February 23, 2023
Marketing Risk Management & Contingency Planning
Product, price, place, and promotion are important in marketing to current and potential buyers. In this episode, a continuation of the Farm Risk Management podcast series, Ariana Torres, Renee Wiatt, and Jenna Nees join Brady Brewer to discuss contingency planning for marketing risk management.
A Marketing Risk Checklist pdf and the audio transcript can be found below.
This series is based on the Six Pillars of Farm Risk Management course, funded by the North Central Extension Risk Management Education Center. More information on contingency planning is on the Purdue Institute for Family Business’ website, https://purdue.ag/fambiz, under the Strategic Business Planning Focus Area tab.
Brady Brewer: Hi, and welcome to the Purdue Commercial AgCast, the Purdue University Center for Commercial Agriculture’s podcast, featuring farm management news and information. I’m Brady Brewer and I’m your host. Joining me today is Jenna Nees, ag and natural resource Extension Educator in Putnam County and Renee Wiatt, family business management specialist and Ariana Torres, an associate professor of horticulture and agricultural economics. Welcome Ariana, and since you’re newer to the podcast, I will actually have you introduce yourself and maybe a little bit of the work you do here at Purdue.
Ariana Torres: Well thank you for the invitation to be in the podcast. My name is Ariana and I’ve been at Purdue as a faculty for the past six years. I am more related to the horticulture department in terms of understanding the economics. What are the potential marketing strategies that farmers, horticultural farmers specifically what are the markets what are the tools that are going to ensure profitability? So that’s broadly my area of expertise.
Brady Brewer: Well, welcome to the podcast. So, on today’s episode we will be discussing the marketing pillar. So, thinking about marketing of our crops. So in essence, we’re going to be talking about some questions you need to be asking about how and where you’ll be selling your crop as as a farm business.
Before we get into the actual content though, I just want to remind our listeners that you can find all this information on the Purdue Institute for Family Business website, which is purdue.ag/fambiz. You can also go to the Purdue Center for Commercial Agriculture’s website as well for more farm management news and information.
This is based on a course that is called The Six Pillars of Farm Risk Management. And Renee, would you like to give a, a brief overview to the listeners about how this work came about?
Renee Wiatt: Yeah. There was a grant opportunity presented to us and members of the succession planning team and some faculty, some extension specialists, of course extension educators, and a lawyer.
We all collaborated to come up with a proposal to tackle farm risk management, but we wanted to take a holistic approach to it. We defined six ways in which farms manage risk, and those are production, marketing, financial, legal, human resource, and social media. That social media piece is really new, but we think it’s very, very important for farms to manage their social media in a pointed and direct way.
And so, we incorporated that still sign up for the course. If you go to the Purdue Institute for Family Business website and click on news and events, course has enrollment there. Sign up $49 and you can earn a Purdue certificate and be better prepared to manage risk.
Brady Brewer: I also order my listeners you can also find the material for which we will be discussing on today’s podcast, if you go to the Purdue Institute for Family Business website and go to the tab with strategic business planning, you can also go to the tab that’s on contingency planning for the material that we will be discussing. So, Ariana, I want to ask you the first question here as we get into the pillars of marketing.
What’s really one of the first questions we need to ask in terms of the buyers of our agricultural product?
Ariana Torres: So, the first question would be, what are the potential markets for your products? I think a lot of things have changed prior to Covid, but covid just accelerated how markets behave, how the agricultural supply chain behaves, and I think a lot of farmers found and had to find new markets. So, before we start producing and before we start investing in technology, Leasing more land. I think it is very important to understand what are the current buyers.
What are the marketing standard? What do they require? What do they prefer? But also look into the horizon and see, okay, what are the potential buyers that may bring a higher profitability, higher return, investment. And one of the things that farmers need to consider when they’re looking into is really assessing and going through the networks.
Networks may be anything from other farmers, farmers associations or organizations, but also attend other farmer field days. We know that networking. Power of networks very important for the success of farm businesses. So, look what are the retailers that you may know or you may be able to connect in through conferences or trade shelves?
What are the potential restaurant managers or hotel operators? So, if you can diversify your portfolio of market channels, I think be better suited to have a contingency plan if anything happens. And that’s the goal of the course is how do you go through the different steps, starting with the market, can lead you to be more resilient.
Even if resilience, e-commerce,and online sales chapter for your business also, that may be something that you need to consider, but the three words that I have for farmers that want to identify their buyers is network, network and network. So how do you network and find what are the potential opportunities and gather information about those buyers? What do they want? So, you’re better suited to deal with any emergency.
Brady Brewer: I assume that the network, network, network, goes for all types of agricultural commodities as well, right? So, from the fruit and vegetable farmer to maybe the grain farmer as well. Now, obviously those buyers may look different, but it’s important for all farmers to identify what potential markets are out there.
So, thinking about finding the buyers. Renee, I want to turn to you next. What are the four P’s of marketing and how do they apply to this situation?
Renee Wiatt: Yeah, so you might have heard of the four P’s of marketing. I’m going to go through those, but I’m also going to link buyers for C’s, and you can see how those tie in.
And so, the four Ps of marketing that we want to talk about, our product, price, place, and promotion. So, when we talk about product, we want to think about how to differentiate from similar products. So, what are some other products in the market? What makes you different and what makes you better than the other competitors out there?
And when you’re thinking about how you’re better in your competitive advantage, you want to think about the C component, which would be the customer benefit. So, when you think about your product, link it to the customer benefit. Communicating that to your potential and actual customers. As for price, you want to consider how does your price compare to similar products in the market?
You want to make sure you’re not overpricing your product or underpricing. When you think about the cost, you want to think about everything from how much they’re actually paying you to what does it cost them to get to that marketplace to buy your product? What are the other costs associated with purchasing your product?
The third P we’re going to talk about is place. So where will you market your product? Depending on if you grow row crops, if you grow maybe vegetables, it’s going really change where you market your product and you’re going to want to think about the convenience to the buyer when you think about where you’re marketing that product.
The last P that we’re going talk about is promotion. So how will you market your product? What kind of promotional activities are you going to do to drum up some business? And when we talk about the buyer side of that, we’re really talking about communication. So, the buyers need to know from you. How your product is better, tell them about the attributes of your product.
Depending on your product, think about advertising. Think about how you are going to put yourself out there so that people want to buy your product over other products that are in the market.
Brady Brewer: Ariana, I want to come back to you now and let’s go down the four Ps of marketing. So, we started with thinking about identifying the buyers of your market. When I think about the product and place of where you’re selling to, that really aligns nicely with identifying your buyers. What are some things that farmers need to be thinking for how they identify their buyers?
Ariana Torres: Once a farmer has decided the market themselves with the product, price, place, and promotion. And you have really looked through your networks and what are the potential new markets that you have never thought about. One of the things that you want to do is utilize those four P’s. What are your strengths? What are the opportunities that exist. So, if you’ve ever done a sort analysis, which is strength, weaknesses, opportunities, and threats, use those frameworks to try to understand, okay, where can I fit in? What is my niche market? So, once you do that network, you want to gather information within the market. If you’re selling directly to consumers or if you’re selling raw crops to intermediaries or processors, you want to understand what is the quality of products that it’s required and what is preferred?
Identify the word quality. Quality can be so many things that include maybe a label. What buyers or consumers can actually feel more connected to your farm business and the passion that you have for producing? How frequently you have to sell and what is the cycle? There’s always an agriculture, some kind of seasonality.
What are the value added preferences? And then with that you also want to consider what are the packaging? Are they new markets? Are there promotions? Should I be thinking about social media marketing or should I be thinking about more networking and going to trade shows and try to find the connections.
With that place and price and product, thinking about what are the potential regulations and prices that may be in different regions or may be happening in different times of the year? That information is going to tell you a very great assessment of your markets. Again, with your four P’s, you’re going to understand what your strengths are and what may be your limitations.
That’s how you go and find your new market. You know exactly where you are standing and where should you move forward. If you’re thinking about growing a crop or adding to a new crop or starting a new operation. That’s kind of how you move forward with the markets.
Brady Brewer: You mentioned something Ariana, on the price. And that’s definitely an important topic, not just identifying the buyers, but thinking about what price you’re going to sell at. So, what are some of the checklist items farmers need to think about when setting and evaluating their pricing?
Ariana Torres: The first step when you’re evaluating how much are you going to charge your buyers, and this is going to sound very boring, is determine your breakeven price. What is your minimum? What is the minimum you can afford to make? Maybe per bushel, per ton, per pound, per kgs, whatever you decide. What is you should be selling things for.
Because if you want to be at least surviving, going through tough times right now and you want to at least keep farming. You want to know what is the minimum you can afford. That’s your price floor. Your breakeven price is your price floor. So, once you have that covered, you may want to assess and compare to your buyers.
For some segments of buyers, the most expensive products have the best quality. So that is the maximum that the market will bear. So, you have this interval between the price floor and the price ceiling. What is the maximum and the minimum, and then you need to place your price. If you’re starting and you want to gain market share, you’ll probably have different strategies that I can talk a little bit later.
But if you want to retain customers, probably give some kind of discount. Or if you want to be extremely profitable, your interval is going to be closer, or your price point is going to be closer to the top or the ceiling price. Are your buyers willing to pay price premiums and understand your competition even though you shouldn’t price similar as your competition. What are the differentiation strategies so you can price it better.
If you’re a price-setter, you probably need to work on your cost modeling. Again, going back to breakeven prices. So many strategies that you can do. The most common probably is the cost plus, which is basically understanding, again, your breakeven price and then adding a percentage of profit margin.
You may use a skimming pricing, which is basically you’re going to start with a higher price because buyers are more expensive, equals more quality. So, you want to start higher to set this image that your farm or your business is actually producing high quality products, which probably is true. And then you lower your prices as your markets starts establishing.
And also, you can do the opposite. Where you start low and then you increase. As you start gaining market share. With all of these strategies, you want to be very much aware about the demographics and what are the preferences of your buyers. If they are willing to bear those. If you’re doing direct to consumer kind of sales, you can do bundles.
That’s a very common direct to consumer sale strategy. You can do subscriptions, so think about community supported agriculture or CSAs. You may also be able to do something that we call loss leader, which is where you have different crops that you’re going to sell at the breakeven price. And have other crops or products that are going to be gaining that profit margin that you missed products are cheaper. That way you’re attracted consumers by having products that are cheaper, more on the break even. And then you’re attracting other kinds of consumers and setting those products into their basket that is going to be more expensive and more profitable for you. Again, any strategy that you use, you need to be very much aware about your breakeven. What are your costs and what you need to make to survive and thrive as a business owner.
Brady Brewer: Jenna, we’ve talked about who our buyers are, how to identify our buyers, what pricing strategy we’re going to put on our products. Thinking about the place where we’re selling them. We have to market; we have to let people know that our product is out there. What are some of the checklist items that we need to be thinking about when we think about our marketing plan?
Jenna Nees: Like Renee said you’re going to have different deals potentially going on that you want your consumers to know, because you’ve got to communicate to your consumers as one of the Cs. When it comes to your business on the internal side, you need to make sure that you are communicating your marketing plan to your managerial staff. And any employees that may interact with customers. You know, you don’t want to have a plan where your marketing strategy is right now, you’re selling apples. If they buy apples, they get a free thing of cider with it. And have employees that are working with customers that don’t even know that’s a promotional giveaway right now, because that could really hurt some customer relationships. So, it’s important that you tell any of your managerial staff or employees that work with customers, what promotions you’re running and what your marketing plan is so they’re aware and they can implement your plan the way you would like. But also, because they can provide you with some great input to maybe give you some promotional ideas that will help draw in customers. They’re right there on the front lines, dealing with the customers firsthand. Additionally with your marketing plan, you probably want to talk to any financial professional or legal professionals as needed.
Cause you may incorporate your marketing plan as part of your business plan. So, especially if you’re a startup, having that written out. They can tell you what they see might be wrong or correct with it is always something good to consider because they’ll have some nice input, hopefully, they’ll help you be successful with your business and be prepared for the future.
Brady Brewer: Well, thank you guys. We’ve covered how to market for a farm business. If you want to look for other farm management news and information, go to the Purdue Center for Commercial Agriculture’s website at purdue.edu/commercialag. For more information on the managing risk in your farm business, you can go to the Purdue Institute for Family Business website at purdue.ag/fambiz.
You can also find both centers on social media, so on Twitter search @PUCommercialAg for the Center for Commercial Agriculture and for the Purdue Institute Family Business search @PurdueFamBiz. On behalf of the Center for Commercial Agriculture, the Purdue Institute for Family Business, I’m Brady Brewer and thank you for listening.
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