Marketing in Farmer’s Markets

November 19, 2010. Weslaco, TX Dr. Marco A. Palma Assistant Professor and Extension Economist Texas AgriLife Extension Service Texas A&M University System [email protected]

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

(-)

 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

(+)

 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

 Farm Bill  Immigration Reform  Food Safety  Increased access to fresh fruits and vegetables in Federal Nutrition Programs  Recession 5

Farm Bill  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  In June 2007, the Senate failed to pass a comprehensive immigration legislation reform  Focus is to have a separate vote on the AgJOBs legislation – H2A temporary agricultural worker program  Eliminate labor certification process  Reduction/elimination adverse effect wage rate  Allow aliens not currently in the program to acquire H2A status 7

Food Safety

 US food supply is amongst safest in the world  Food safety measures need to be  Commodity specific (not just melons)  Based on the best available science  Supported by strong government oversight 8

Federal Nutrition Programs  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

Dow Jones – 1900 to 2010 Source: StockCharts.com

11

S&P 500 – 1960 to 2010 Source: StockCharts.com

12

NASDAQ – 1978 to 2010 Source: StockCharts.com

13

Consumer Confidence Index Source: Market Harmonics 14

Spending During Recessions 15

So, What is a Recession anyway?

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

Illustration of a recession

Source: John Penson, Dept of Agr. Econ, TAMU

The key question

today

is

how long

and …

Illustration of a recession

Source: John Penson, Dept of Agr. Econ, TAMU

…and

how deep

the recession will be

Recessions in the 20

th

Century

Dates of Recession Months Source: National Bureau of Economic Research Depression Recent Recessions

Recessions in the 20

th

Century

 There have been 13 recessions since the great depression of 1929  ≈ a recession every 6 years  A regular component of the business cycle  Bubble of over-valuation of goods 22

Annual Change in Real GDP

Depression 1973-75 1981-82 1990-91 2001

Source: John Penson, Dept of Agr. Econ, TAMU

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” “what we grow”

than selling them

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

 Gathers two types of Information: a.

Internal b.

External  Target Market Selection a.

Aim at the entire market (all segments) with a b.

single marketing approach. Pursue several different segments with different c.

marketing approaches for each segment. 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

 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

 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

 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

 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

 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

 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

   State or National trade associations Landscape contractors and architects County extension agents and horticultural specialists    Texas Department of Agriculture The internet Your customers

  

The marketing Planning Process

Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control

Marketing objectives are typically set in such areas as profit, return on investment, sales volume, market share, pricing, advertising, and promotion Marketing objectives should be SMART  Specific  Measurable  Achievable   Realistic Time 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

    Market penetration: fill the needs of an existing market Market development: find new markets for existing products Product development:develop new products for customers in the business's present markets 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

 The marketing strategies must be transformed into a set of specific actions or tactics for accomplishing marketing goals  These tactics are often referred to as the marketing mix.  Product Decisions  Promotional Decisions   Pricing Decisions Distribution Decisions

The marketing Planning Process

Perform Situation Analysis Determine Marketing Objectives Formulate Marketing Strategies Implement Tactical Procedures Evaluation And Control

 • • • • • • • •

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

 • • •

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



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



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

    Performance of the plan must be measured Standards must be developed against which performance can be evaluated. Typically, the manager develops quantitative measures of overall planning performance such as the following: 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, e commerce, 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:      

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 Know Your Cost Crop Mix

Know your Cost

Why is important to know my costs?

•Identify items with low cost -- Comparative Advantage --

GROW THEM

•Identify items with high cost -- Comparative Disadvantage --

REDUCE THEM

•Determine your

“Price Floor”

Pricing Strategies Know Your Cost Crop Mix Know your Cost

Costs are different for every grower because:

•

Size of Operation

•

Location

•

Managerial Practices

•

Time of the year

•

Market Channel

•

Volume of production

Pricing Strategies Know Your Cost Crop Mix Know your Cost

Costs are different for every grower because:

•

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 Know Your Cost Crop Mix 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 Know Your Cost Pricing Strategies

Add value by adding service:

•

Credit

•

Delivery

•

Special wrappings

•

Special containers

•

Cards

•

Care tags

•

Brand names

•

etc

Pricing Strategies Know Your Cost Crop Mix 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 Know Your Cost Crop Mix Crop Mix, What to Grow?

•Look into Industry Trends --identify opportunities- •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.

 Marketing ≠ Selling.

  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 Objective value (OV) Consumer’s incentive to purchase (PV-P) Firm’s incentive to sell (P COGS)

{ {

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 =

  $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  $960 at a pizza parlor over four years in college, not $10 per visit $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!!!

 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  Personal Success  Personal Satisfaction  Family Stability, security and enjoyment

Sales and Service

Why customer’s quit coming?

 68 % - indifferent attitude of employee  14 % - product dissatisfaction     9 % - competitive reasons 5 % - other friends 3 % - move away 1 % - die

Sales and Display

 Research – trends, hot cash crops, chefs cooking in restaurants, magazines, etc  Prepare – yourself, your stage and your product  Branding – why are you different?

 Signs, business cards, your clothing, baskets, tablecloth, banners, styles - Everything

Sales and Display

Gain Repeat Business   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  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   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 AgriLife Extension Service Texas A&M University System [email protected]

http://hbin.tamu.edu