For Marketing Organic Fruit and Vegetables
Recent environmental and food safety concerns in the United States produce sector have brought about increasing interest in organic fruit and vegetable production as an alternative to traditional fruit and vegetable enterprises. As a result, the production and marketing of organic crops has expanded steadily during the 1980s. However, as more organic producers enter the industry and it becomes more and more competitive, existing producers are forced to become better growers and more effective marketers.
Most organic farmers (and other agribusinessmen) have heard the phrase “effective marketing is the key to profitability,” but many do not fully understand what this means. The tendency is to associate “marketing” with “selling” or “advertising.” These activities are, in fact, only small aspects of marketing. From a grower perspective, marketing may be defined as the total system of business activities designed to plan, price, promote and distribute products/services that satisfy the wants/needs of potential/present customers, while achieving the business objectives.
The major emphasis in this definition is the customer, first and foremost. The produce business that provides the customer with what he wants, when and how he wants it, will be the most successful. However, it is important to note that even if a demand exists for an organic product you can supply, there is no point in doing so unless you can do it at a profit. Thus, successful marketing depends on developing a thorough marketing plan that outlines how to supply the produce reliably, consistently and at a profit.
In a state as large and diverse as Texas, it is impossible to develop a general marketing plan that would apply to all organic growers because management skills, market opportunities and resource availabilities vary considerably in each area of the state. Thus, step-by-step guidelines are presented which can be used to develop an individualized marketing plan. The planning framework presented in this paper (see Figure 1) represents an application of the total strategic marketing planning process. It is practical and workable, and with slight modification it can be used for any specific organic produce operation. While developing a market plan alone cannot guarantee success, it does ensure that factors affecting the profitability and survivability of the organic business are considered. This is especially important for organic crops whose marketing does not always follow traditional channels.
The market planning process should begin at least 6 months prior to harvest. The first step in the process is to analyze the current marketing situation (sometimes referred to as a market opportunity analysis). Marketing objectives cannot be determined before an assessment of where the operation presently stands in its total marketing environment is carried out. In conducting this analysis, the grower typically gathers two types of information: (1) internal or business related information; and (2) external or market related information.
Internal information gathering involves the grower learning about the capabilities of the produce business itself competing in the marketplace. General categories that need to be investigated include: (1) financial resources and capabilities; (2) the facilities available to the firm; and (3) strengths and weaknesses of the business (see Table 1).
External information gathering involves the grower learning as much as possible about the markets in which the organic fruit or vegetable business is planning to compete. Major categories to be investigated here include: (1) environmental constraints; (2) market conditions; and (3) an analysis of competitors (see Table 2).
Table 1. Internal information gathered In the situation analysis
(1) Financial resources and capabilities:
- Gross profits and net earnings after taxes
- Financial ratios-return on investment, breakeven analysis, leverage ratio, current ratio, age of accounts receivable, inventory turnover, working capital turnover and profit margins
- Cash flow analysis (actual and/or projected)
- Enterprise budgets should be developed for crops currently produced and planned for production. Fixed costs (depreciation, interest, insurance, and taxes) should be allocated on a per unit basis in addition to variable costs (materials labor, etc.) Record keeping systems should track all inputs used in producing the organic produce.
- Borrowing capabilities
(2) Operating facilities:
- Production capacity-based on land, labor and equipment availabilities
- Production scheduling (of cultural practices)
- Inventory levels (previous production and pack-out rates) – by variety, grade, size and loss rates (may affect markets targeted in the short run)
- Manpower requirements (from budgets and production scheduling)
- Equipment requirements (from budgets and scheduling)
(3) Competitive strengths and weaknesses:
- Skills and interests of the producer
- Competitive status of the organic business (name recognition, quality perception, etc.)
- Market share projections (as compared to competitors)
- Competitiveness of prices-volume discounts
- Advertising and promotion capabilities
- Distribution methods and channels
Table 2. External Information gathered In the situation analysis
(1) Environmental constraints:
- Costs and availabilities of materials
- Costs and availabilities of energy (fuel, electricity, etc.)
- Economic conditions-inflation, interest rates, capital availability
- Technology changes-changes in production practices
- Political environment-environmental quality, pesticide issues, etc.
(2) Market conditions:
- Market size-population, age, family size, number of households, income levels, rate of growth in an area, per capita consumption of vegetables
- Geographic concentrations–determines shipping necessities and patterns
- Market segments (alternative outlets)–these include:
- Grocery stores (independents and chains)
- Wholesale grocers
- Wholesale distributors ( schools, hospitals, institutions, hotels, restaurants)
- Packers or other growers with market contracts
- Cooperatives and/or marketing associations
- Food service markets
- Brokers and commission merchants–identify buyers and coordinate sales
- Direct marketing alternatives (PYO, roadside stands, farmers’ markets)
- Market window analysis–to determine periods at which vegetable crops can be marketed profitably
(3) Analysis of competitors:
- Number of competitors in the market area
- Market shares (industry surveys)
- Strengths and weaknesses in terms of prices (last 3 to 5 years), quality, promotion, advertising, costs of production, shipments (last 3 to 5 years), transportation costs.
Sources of Information:
- Yellow pages (general headings-Food Brokers, Food Products, Retail and Wholesale, Fruit and Vegetable Growers and Shippers, Fruits and Vegetables, Wholesale and Retail Grocers)
- The Packer’s Red Book-The Packer, Shawnee Mission, KS
- The Blue Book-Produce Reporter Co., Wheatley, IL
- State or national trade associations (Produce Marketing Association, Newark, DE or the United Fresh Fruit and Vegetable Association, Alexandria, VA)
- County Extension agents and horticulturist-TAEX
- Texas Department of Agriculture (can help locate potential buyers)
- Trade publications (The Packer, Pronet, OMNIS, etc.)
- Trade shows (PMA, UFFVA, etc.)
Target Market Selection
Once possible organic markets have been segmented (Table 2), the task at hand becomes one of deciding which markets to target. This is based on the research findings and opportunities identified earlier. After segmentation, certain target market options exist for the firm:
- Aim at the entire market (all segments) with a single marketing approach.
- Pursue several different segments with different marketing approaches for each segment.
- Focus on just one segment with a very direct marketing approach.
In the case of organic produce marketing, it is probably best to employ the second option and target two or three segments including a primary market, a secondary market and a salvage market. The primary market is the market in which the organic grower would like to compete. The secondary market is one in which prices may be lower but the market may be closer in proximity, allowing the grower to compete more directly. The salvage market may be a direct market alternative or a direct wholesale operation directed toward final consumers.
For each of the target markets selected, the grower should attempt to assess the following buyer needs or characteristics:
- grades, sizes and volume to be purchased
- shipment and delivery dates
- prices to be received (any price adjustments)
- transportation costs
- quality of produce when delivered
- guarantees or return policies
- optimal time to contact buyer for orders
- actual or estimated share of buyer’s total volume
- problems encountered (delivery, pricing, volume, uniformity)
- special requirements of the buyer (lot size, delivery, etc.)
Contacts with potential buyers to assess this information should begin at least 6 months prior to harvest. Calls for an appointment should be made before visiting buyers because they are busy and do not appreciate unannounced visits. Samples of the produce (either an actual sample or pictures of the produce) win give buyers an idea of the quality of produce. Previous business references and estimates of prices desired and expected/potential volume should be given to buyers to aid in their decision making. At the initial meeting, the grower should convince the buyer that he has the necessary expertise to grow high quality produce organically. Certification documents should be presented to help assure the buyer of this expertise. Once agreements between buyer and seller have been reached, the grower should contact the buyer at least 1 week before shipment/pick-up to indicate produce availability. Most buyers would prefer 2 to 3 weeks notice of upcoming produce availability.
Once the marketing environment has been analyzed and target markets selected, objectives must be developed to provide the direction and guidance for the grower. These objectives must be in line with the overall objective of the business as well as with the financial objectives and production objectives.
Marketing objectives are typically set in such areas as profit, sales volume, market share, pricing, advertising and promotion. In determining marketing objectives, the grower should be guided by a number of criteria. Marketing objectives should be measurable, specific, consistent with overall business goals, attainable and have specific deadlines. The determination of realistic marketing objectives requires a sound situational analysis (step 1). Since these objectives will guide the entire plan and its strategies, they have to be realistic and clear. However, they may need to be refined over time. The setting of objectives is an ever-changing part of the planning process. As market situations and competition change, so must the marketing objectives.
At this point in the process, the grower’s task is to determine an overall strategy to achieve the defined objectives. There are four basic market strategy positions that might be considered by the organic producer. These include: (1) market penetration; (2) market development; (3) product development; and (4) diversification. After determining objectives, the organic producer needs to decide upon the particular strategy position that will best accomplish the objectives.
In a market penetration strategy, a grower attempts to fill the needs of an existing market with its present product mix. For organic producers, this type of strategy may entail a number of approaches. For example, the grower may wish to increase the number of customers in present markets, or he may wish to increase the consumption of particular vegetables by both present and potential customers. In addition, the grower also wants to prevent competitors from taking away present customers.
A market development strategy is one in which the grower attempts to find new markets for his existing organic products. The grower hopes to find new uses and/or new customers in new markets for crops that are already being produced and marketed. It is, of course, possible for any grower to employ market penetration and market development strategy at the same time, since they involve the same products the grower is currently producing, with only the markets differing.
A product development strategy exists when the grower attempts to produce new crops or varieties for customers in present markets. A number of approaches may be used here as well. For example, a product improvement may involve a new crop (variety) actually replacing an existing crop that is slipping in the market. The new crop may be less expensive to produce, more appealing or serve the customer’s needs better. Another example is when more organic products are grown to offer more choice or wider variety to existing customers. Or maybe current products are offered in slightly different forms (processed). With this type of strategy, the grower wants to make a better impression in a present market through product changes and/or additions.
A diversification strategy occurs when the grower attempts to attract new groups of customers by moving into totally new markets with new products. This might involve taking a new crop (variety) which was developed for present markets to totally new markets that the business did not previously serve. With this approach, the grower hopes to move into markets not served with new products. Diversification is the most risky of the four strategies because it involves departure from both the product and market experience of the firm.
After selecting the overall strategy, the next step in the planning process involves implementing and carrying out these strategies. This requires the development of marketing programs which involve decisions about product development, pricing, promoting and distributing the organic produce.
These areas are often referred to as the marketing mix. Decisions concerning the marketing mix are presented in Table 3. This list is not inclusive nor do all decisions or activities pertain to every organic producer or packer. The marketing mix is dependent upon which target markets are selected, the type of market strategy chosen and the requirements of each buyer.
Table 3. Product mix decisions regarding product, pricing, promotion and distribution.
- Determining the most effective product mix (crops, varieties pack sizes, etc.) to serve each market segment (should be based on costs of production and buyer demand).
- Using attractive and efficient containers that hold up during storage and transportation and can possibly be used as point-of-purchase material or display materials at the retail level.
- Deciding whether to use bulk-bin or volume-filled containers.
- Providing guarantees for each product in the product line (certification).
- Planning and introducing new produce items (varieties, pack sizes, etc.) when possible.
- Providing information on the care of the produce after delivery.
- Scheduling crop plantings and selecting varieties to take advantage of periods of favorable prices.
- Selecting and prioritizing target markets and geographical marketing area.
- Determining whether advertising is required for the target markets selected.
- Selecting appropriate sales promotional media such as point-of-purchase materials, samples, result demonstrations or trade shows.
- Determining base prices for each product in each market served (should be based on costs of production). If growers have developed costs of production information, they have, the necessary information in negotiating prices necessary to meet or exceed break-even price.
- Using advance pricing to help retailers pre-plan and schedule promotions.
- Determining credit policies.
- Determining the type of reseller system most appropriate, if any, given the market served and the products involved.
- Motivating the wholesalers and retailers to push the business’ product (point-of-purchase materials, cooperative advertising, etc.).
- Providing protective packaging for goods in transient and storage.
- Determining the modes of transportation to be used.
- Determining field inventory requirements and maintaining these requirements.
- Providing effective communication with buyers so that shortages can be minimized.
- Providing frequent small shipments, even on weekends if necessary.
- Providing in-transit temperature control measures to ensure quality.
Performance of the plan must be measured, and this means that standards must be developed against which performance can be evaluated. Typically, the grower develops quantitative measures of overall planning performance such as the following:
- Comparing total sales and profits with figures from preceding years.
- Measuring performance relative to competitors (i.e., market share).
- Performing a sales analysis by breaking down sales into categories such as geography, customers and product.
- Performing a distribution cost analysis by determining the relative profitability of present ways of doing business through various channels.
- Measuring customer satisfaction with surveys and other market feedback.
In addition, immediate feedback concerning performance can be obtained by calling after each delivery to determine if the shipment arrived on time, if the produce was in proper condition, and if the buyer had any problems. The grower should take immediate steps to correct any problems and satisfy the buyer.
The importance of proper and timely evaluation cannot be overlooked. Communication between the grower and buyer is essential for success. Buyers will try a new supplier “one time.” If they are not pleased with the produce, they will look elsewhere. A good evaluation system and prompt corrective actions, when required, can assist growers in maintaining their individual market share.
Properly conducted, this final step allows the grower to evaluate what is right and wrong and to make corrective actions. This step forces the grower to consider how the results of each planning period’s evaluation shall be used to improve performance in the next planning period. Information gained in the control and evaluation analysis may be used to update objectives, to alter strategy approaches and even change tactics to be used. When this happens, the planning process has come full circle and the entire process begins again.
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