Department of Applied Economics and Management Cornell University Ithaca, NY Wen-fei Uva Senior Extension Associate BREAKING OUT OF THE BOX! Strategic Planning for 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

 Workforce availability  Availability of pesticides (FQPA)  Changes in consumer attitudes Survival of producers is 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 ê Fewer buyers, buying more from top (or preferred) suppliers, reducing “spot” buying, & more contracting + Changing retail marketing practices ê 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 C D Performance Price

Steps in Strategic Planning Assess resources within your control + What 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 SWOT Analysis the SWOT Analysis

Steps in Strategic Planning Step 6. Develop Alternative Strategies Product-Market Growth Matrix

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 Competitive scope Porter’s 4 Generic Business Strategies

Competitive scope 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 Strategies

Differentiation strategy - requires uniqueness or significant points of differences in product offerings Competitive scope Source of Competitive Advantages Porter’s 4 Generic Business Strategies

Cost-focus strategy - involves controlling expenses and, in turn, lowering prices in a narrow range of market segments Competitive scope Source of Competitive Advantages Porter’s 4 Generic Business Strategies

Differentiation focus strategy- utilizes significant points of difference to one or a few market segments Competitive scope Source of Competitive Advantages Porter’s 4 Generic Business Strategies

A fifth generic strategy is sometimes appears in some treatments: Best-cost provider Best-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

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 íSell the Sizzle!  Ask - Would you buy this product/service? í Why or Why not? Description 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! 3 What are your products and services? 3 What are their benefits? 3How do they differ from competitors’ products and services?

PRICE STRATEGY

Pricing Questions What are your costs?

Profit Costs and Revenue Variable Costs Fixed Costs Price (Revenue) Contribution Break-even (cost items that do not vary with production) (cost items that vary with production )

Pricing 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 Value 4Unique Value - If consumers believe the product offers values that cannot be found in other products, they are willing to pay more 4Substitute Awareness - If consumers are aware of close substitutes, they will be sensitive to price changes

4Difficult Comparisons - If they have difficulty comparing prices, prices will be less important, within reasonable limits 4Total 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 Strategies Depend 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? 4To provide information about products 4To stimulate demand 4To differentiate products and/or to build a brand image 4To remind current customers about product benefits 4To counter competitors 4To respond to negative news, or to take advantage of positive news 4To 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. Create an image. –A broad effort to influence public’s attitudes toward the firm or it’s products. - Create an image. Sales Personnel & Direct Marketing Five Promotion Tools

 Processes- B usinesses 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.

Implementation 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 Plans