By Karl Foord
The principle marketing risks faced by vegetable growers in New Jersey are similar to those faced by other businesses. They must recognize that they are a business person first and a producer second. They are responsible for all parts of the business including finance, human relations, strategy, marketing, as well as operations or production. A business that focuses on production to the neglect of the other functions puts their business at risk. In the marketing area the risks can be lumped together under three banners, customer awareness, market and competitive awareness, and for lack of a better term boldness.
Understanding and catering to the needs wants and buying behaviors of one’s customers are critical in addressing the marketing risk associated with demand for ones products. This is a stark reality in both the retail and wholesale trades. The wrong product, packaged in the wrong way, promoted in the wrong way, and located in the wrong place are formulas for reduced demand reduced revenues and business stress. Successful businesses develop ways to stay in touch with their customers and respond quickly to meet customer needs. They understand the critical nature of customer retention and strive to maintain relationships vital to the success of their business.
Market forces can change rapidly and the business is continuing to become more competitive. Delivering a quality vegetable product is a significant challenge and the future belongs to those willing to continue to explore ways to improve quality. Market awareness requires that one understand quality benchmarks how they might be changing and who is seeking to improve them. Without a pulse on the marketplace and an eye on the competitive landscape one is at risk of falling behind and suffering the demand consequences. Systems need to be in place to monitor the forces at play in the market place, understand how these forces can impact their operations, and have strategies in place to respond.
Today’s successful businesses have a bold innovative flavor. They pursue the frontiers. This means that one must be prepared to take some risks. To try new technologies that have the promise of improved efficiencies. To continually be testing the direction of consumer preferences. This is the action response side of the previous market awareness trait. The risk in always being a follower is reduced margins and a syndrome of continually trying to catch up. This leads to poor positioning in the marketplace.
Marketing skills use the knowledge of the customer to navigate the competitive landscape and position the business profitably. Developing facilitated communication pathways to one’s clients keeps the navigation efforts current.
The retail grower faces a different challenge set than the wholesale grower. For the retail grower location is paramount. The location provides access to enough retail customers to sustain the business. With a quality product and a strong customer service approach the retail grower can demand higher prices and achieve higher margins than the wholesale producer. The competitive landscape changes dramatically when a retail grower enters the wholesale market. The customer is now a commercial buyer who has a different set of considerations then those of the retail customer. Beware of business size effects. Competitive pressures from other large suppliers can be significant. Their ability to deliver high volumes over longer timeframes can give them negotiated price advantages and other concessions that can swamp the appeal of local quality. This can lead to reduced prices and other challenges that come when there are large differences in size between competing suppliers or between the buyer and the supplier. The people who supply Wal-Mart will attest to this.
The wholesale producer must attain a size and volume of product to meet the needs of their business customers. This means they have far fewer clients and must seek to keep these twenty or thirty people very happy. Competition does not come in the form of a stand across the road but rather from the west coast in California. California’s advantages of large size, longer and more favorable climate, and market orientation have produced a formidable competitor who is working to reduce their location disadvantage in the east coast market. A successful wholesale producer who wishes to compete in the next decade must be acutely aware of how this will impact her business. The grower must understand the impact that changes in these large wholesale marketing channels can have on her business. The size effect mentioned above is particularly important if your customers are the large retail chains like Wal-Mart, Acme, or Kroger’s to name a few. These are large corporations who understand business with other entities of similar size. Smaller suppliers can end up being bullied in the process. There are other whole sale channels but again it will be critical to understand and cater to the needs of the client regardless of size.
A marketing plan is a blueprint of how you will market or sell your product throughout the year. Developing a marketing plan will allow you to prepare for the upcoming year, and address any problematic issues. Every farm that intends to make a profit should have a marketing plan regardless of the size of the operation. It is important to place the plan in writing to promote adherence. In order to develop an effective marketing plan for your farm, you must first come up with specific goals regarding your farm’s financial needs, and the prices you require to make a profit which means being able to identify your specific costs of production. A typical marketing plan addresses all of the important elements facing the vegetable industry including:
When you are developing a marketing plan you must first analyze the direction of the market. For example, do you feel that vegetable prices will increase, decrease, or remain constant throughout the year? When doing so it is important to analyze recent price trends, and to have a general understanding of the forces that determine vegetable prices. After you have an idea of the market outlook for the upcoming
year, you are ready to develop a marketing plan. It is important to note that unforeseen events can occur and dramatically affect the market outlook. In this case, it is crucial that you adjust your plan accordingly.
The major source of all marketing risk for vegetable farmers stems from unstable and unpredictable prices. Farmers are concerned with both input prices, paid for all materials necessary for production, and output prices, received by the farmer for the product they produce. In today’s markets, commodity prices can vary on a monthly basis, and it is crucial that farmers take advantage of available tools to manage price risk, such as forward contracting, and planting a diversified mix of vegetables.
An agreement to buy or sell a commodity at a future time at a specified price.
This contract can be set for any amount of time and any percentage of your vegetable production supply.
In order for forward contracting to be effective, it is necessary for a producer to know their cost of production to set a feasible price. Producers compute their breakeven price by figuring out the amount of money necessary to cover production expenses, contribute to any debt reduction and capital replacement, and cover any living costs.
Keeping good financial records such as these can be a critical part in succeeding in the marketplace. Vegetable producers can fill out a Farm Business Plan through the Farm Service Agency, a lending institution, or local Cooperative Extension that will help monitor cash flow, expenses, assets, debts, and other monetary information for farmers.
Marketing channels can best be described as a way to facilitate the movement of a good from producers to consumers. Generally, vegetable farmers general have a wide variety of ways to pass their products along to consumers. Marketing channels focus on the exchange of a product, and can be divided into two categories, direct marketing and indirect marketing.
Direct Marketing —Direct marketing is a sales method which involves direct contact with consumers. The most common ways to participate in direct marketing are by either opening a farm stand or by participating in tailgate markets, both of which allow farmers to make higher profits by eliminating a middleman. Direct marketing is often more successful for farmers located in or near heavily populated areas.
Types of Direct Marketing:
Indirect Marketing —Indirect marketing is a sales method which consists of selling a product to an intermediary before it is sold to the consumer. This may reduce the price that farmers receive for their products, however, they are not burdened with the extra time commitment associated with maintaining a farm stand. This is a tradeoff many farmers are willing to make even though potentially higher profits can be earned through direct marketing.
Types of Indirect Marketing:
A value added venture is a process which increases the value of a commodity before it is passed on to the consumer. Value-added ventures are most commonly used in conjunction with direct marketing. With value-added ventures farmers are able to demand a higher price for goods by investing a nominal amount of labor. An example of a value added venture would be husking sweet corn and packaging it for customers. As with any business venture, the farmer must be able to objectively evaluate the contribution of such ventures on his or her bottom line.