Reconfiguring The Value Bundle: Product? Service? Information? Dr. Corinne Alexander Dr. Christine Wilson Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Building and Branding the Value Bundle 1.Understand the Value Market segmentation based on survey 2.Choose the Value Trends in market segments 3.Create the Value Chip Donahue, Brandt Consolidated 4.Extract the Value 5.Communicate the Value 6.Deliver the Value Doug Bowman Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Understand the Value Bundle How do your customers choose their suppliers? What do they want in terms of product, service, and information? Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Factors Influencing Buying Behavior When you choose a supplier, how is your decision influenced by the following factors? –Convenience/Location –Service/Information & Personal Factors –Price –Product Performance –Support Services Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Market Segmentation Identify buying behavior segments, or groups of customers, that react differently to marketing choices Use cluster analysis to allow buying behavior segments to be formed naturally: data-driven segmentation Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Buying Behavior Segments Crops & Livestock Full Sample Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

There are 5 Buying Behavior Segments Factor BalancePerformancePriceConvenienceService Full Sample Convenience/ Location Service/Info & Personal Factors Price Product Performance Support Services Percent of Sample Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Our 5 market segments refine the 3 traditional segments 1.Economic Buyer: 18.5% –Price segment 2.Business Buyer: 50.5% –Balance segment –Performance segment 3.Relationship Buyer: 31.1% –Convenience segment –Service segment Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

How large are the operations in the segments? Crops Price has largest operations Balance and Performance are in between Convenience has smallest operations followed by Service Livestock Performance has largest operations Balance, Price, are in between Convenience has smallest operations Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

During the next 5 years, which segments plan to grow the most? Crops Service and Price plan the most growth at nearly 30% Convenience plans the least growth at 16% Corn/Soybean producers plan the most growth, 25-37% Livestock All segments plan to grow about 25% Hog producers plan the least growth, -3 to +20% Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Who is the youngest/oldest in 2003? Crops Service and Price are the youngest Performance and Balance are middle- aged producers Convenience is significantly older producers Livestock No significant age differences Overall, Convenience and Service are older Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Value Bundle Preferences Crops vs. Livestock Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Buying Behavior Segments Crops Livestock Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Overview of Segments by 5 Primary Factors Crops and Livestock –Each segment dominated by a single factor except Balance which focuses on all 5 factors –Price is the 1 st or 2 nd most important factor for all segments Crops –Support Services is the least important factor Livestock –Convenience and Support Services are the least significant factors overall Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Product For crops and livestock, Service had the highest brand loyalty while Price had the lowest All segments somewhat agree generics offer good trade-off between price and quality –Price agrees most, Service agrees least Price strongly agree that they will increase use of generic products over next 5 years, Service disagrees –Balance, Performance, and Convenience will see slight increases Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Product Performance has fastest adoption of new products, services, and techniques; Convenience is the slowest All segments believe there are quality differences between brands –Livestock slightly less so than crops All segments believe that products and related information should be sold and priced as a single bundle Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service Desirable Salesperson Characteristics For crops and livestock, 3 primary characteristics: –Is honest –Has a high level of technical competence –Provides good follow-up service Price wants a salesperson who brings the lowest price Service wants to be called on frequently Convenience wants a good communicator Livestock Service segment wants a consultant Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service Supplier Loyalty Convenience is most likely to buy expendable items from one supplier; Performance and Price are least loyal –Livestock is slightly less loyal Convenience and Service are most willing to pay more to buy inputs from locally-owned suppliers; Price is least likely Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service Custom Services –Price is least likely to use –In crops, Convenience has high use of custom service; Performance has low use –In livestock, Performance and Balance have high use; Convenience has low use Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Computer & Internet Usage Performance highest computer use, Convenience and Service lowest use –Livestock use is higher than crops Three primary uses of the Internet are: –Obtain product/technical information –Obtain price information on inputs –Locate sources of products or dealers Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Computer & Internet Usage Performance, Price most likely to have ordered an ag input on the Internet Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Information Sources Local dealer sales/technical people provide the most useful information for crops and livestock –Manufacturer salespeople and other farmers also provide a high level of useful information Livestock segments rate veterinarians as their second most useful source of information Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Understand the Value Pricing the Value Bundle Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Pricing the Value Bundle: Service & Information Price wants service and information priced separately from product –Looking for the lowest product price Price Value Bundle: Product only Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Pricing the Value Bundle: Service & Information Service and Convenience willing to pay more for products from local dealers who provide good service and information –Most loyal group Service/Convenience Value Bundle: Service & Information, then Product Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Pricing the Value Bundle: Service & Information Performance and Balance are the most information intensive –High use of internet for information and purchasing –Technical competence matters! –Product quality/brands matter Balance/Performance Value Bundle: Product & Information, then Service Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Choose the Value Bundle What is your future value bundle? Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Compared to 1998, which segments are growing/shrinking? Crops Balance is the largest segment and stable at 35% Price grew substantially Performance grew modestly Service is growing Convenience is the smallest segment and is shrinking Livestock Balance is the largest segment at 35%, slight decline Price is stable Performance grew substantially Service is growing Convenience is the smallest segment and is shrinking Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Expect Balance Segment to Remain Stable Largest segment for crops and livestock Relatively stable compared to 1998 Average farm size compared to other segments Crops and livestock expect to grow ~25% Primarily middle-aged producers Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Expect the Price Segment to Increase or Remain Stable Since 1998, increased substantially for crop and remained stable for livestock Largest farm size for crops, average or above for livestock Highest expected growth of all segments High percentage of young producers Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Expect the Performance Segment to Increase Since 1998, increased substantially for livestock and modestly for crops Largest livestock operations, above average crop operations Crops and livestock expect to grow ~25% Primarily young and middle-aged producers Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Expect the Service Segment to Increase Increased from 1998 for crops and livestock Average-sized or slightly below farm operations Very high expected growth rate for crops and average expected growth rate for livestock Crop producers are very young, livestock producers are slightly above average Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Expect the Convenience Segment to Decrease Rapidly Smallest segment for crops and livestock Decreased from 1998 for crops and livestock Smallest farms Lowest overall growth rate, especially for crops Oldest producers Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Overview of Expectations We expect that the: Balance (35%) segment will remain stable Price (18%) segment will increase or remain stable Service (17%) segment will increase Performance (16%) segment will increase Convenience (14%) segment will decrease Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Appendix: Supporting Data Please feel free to contact us with questions: Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Crop Segments by 5 Primary Factors Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Livestock Segments by 5 Primary Factors Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Size of Crop Operations by Segments Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Size of Livestock Operations by Segments Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Overview of Segments by Size of Operations Crops –Price segment has highest percentage of extra-large farms –Convenience segment has highest percentage of mid- sized farms Livestock –Mid-sized farms make up the majority of the Convenience segment –Performance has most extra-large farms Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Crop Segments by Age Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Livestock Segments by Age Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Crop Segments by Age Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Livestock Segments by Age Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Overview of Segments by Age Crops –Age dominate all segments except convenience –Convenience has the highest percentage of producers in the 55 to 64 and the 65+ age ranges –Service has the highest percentage of young producers that are 35 or younger Livestock –All segments are dominated by farmers who are –Convenience has the lowest percentage of middle-aged producers (35-54), but the highest percentage of young producers (<35) and older producers (55+) Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Crop Segments by Education Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Overview of Segments by Education Crops –Approximately 45% of producers in the Balance, Performance, and Price segments have a college degree –Service has the lowest percentage of college graduates at 34% Livestock –Overall, a slightly smaller percentage of livestock producers have a college degree than crop producers –Price and Performance have the highest percentages of producers having a college degree at over 40% –Only 29% of producers in the Service segment have a college degree Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Expected 5 Year Growth by Segments Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Overview of Segments by Expected 5 Year Growth Crops –Service and Price expect the most growth at near 30% –Convenience producers expect the least growth at 16% –Corn producers expect to grow an average of 30% –Overall, cotton and wheat/barley/canola producers expect lower growth Livestock –All segments expect to grow approximately 25% –Overall, dairy and beef cattle expect to grow approximately 30% –Swine expects the least overall growth Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Livestock Segments by Education Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Primary Crop Enterprises by Segments Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Primary Livestock Enterprises by Segments Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Overview of Segments by Primary Enterprise Crops –Corn/Soybeans is strongest in the Performance Segment –Cotton is strongest in the Price segment –Wheat/Barley/Canola and Cotton are significant in the Convenience segment Livestock –Dairy is strongest in the Service Segment and weakest in the Convenience segment –Beef Cattle are strongest in the Convenience segment Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Crop Segments by Expected 5 Year Growth Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

Livestock Segments by Expected 5 Year Growth Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service Custom Services for Crops Approximately 65% use custom fertilizer app. Balance, Convenience, and Service have highest use of custom pesticide application (~60%) while Price has lowest use (46%) Approximately 25% use custom harvesting Convenience uses the most custom seeding (15%) and custom row tillage (7%) while Performance (9%, 2%) and Price (8%, 2%) use the least Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Product – Crops StatementBalancePerformancePriceConvenienceService I am loyal to brands of expendable items Generics offer a good trade- off between price and quality Will increase use of generic items over next 5 years For expendable items, most brands are more or less the same I think suppliers should charge separately for products and information *Average responses on Likert Scale of 1-5 Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Product - Livestock StatementBalancePerformancePriceConvenienceService I am loyal to brands of expendable items Generics offer a good trade-off between price and quality Will increase use of generic items over next 5 years For expendable items, most brands are more or less the same I think suppliers should charge separately for products and information *Average responses on Likert Scale of 1-5 Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service Custom Services for Livestock Performance and Balance have the highest use of custom livestock waste handling (~35%) versus only 23% of Convenience 17-21% use custom livestock finishing Performance has the highest percentage of custom raised breeding stock replacements (28%) while Price and Convenience have lowest (19% and 15%) Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service Custom Services for Crops Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service Custom Services for Livestock Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service - Crops Desirable Salesperson Characteristics CharacteristicBalancePerformancePriceConvenienceService Is honest Has a high level of technical competence Provides good follow-up service Brings me the best price Is a good communicator Is a consultant to my operation Calls on me frequently Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Service - Livestock Desirable Salesperson Characteristics CharacteristicBalancePerformancePriceConvenienceService Is honest Has a high level of technical competence Provides good follow-up service Brings me the best price Is a good communicator Is a consultant to my operation Calls on me frequently63599 Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Outside Influences - Crops Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Outside Influences - Livestock Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Outside Influences - Crops Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Outside Influences - Livestock Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Communications Media The best sources of information for all segments were general farm publications and crop/livestock specific publications –Agricultural newspapers and agricultural newsletters provides some good information All segments responded negatively towards telephone contacts and agricultural TV programs –Agricultural websites and agricultural radio programs were also identified as providing little useful information Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Computer Usage Performance has the highest use of the computer for communications while Convenience and Service have the lowest use –Livestock use is higher than that of crops Performance and Balance use the computer for information gathering while the Convenience segment uses it significantly less for this purpose –Livestock use is higher than that of crops Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Internet Usage Approximately 75% of the Balance, Performance, and Price segments use Mr. Gore’s Internet while only about 65% of the Convenience segment does Three primary uses of the Internet are: –Obtain product/technical information –Obtain price information on inputs –Locate sources of products or dealers Performance and Price are most likely to have ordered an agricultural input over the Internet Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Internet Use - Crops PracticeBalancePerformancePriceConvenienceService Use the Internet in my farm business Obtained product / technical information Obtained price information on inputs Located sources of products or dealers Placed an order for agricultural inputs Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business

The Value Bundle: Information Internet Use - Livestock PracticeBalancePerformancePriceConvenienceService Use the Internet in my farm business Obtained product / technical information Obtained price information on inputs Located sources of products or dealers Placed an order for agricultural inputs Source: 2003 National Conference for Agribusiness, “Serving Commercial Producers: Meeting Needs, Adding Value” Center for Food and Agricultural Business