Murray –White: 2013), another recommendation for the big retailers is to try to offer in the possible limitations, prices that are not up to 50% more than regular food products, but slightly more expensive, more exactly affordable. In addition, it is recommended to the marketers to make efforts to both stock organic and locally-grown produce, and to become more sustainable and ethical.6.5. A Heavier and Better Directed Promotion According to NutraIngredients Official Website (2013), a research conducted by Pearson, a lecturer from the School of Marketing and Management, University of New England, NSW, showed that health, quality and the impact of environment are the most common reason of purchasing amongst the organic food customers, so the recommendation for the marketers is to focus on these core areas when promoting their organic products.7. ConclusionThe organic food sector is stated to be in an increased growth (Soil Association Report: 2013) and given the fact that is still a relatively new sector (Pearson, Henryks, and Jones: 2010), the marketers have to find new ways of creating their strategy and develop new skills in order to target this segment efficiently. As presented in the report, the big retailers have been increasing their sales of organic food, compering to the past situation when the natural products retailers were leading the industry. 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SWOT AnalysisPOLITICAL-market environmental regulations on agriculture/ organic food-trade agreements, tariffs or restrictions-taxes-the type of government (democratic, communist, dictatorship, etc.)-Health and Food Ministry departmentsECONOMIC-recession-interest rates-inflation-currency rate-GDP-home nation economy level-overall industrial market shares-trading policies-competition- employment-ratio of people preferring to eat out SOCIAL-cultural differences-Lifestyle eating trends-demographics-consumer attitudes and opinions regarding the organic food-consumers buying patterns-consumer behavior- fashion and role models-ethnic/religious factors-advertising and publicity-ethical issues-changings in the demand of organic food-education and career trendsTEHNOLOGICAL- competing technology development (online channel , mobile apps)-the producing/distribution/procurement maturity and capacityreduce wastage , lower costs-information and communication-technology access, licensing, patents-consumer buying mechanisms/technology -technological level of innovation and qualityLEGAL- various laws and legislation (agriculture)-public health and safety- organic certification ( needed in order to sell organic food)- annual/random inspectionsENVIRONMENTAL- climate-weather-ecological balance-level of pollution-farming -pest management ................
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