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Transcript of Department of Applied Economics and Management Cornell University Ithaca, NY 14853 Wen-fei Uva...
Department of Applied Economics and ManagementCornell UniversityIthaca, NY 14853
Wen-fei UvaSenior Extension Associate
BREAKING OUT OF THE BOX!
Strategic Planning Strategic Planning
for Your Farm Businessfor Your Farm Business
What is Strategic Planning?
Strategic Planning is a fancy term for using LONG-TERM planning to stay competitive.
• Considering a new crop or new enterprise?
• Considering expansion?
• Worrying about retail consolidation?
Your are already thinking STRATEGICALY!.
-- an organized way of looking at the competitiveness of your farm and the industry
Some Characteristics of Strategic Planning Are:
• Looks at the “Big Picture”
• Leads to substantial changes
• Considers future environmental forces in the Industry
• Anticipates the reactions of competitors
• Looks at a longer time horizon
WHY STRATEGIC MARKET PLANNING IS NOW A
Globalization
Growing concentration in the retail sector
Changes in wholesaling
“HOT TOPIC”
Depressed commodity prices
Depressed commodity prices
Workforce availability
Availability of pesticides (FQPA)
Changes in consumer attitudes
Survival of producersis often at RISK!
Benefits of Developing a Strategic Plan
• It provides guidance to all managers in the business.
• The PROCESS helps identify emerging threats and opportunities -- forward looking
• It can be the basis for allocating resources among various activities
• It assists management to influence rather than merely responding to competitive forces
WHO Should be Involved in Strategic Planning?
• Can’t be You ALONE!
• Initiated by the owner/operator/manager
• Hired managers
• Other members of the family involved with management
The Process is just as IMPORTANT as the Product
Steps in Strategic Planning
• Mission Statement defined the purpose of the firm -- “What are the business?”, “Why are you in this business?”, “What do you want the business to be?”
For profits
To provide employment for family members
Provide healthy food to the local community
Suggest Goals & Help to Clarify Objectives
Step 1. Define the Firm’s (Personal) Mission
• Say it in less than 50 words
“Our mission is to provide a unique and memorable experience with every visit to the farm”.
“It is our intent to support a modest level of living for two families and allow each partner suitable time off to enjoy family living, community activities, and hobbies”.
• It is what your staff should turn to when faced with a difficult situation.
• MARKET rather than PRODUCT focus
Mission Statement
Steps in Strategic Planning
• Translate the mission into quantifiable and measurable terms
• Can be accomplished within a given time
Increase sales by 35% in the next 2 years
Reduce labor costs by 25% in the next 3 years
Expand production acres by 20% in the next 2 years
Allow Progress Evaluation at Implementation
Step 2. Establish Objectives
Steps in Strategic Planning
• Uncertainties, threats, and opportunities beyond your control
Market trends
Consumer demands, demographic, lifestyles
Strong or weak dollars
Interest rates, inflation rate
Government policies and regulations
Labor markets
Ask what will affect your business?
Step 3. Assess the External Environment
4 Consumer Motivators in Today’s Market
Convenience On-the-go foods, meal solutions, and functional
packaging Wellness
Fear about aging, declining health, and medical costs -- Products offer health benefits
Food Quality and Safety Quality is the basic
Gratification I am worth it
Observations of Trends from the “Big Guys”
“Natural”, “Organic”, “Wholesome & Healthy”
Convenient products
“Exotic” and “Ethnic” flavors
Packaged well
Grocery retailers continued to expand their produce department Department Size
Share of Store Profits
Number of Items
Observations of Trends from the “Big Guys”
Continuous concentration of retail buying
Fewer buyers, buying more from top (or preferred) suppliers, reducing “spot” buying, & more contracting
Changing retail marketing practices
Growing category management, & establishing performance guideline with suppliers
Partnership & alliances initiated by suppliers
Changing Buying-Selling Paradigm
Competition(useful as a tool for analysis and learning)
• The competitive landscape– Provides an overview of
product competitors, their strengths and weaknesses (unfilled niches)
– Positions each competitor’s product against new product (learn what customers do or don’t want)
– Offers marketing ideas
A B
CD
PerformanceP
rice
Steps in Strategic Planning
• Assess resources within your controlWhat are the abilities and limitations of the
manager?
What skills and ability do the employees have?
How modern and efficient is the physical facility?
How is the soil?
How close are you to the market?
What can you do better than your competitors?
Step 4. Assess the Firm’s Strength and Weaknesses (Look Internally)
Steps in Strategic Planning
• Based on information from Step 3 and Step 4
• Difficulties in one industry segment can present opportunities in another.
Concerns on cholesterol & fat
Concerns on the environment
Concerns on food safety
Tight labor market
• How can you CONTROL take advantage or avoid it?
Step 5. Identify Opportunity and Threats
Step 4 and Step 5 are
the SWOT AnalysisSWOT Analysis
Steps in Strategic Planning
Step 6. Develop Alternative Strategies
Product-Market Growth MatrixProduct-Market Growth Matrix
Products
Markets
PresentProducts or
Services
New Productsor Services
PresentCustomers
MarketPenetration
ProductDevelopment
NewCustomers
MarketDevelopment
Diversification
Products
PricePlace
Promotion
TargetMarket
Target market: a group of customers (people or firms) at whom the company aims its marketing effort.
The target market consists of the individuals or businesses that you identify as the MOST DESIRABLE CUSTOMERS -- Not whoever is now buying or will buy your products
Determining a target market can help identify a COMPETITIVE ADVANTAGE for the firm in the market.
Choice of target market will determine your marketing strategy not vice versa
SOURCE OF COMPETITIVE ADVANTAGE
Lower Cost Differentiation
BroadTarget
1. CostLeadership
2. Differentiation
NarrowTarget
3. Cost Focus 4. DifferentiationFocusC
om
pet
i tiv
e sc
op
ePorter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies
Lower Cost Differentiation
BroadTarget
1. CostLeadership
2. Differentiation
NarrowTarget
3. Cost Focus 4. DifferentiationFocus
Co
mp
etit
ive
sco
pe
Cost leadership strategy - requires serious commitment to reducing expenses that, in turn, lowers the price in a relatively broad array of market segments
Source of Competitive Advantages
Porter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies
Differentiation strategy - requires uniqueness or significant points of differences in product offerings
Lower Cost Differentiation
BroadTarget
1. CostLeadership
2. Differentiation
NarrowTarget
3. Cost Focus 4. DifferentiationFocus
Co
mp
etit
ive
sco
pe
Source of Competitive Advantages
Porter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies
Cost-focus strategy - involves controlling expenses and, in turn, lowering prices in a narrow range of market segments
Lower Cost Differentiation
BroadTarget
1. CostLeadership
2. Differentiation
NarrowTarget
3. Cost Focus 4. DifferentiationFocus
Co
mp
etit
ive
sco
pe
Source of Competitive Advantages
Porter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies
Differentiation focus strategy- utilizes significant points of difference to one or a few market segments
Lower Cost Differentiation
BroadTarget
1. CostLeadership
2. Differentiation
NarrowTarget
3. Cost Focus 4. DifferentiationFocus
Co
mp
etit
ive
sco
pe
Source of Competitive Advantages
Porter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies
A fifth generic strategy is
sometimes appears in some
treatments:
Best-cost providerBest-cost provider- giving customers more value for the money by combining an emphasis on low cost with an emphasis on upscale differentiation
Examples of Some Alternative Strategies
• Become a cost leader Become More Efficient
Reduce input use holding price and product quality
Exploit quality differences to increase revenue more than costs (size, color, taste, variety, etc.)
• Integrate (or build alliance) horizontally Farm more units, add enterprises
• Integrate (or build alliance) vertically Move higher or lower into the distribution
channel (add storage, packing facility)
• Identify New Markets
Another commodity, other enterprises, new buyers
Diversification
• Add Services -- Delivery, unloading, etc.
• Reduce Risks -- crop insurance, hedging, forward contracting -- Except for crop insurance, not often available for many commodities (ie. horticultural crops)
Examples of Some Alternative Strategies
Products
PricePlace
Promotion
TargetMarket
Factors Guiding Strategies and Tactics:Product, Price, Promotion, Place, (also Process,
People, & Presentation/Packaging)
PRODUCT
STRATEGY
The products and services offered by most agricultural businesses are GENERIC
It is a challenge to DIFFERENTIATE agricultural products, but it is the ONLY way to enhance product prices
Sell BENEFITS not just products
Sell the Sizzle!
Ask - Would you buy this product/service?
Why or Why not?
Description of Products/ServicesDescription of Products/Services
One of the most important aspects of marketing is to give your customers a reason to buy your products
(Quality is a necessary, but not a sufficient condition for success!)
The following questions can help to position your products/services!
What are your products and services?
What are their benefits?
How do they differ from competitors’ products and services?
PRICE
STRATEGY
Pricing QuestionsPricing Questions
• What are your costs?
ProfitProfit
Costs and RevenueCosts and Revenue
Variable CostsVariable Costs
Fixed CostsFixed Costs
Price Price (Revenue)(Revenue)
Contribution
Break-even
(cost items that do not vary with production)
(cost items that vary with production )
Pricing QuestionsPricing Questions• What are your costs?
• How much do your competitors charge?
• How much will the customer pay?
• If you slash prices (below competition), could you maintain profitability?
• What image do you want to convey?
• Does your product have qualitative value for which price may be raised?
Some aspects of Qualitative ValueSome aspects of Qualitative Value
Unique Value - If consumers believe the product offers values that cannot be found in other products, they are willing to pay more
Substitute Awareness - If consumers are aware of close substitutes, they will be sensitive to price changes
Difficult Comparisons - If they have difficulty comparing prices, prices will be less important, within reasonable limits
Total Expenditure Relative to Income - Most people won’t agonize over a 10% increase in the price of a bag of apples, but the same people might over a 10% increase in the price of a car.
Don’t assume that price is the only reason people buy!
PLACE
OR
DISTRIBUTION
STRATEGY
Channels of distribution• Wholesale channels
– through a wholesaler, terminal markets– through a retailer, food service– through a processor– marketing cooperatives
• Direct-to-consumer channels– Home-based shopping: e-commerce, mail order– Store-based shopping: roadside stand, farmers’ mkts– CSA, U-pick– Businesses
Select Place/Distribution StrategiesDepend on the target market’s needs,
and where you have a competitive edge - local, regional, national, or international
PROMOTION
STRATEGY
Ask What is the Role of Promotion in Your Marketing Strategy?
To provide information about products
To stimulate demand
To differentiate products and/or to build a brand image
To remind current customers about product benefits
To counter competitors
To respond to negative news, or to take advantage of positive news
To smooth out seasonal demand fluctuations.
• Advertising– Select medium will reach the target audience – Select medium is appropriate for the message conveyed
• Sales Promotion Activities– Coupons, in-store displays, trade shows, samples, in-
store demonstrations, and contests.– To supplement and coordinate efforts in the advertising
and personal selling efforts.
• Public Relations– Publicity is uses non-paid communication presented by
the media.– A broad effort to influence public’s attitudes toward
the firm or it’s products. - Create an image.Create an image.
• Sales Personnel & Direct Marketing
Five Promotion Tools
Processes- Businesses need to develop orderly, efficient processes to take care of customers,
e. g. U-pick operations need to design a systematic way to handle customers- parking, containers, assigning rows or areas to pick, and handling the cash register.
People- personnel expenses represent the largest category of cash expenses.
Effective Human resource management is extremely important for attaining profitability.
Especially important for businesses with a service component
Presentation- This could be considered as the “PACKAGING” of a business.
Customers often form opinions of a company and its service on the basis of the presentations.
ImplementationImplementation• Budgeting• Action Plan:
– Who is responsible?
– What tasks are they responsible for?
– When the tasks are to be completed?
• Monitor, Evaluate, and Revise the Plan
– Periodically Review Goals & Objectives vs. Progress
– Any unidentified opportunities or threats?
– Correcting the plan’s weaknesses
• Add value to the operations - (Services, Expertise)
• Differentiate the operations from competition - (by Name)
• Sell a valued product not just a commodity - (a valued supplier vs. a potato grower, experiential farming vs. a bag of apple)
• Meet customers needs and wants - (at different levels)
• Bottom line: A successful agri-business as you define it.
Successful Strategic PlansSuccessful Strategic Plans