Marketing in Farmer’s Markets November 19, 2010. Weslaco, TX Dr. Marco A. Palma Assistant Professor and Extension Economist Texas Agri. Life Extension Service Texas A&M University System mapalma@tamu. edu
Outline §Introduction: Horticulture Issues of Today §The Economy and US Consumption §DM Driving Forces §Marketing Strategies §Understanding the Customer §Sales and Display 2
Issues Affecting Horticulture Industry (-) n n n Stronger competition from less expensive imports Increasing consumer concerns about food safety Increasing Fuel/Energy Costs Availability of labor Economic and financial crisis 3
Issues Affecting Horticulture Industry (+) n n Increased demand for healthy foods, organic, environmental friendly and local produce Trade opportunities Positive health dimensions Horticulture outlook - compared to other crops 4
Issues Affecting Horticulture Industry 5 Topics n n n Farm Bill Immigration Reform Food Safety Increased access to fresh fruits and vegetables in Federal Nutrition Programs Recession 5
Farm Bill n n n Farm Bill working group: specialty crop industry priorities for the 2007 Farm Bill Farm, Nutrition, and Bioenergy Act of 2007, H. R. 2419 – Nearly $2 Billion for specialty crops Research, food safety, increasing consumption of fresh fruits and vegetables, battling pests and disease from entering the US, increase international markets access, etc. 6
Immigration Reform n n In June 2007, the Senate failed to pass a comprehensive immigration legislation reform Focus is to have a separate vote on the Ag. JOBs legislation – H 2 A temporary agricultural worker program q q q Eliminate labor certification process Reduction/elimination adverse effect wage rate Allow aliens not currently in the program to acquire H 2 A status 7
Food Safety n n US food supply is amongst safest in the world Food safety measures need to be q q q Commodity specific (not just melons) Based on the best available science Supported by strong government oversight 8
Federal Nutrition Programs n n n Increasing access to fresh fruit and vegetables in federal nutrition programs Expanding the Fresh Fruit and Vegetable Snack program – 115, 000 students, 375 schools in 14 states USDA’s Special Supplemental Nutrition Program for Women, Infants and Children (WIC) to include fruits and vegetables 9
A Picture of the US Economy 10
Dow Jones – 1900 to 2010 Source: Stock. Charts. com 11
S&P 500 – 1960 to 2010 Source: Stock. Charts. com 12
NASDAQ – 1978 to 2010 Source: Stock. Charts. com 13
Consumer Confidence Index Source: Market Harmonics 14
Spending During Recessions 15
So, What is a Recession anyway? 16
Definition The National Bureau of Economic Research or NBER officially declares a recession has occurred based upon: “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough”. (www. nber. org) 17
Illustration of a recession Source: John Penson, Dept of Agr. Econ, TAMU 18
Illustration of a recession The key question today is how long and … Source: John Penson, Dept of Agr. Econ, TAMU 19
Illustration of a recession …and how deep the recession will be Source: John Penson, Dept of Agr. Econ, TAMU 20
Recessions in the 20 th Century Dates of Recession Months Depression Recent Recessions Source: National Bureau of Economic Research 21
Recessions in the 20 th Century n There have been 13 recessions since the great depression of 1929 n ≈ a recession every 6 years n A regular component of the business cycle n Bubble of over-valuation of goods 22
Annual Change in Real GDP Depression 1973 -75 1981 -82 Source: John Penson, Dept of Agr. Econ, TAMU 1990 -91 2001 23
Introduction §Most business managers have heard “effective marketing is the key to profitability” §But what is marketing? §Tendency to associate marketing with selling or advertising and promotion
Introduction • Marketing is the total system of business activities designed to (1)plan, price, promote, and distribute products that (2)satisfy the wants/needs of current/potential customers, while achieving the (3)businesses’ objectives.
Introduction §The major emphasis is the customer §What do we need to do to be the most successful business? §Provide customers what they want, when and how they want it. §It is easier to sell customers “what they want to buy” than selling them “what we grow”
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Gathers two types of Information: a. Internal b. External v Target Market Selection a. Aim at the entire market (all segments) with a single marketing approach. b. Pursue several different segments with different marketing approaches for each segment. c. Focus on just one segment with a very direct marketing approach
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Business Related (Internal) Information: (1). Financial resources and Capabilities • • • Gross profits and net earnings after taxes Financial ratios- ROI, breakeven analysis, etc. Cash flow analysis (current and projected) Record Keeping system Borrowing Capabilities
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Business Related (Internal) Information: (2). Operating facilities • Production capacity based on land, labor, and equipment • Production scheduling • Inventory levels by variety, grade, size and loss rates • Power requirements (human input) • Equipment requirements
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Business Related (Internal) Information: (3). Competitive strengths and weaknesses • Competitive status (name recognition, quality perception) • Sales force capabilities • Market share projections (compared to competitors) • Competitiveness of prices (volume discounts? ) • Advertising and Promotion • Product mix • Distribution methods and channels • Service capabilities
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Market Related (External) Information: (1). Environmental Constraints • Costs and availability of materials (chemicals, soil materials) • Costs and availability of Energy • Economic conditions • Technology advancements • Political Environment – quality, pesticide use, other important issues
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Market Related (External) Information: (2). Market Conditions • Market size (pop, fam size, hwd, growth, etc) • Market segments (alternative outlets) differentiated by demographics (age, gender, income, education, etc) • Buyer purchasing habits (time, place, frq, cash/credit • Buyer use habits (when, where, purpose)
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Market Related (External) Information: (3). Analysis of Competitors • • • Number of competitors in your area Market shares Strengths and weaknesses in terms of prices, product mix, quality, promotion and advertising, cost structure, transportation costs, technology, management, etc.
Sources of Information v State or National trade associations v Landscape contractors and architects v County extension agents and horticultural specialists v Texas Department of Agriculture v The internet v Your customers
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Marketing objectives are typically set in such areas as profit, return on investment, sales volume, market share, pricing, advertising, and promotion v Marketing objectives should be SMART v Specific v Measurable v Achievable v Realistic v Time v As market situations and competition change, so must the marketing objectives
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control Examples of Marketing Objectives • Increase overall return on investment by x% for the next fiscal year • Increase X product sales by 10% for next fiscal year • Introduce x new products by specific date • Increase sales volume by x % in x region by this date
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Market penetration: fill the needs of an existing market v Market development: find new markets for existing products v Product development: develop new products for customers in the business's present markets v Diversification: new markets with new products
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v The marketing strategies must be transformed into a set of specific actions or tactics for accomplishing marketing goals v These tactics are often referred to as the marketing mix. v Product Decisions v Promotional Decisions v Pricing Decisions v Distribution Decisions
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Product Related Decisions • • Determining product mix Differentiating or branding our products Using attractive and efficient containers Attractive and informative labels Guarantees for our products? New products Care information of our products (after sale) Service- delivery, credit, special wrappings, containers, etc
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Promotional Related Decisions • Select target groups and geographical areas • Advertising: • Appeals and specific messages • Size, duration, frequency, measure adv? • Determine sales promotional media (POP, samples, demonstrations, trade shows) • Company recognition, logo, colors, etc
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Pricing Related Decisions • • • Determine base prices for each product Types and sizes of volume discounts Promotional pricing Credit policies Allow consumers to buy the quality they can afford
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Distribution Related Decisions • • • Provide protective packaging Determine modes of transportation Maintain inventory requirements
The marketing Planning Process Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control v Performance of the plan must be measured v Standards must be developed against which performance can be evaluated. v Typically, the manager develops quantitative measures of overall planning performance such as the following: v Comparing total sales and profits with figures from preceding years.
Direct Marketing
Marketing Margins
Direct Marketing Direct marketing involves selling agricultural products directly to the consumer (e. g. PYO, roadside stands, farmers markets, ecommerce, etc. )
Direct Marketing – Driving Forces § Dissatisfaction with low farm gate prices. § Retail buyer consolidation. § Urban sprawl. § Consumer interest in food safety & origin. § Increased emphasis on convenience and value added (less volume purchasing).
Direct Marketing – benefits to producers § Alternative income streams. § Helps to preserve small farms. § Outlet for organic/specialty niches. § Capture greater share of consumer dollar. § Able to be their own boss/do their own thing – less dependent on wholesale.
Direct Marketing – producer’s concerns § Knowing/dealing with consumers. § Liability issues. § Oversaturation. § No benchmarks.
Direct Marketing – benefits to consumers § Perceived higher quality/freshness. § Able to get back in touch with rural roots. § Able to purchase in larger volumes. § Engaged in the “experience”.
Marketing Strategies Determining the demand for your products will take some research: n n n n Trade Magazines Government Statistics Private Marketing Firms Internet Searches The competition Your Customer *** It is important to know what your customers are looking for…
Pricing Strategies Crop Mix Know Your Cost
Pricing Strategies Crop Mix Know Your Cost
Pricing Strategies Crop Mix Know Your Cost
Product Life Cycle$ Introduction Growth Maturity Decline Sales Profits 0 Time
Product Life Cycle$ Introduction Growth Maturity Decline Sales Profits 0 Time
Pricing Strategies Crop Mix Know your Cost Why is important to know my costs? Know Your Cost • Identify items with low cost -- Comparative Advantage -- GROW THEM • Identify items with high cost -- Comparative Disadvantage -- REDUCE THEM • Determine your “Price Floor”
Pricing Strategies Crop Mix Know your Costs are different for every grower because: Know Your Cost • Size of Operation • Location • Managerial Practices • Time of the year • Market Channel • Volume of production
Pricing Strategies Crop Mix Know your Costs are different for every grower because: Know Your Cost • Size of permanent crew • Availability of labor • How quickly you pay suppliers • Etc…. .
Pricing Strategies Crop Mix Know your Cost Know Your Cost Every firm has different costs, CALCULATE YOUR PER UNIT COSTS!!!
Pricing Strategies Crop Mix Know Your Cost Pricing Strategies How to differentiate your product? --remember-- real or perceived • Quality image • Name your cultivars • Follow changes in consumer tastes and preferences • Add value and let your consumers know…
Pricing Strategies Crop Mix Pricing Strategies Add value by adding service: • Credit Know Your Cost • Delivery • Special wrappings • Special containers • Cards • Care tags • Brand names • etc
Pricing Strategies Crop Mix Know Your Cost Crop Mix, What to Grow? • Meet your customers’ needs. • Crop mix allows you to transform your marketing opportunity into customer loyalty, growth in sales and profits. • Complex (number of varieties, etc. ) • Keep focus on the opportunities and be open to try new varieties.
Pricing Strategies Crop Mix, What to Grow? • Look into Industry Trends --identify opportunities-- Know Your Cost • The industry is becoming more diversified… • Also, consumers are “willing to pay higher prices” for desired services and features (real or perceived): Quality, uniqueness, convenience, locally grown products, organic, diversity, etc. • DIFFERENTIATE YOUR PRODUCT!!!
Understanding the CUSTOMER “Build it and they will come!”
Understanding the CUSTOMER Have a marketing mindset rather than a selling mindset. n n n Marketing ≠ Selling occurs after production, marketing starts even before. Marketing appeals to all drivers of “strategic shopper” behavior – quality, value, service, convenience, & selection.
Understanding the CUSTOMER Consider the effect of marketing efforts Marketing efforts Prices of substitutes Consumer’s incentive to purchase (PV-P) Firm’s incentive to sell (PCOGS) Objective value (OV) { { Perceived value (PV) Product price (P) Cost of goods sold (COGS) $0
Understanding the CUSTOMER § § § Tastes & preferences Visiting patterns Demographics Eating/gardening habits Entertainment styles Price sensitivity
Understanding the CUSTOMER Customer Lifetime Value (CLV) § § § Customer lifetime value is the net profit earned from sales to a given customer during the time that customer purchases from your business. CLV, as a sales focus, is about how the customer is treated over time. Lifetime value is a measure of customer loyalty.
Understanding the CUSTOMER Example: The value of a college student = § § $960 at a pizza parlor over four years in college, not $10 per visit $1050 at the hair stylist during four years in college, not $35 per visit $1872 at a gas station during four years in college, not $18 per fill-up $3000 at the bookstore over four years in college, not $75 per book or $375 per semester
Understanding the CUSTOMER Always have your image in mind. image: a mental conception held in common by members of a group and symbolic of a basic attitude and orientation; a tangible or visible representation; a commonly-held perception
Understanding the CUSTOMER What Goes Into An Image? § § § Physical appearance of the facility Cleanliness, Convenience, Capabilities Product selection, uniqueness & diversity Service and knowledgeable personnel Honesty, Sincerity, Truthfulness Value (price/quality ratio)
Sales and Display
Sales and Service TIPS – YOU!!! n n Be neatly groomed Smile sincerely Keep the work area and surroundings neat Recognize the customer’s presence immediately
Sales and Service YOU are important to Yourself n n n Personal Success Personal Satisfaction Family Stability, security and enjoyment
Sales and Service Why customer’s quit coming? n n n 68 % - indifferent attitude of employee 14 % - product dissatisfaction 9 % - competitive reasons 5 % - other friends 3 % - move away 1 % - die
Sales and Display n n n Research – trends, hot cash crops, chefs cooking in restaurants, magazines, etc Prepare – yourself, your stage and your product Branding – why are you different? q Signs, business cards, your clothing, baskets, tablecloth, banners, styles - Everything
Sales and Display Gain Repeat Business n n n The best in your zone – help improve overall market Tell people about what’s coming next week See you next week Frequent customer discounts Extra product Recipes and other services
Sales and Display The Stage n n n Clean and color coordinated – no green or red; yellow makes produce “pop” Multi layers Shade is important, also leave space to set down customer packages Display Farm signs, clearly marked prices Abundance of products
Sales and Display Signs n n n Farm sign with your location Put “fresh” on signs Product description, recipes? Name TAG Website
The Bottom Line High quality product + the experience + the right marketing messages = An engaged customer! A satisfied customer! A loyal customer! A non-price conscious customer!
Horticulture Business Information Network
Questions Dr. Marco Palma Assistant Professor and Extension Economist Texas Agri. Life Extension Service Texas A&M University System mapalma@tamu. edu http: //hbin. tamu. edu
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