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Market Forces AS91530 Level 3 Agricultural and Horticultural Science What is a market? A market is simply any group of people or organisations who wish to purchase and have the ability to purchase a product or a service which meets their needs. It is not necessarily limited by geographical boundaries unless we specify those boundaries. It does not describe the people or organisations by anything other than their wish to purchase and their ability to make that purchase. It does not describe the product or service except as a need satisfier. Competitive markets Should have a large number of buyers and sellers and not be dominated by any single group of buyers or sellers. Neither can any restrictions be placed on the number of buyers and sellers entering or leaving the market. Such market is also known as an open market or free market. In many situations, the conditions for a free market operation to exist are not met; so various unique market situations have evolved for many agricultural products. Segmenting a market There are specific rules for segmenting a market. Every segment must be capable of being; 1. Measured. 2. Commercially viable i.e. be of a minimum acceptable size. 3. Reached by the marketer in a way that is time and cost efficient. 4. Responsive i.e. they must see themselves as being in the market for the segment – size, need, - fulfilling product or service. Why segment? The more alike a group of consumers are, the better the marketer can design and deliver the most appropriate product or service to fit unique needs of that group. Geographic – multinational, region of the world, national, regional, state, province, district, city, town, general urban, suburban, rural, density of population, climatic zone, topography. Consumer markets – age, sex, marital status, family size, family lifecycle status, personal income, income type, occupation, religion, ethnic, education, nationality. Demographic – conditions of life in communities of people seen in statistics e.g. life, death, diseases, ownership of property. Psychographic – measurement of the soul, spirit or mind of an individual or group of individuals. Business to business – time in operation, type, size, ownership, turnover, sources of income, markets served, location, expertise. Behaviour based – buying occasion, use rate, prime benefit sought, product loyalty, brand loyalty, purchase intention, price, Marketing is all about fishing where the fish are. Market segmentation allows the marketer to see how big the pond is, then how many fish are in it, of what type and size, and from all of this, how to best set about becoming a successful catcher of the chosen fish. Questions Explain what is market segmentation? Who are the potential consumers of: A roadside stall selling eggs A florist shop A 7 day dairy What is a target market? What are the benefits of market segmentation? Market Niche Producers of goods, product manufacturers and marketers are always looking for opportunities to develop a new product for a new market, or a new segment of a market (market niche). E.g. Organic kiwifruit is a niche market. Marketing of primary products. Incorporates the concepts of adding value to goods as they pass through a chain of production. Combination of all the activities that contribute to the value of the final product. Inputs e.g. fertiliser, seed, Transformation into products e.g. cartooned juice, frozen beans. Must reflect needs and wants and be presented in such a way that the consumer is prepared to pay for the ‘added value’. Marketing Markets are used to describe a place of selling products such as supermarket, garage sale, and mail order. Market places for Agricultural and Horticultural products include; Direct selling Gate sales and pick your own Indirect selling Auctions Wholesale market Cooperatives Brokers / Producer Boards and private treaties Contracts Retail market. Direct Selling Gate sales Where the producers sell directly to the consumers, as in gate sales and pick your own. Good way to sell produce quickly Produce usually grown on the property Produce costs less than the supermarket due to lower costs (no transport costs, minimal packaging) Provides cash flow Produce is fresh Near a large population Near a popular holiday area Has a main highway passing by. Farmers markets Where the producers sell directly to the consumers Good way to sell produce quickly Produce costs less than the supermarket due to lower costs (minimal transport costs, minimal packaging) Provides cash flow Produce is fresh Near a large population Near a popular holiday area Indirect Selling Where the producers sell to at least one middleman who then sells to the retail market. Retail market is where the consumer buys the produce. The producer and consumer do not meet. Examples are auctioneers, wholesalers, and retailers. Higher prices. Produce that is less fresh More consistent quality of produce Wider distribution Out of season produce. Auctions Where goods are sold to the highest bidder. Buyers bid for produce by offering price to auctioneer. Sold to the buyer who offers the highest price. Auctioneer tries to sell everything that is on offer. Auctioneer takes a % of price paid – commission. Advantages: Producers get a fair price, do not need to keep in communication with all the buyers, rewarded with higher prices when the produce is in short supply and payment is reliable. Disadvantages: Price may fluctuate, may not cover the cost of production, do not know buyers, and delays in payments. Wholesale markets Positioned between producers and consumers 3 functions Buys goods from producers Stores Sells goods in warehouses the goods to retailers. Advantages: Easier to sell in bulk, not storing products. Disadvantages: charges for the goods, plus storage and any other costs. Cooperatives / Producer Boards. A group of producers group together to collectively fix prices that they will accept for their products. Producer boards tend to be Government legislated marketing authorities. Cooperatives tend to be a group of buyers getting together to agree on minimum price. Tend to market overseas e.g. Zespri, Fonterra. Disadvantages: There is a loss of individual choice of product produced and how it is sold. The cooperative members need to find the capital for manufacturing, storing, marketing, and stockpiling products in hard times. Advantages: Reduces competition in the overseas markets and prevent buyers playing off against another to lower the price Enable small producers to trade in large markets Ensures a more regular supply of product on to the markets. Enables specialist marketing staff to be employed Enables specialist production advice to be made available to small producers Through an electoral system it lets small producers have some day in their industry Can even out good and bad year returns Brokers and private treaties Brokers are businesses that buy produce on behalf of buyers, e.g. supermarkets. A broker enters into a private agreement or treaty with the producer. The broker charges a commission. Potatoes, carrots, cabbages, and tomatoes are often sold this way. The grower agrees to supply a certain quantity of product over a specific time and at a price similar to what they would get at auction prices. Produces reaches the market quickly and regularly. Growers know in advance that their produce is sold and for how much. Contracts A contract is an agreement between a producer and a major user e.g. a processing factory. Negotiated every year. Covers: The amount of produce to be bought by the factory When the produce has to be ready for the factory Description of the product quality, variety and size. How the produce is to be grown (chemical free, organic) Advantages: Producers know the products are sold at a set price Buyer knows that there is a fixed supply at a set price Buyer may offer technical advice to grower Producer can budget / plan ahead. Disadvantages: If market price goes up, the seller might not get the best possible price. If producer cannot deliver, there may be a penalty in the contract. Large consumers in a small market may dominate the market and force down prices. Producer many need to plant more crop than is theoretically needed to ensure there is enough available to meet the contracted amount. Excess crop will be sold on the open market or taken at a different price (possibly lower) by the contract buyer. Retail markets Sells small quantities of goods to consumers. E.g. supermarkets, dairies. Provide a range of products at a range of prices. Buy in bulk and repackage into small quantities selling under their own brand. Advantage for the producer: Wide range and number of people have access to the products. Advantage for the consumer: A range of goods to choose from at varying prices. Factors involved in marketing overseas Geographic location – southern hemisphere Transport – more expensive due to distance to market. Quality – maintain New Zealand’s reputation Packaging – own packaging needs to deliver in top condition. Plays a role in promotion. Storage – different storage requirements for each crop. Promotion – encourage consumers to buy New Zealand grown. Research – find new crops and cultivars to maintain quality. Pest and disease control – maintain quality. Trade agreements – between our trading partners. Selling methods - sold on consignment through exporter. Sound Marketing requires Planning: To get the right product – someone wants to buy it The right market The right time – when it is required Suitable to the market Price: That satisfies the buyer and the seller Promotion: Awareness of the product Information on the product – its different uses Inducing the buyer to purchase the product Distribution: In the form that the buyer wants it To the markets on time Factors that affect the distribution of products Climate Temperature – affect germination, emergence, microorganisms Rainfall – irrigation, pests and diseases, quality, harvesting. Sunshine hours – ripening, harvesting. Wind – speed more than direction Aspect – affect temperature Soils – fertility, well drained, liable to flooding History – population centres, settlement patterns. Transport – availability, closeness to markets export opportunities . 5 Ps of marketing Product – what attributes does the product have that makes you want to buy it? Price – ease of knowing what the price is, comparative pricing, size relationships, methods of payment, discounts, ordering etc. Promotion – to stimulate demand, inform, persuade, branding, packaging. Place – how is the product displayed, shop layout out People – shop assistants Factors affecting the marketing of a product: Price Supply Demand Demographics of the buyer – age, sex, country, beliefs, education Social and cultural (e.g. customer requirements, fashion.) Economic Political and legal Technological Competition Environmental (e.g. animal welfare issues) Global (quota, tariffs, trade restrictions, currency exchange rates, disease status.) Demographics Study of populations, their size and distribution. Important in the design of marketing programmes internationally. Changing trends have a huge impact on the demand for certain goods; e.g. New Zealand average age is increasing. Marketers must react to trends and modify their products to meet the needs of a changing market. Population distribution and climatic variations also influence marketing factors; e.g. demand for farm equipment and clothing (gumboots) is far higher in rural towns then in the cities. Cities with colder climates such as Invercargill have more demand for warmer clothes. To market successfully overseas we must carefully study demographic factors in those target markets and develop products and marketing programs accordingly Japan’s demographics. In Japan the population is decreasing therefore the average age is increasing. In 1989 only 11.6% of the population was 65 years or older. By 2007 is was 21.2% which makes it one of the “greyest” countries on Earth. Japan is very much an urban society with only about 5% of the labour force working in agriculture. With low fertility rates combined with increased life expectancy Japan has a population structure weighted towards older people. The Japanese are great savers with the average household having $210,000 (USD) in the bank. Through market research, it has been established that the Japanese market focuses on food safety, packaging, and traceability so with an aging population that has strong spending power it is essential for successful exporting to Japan that we meet their particular requirements. China’s demographics The speed of urbanisation in China has increased substantially in the last 20 years. At the end of 2011 there were more Chinese living in urban areas (690 million) than those living in rural areas (656 million). This has resulted in approximately 51.3% of China’s population living in urban areas compared with 20% in 1990. It is estimated that by 2025 two-thirds of the China’s population (64%) will live in cities. This combined with the rising affluence of the emerging middle class has and will continue to have a big impact on the international market. The quality of products being sold by NZ dairy companies into China has to be very high as consumers’ expectations have risen markedly. Cultural factors Consumers’ perception of goods, and demand for products is very much influenced by aspects of culture. Selling or marketing a product to one culture may not be a viable option to another, as cultural pressures affecting the consumer vary. An example of this is marketing pork products to Australia as opposed to a similar marketing program to a country such as Pakistan. Considerable research is also important before brand names and logos are put into place and marketed to certain countries. Words and logos can mean different things to different cultures, and in some cases may offend. Economic factors The demand and supply for a product is affected by: Government policy Economic conditions of a country Trading partners Interest rates Money supply Credit availability Inflation Price control regulations The economic policies of a country are an important market force, especially New Zealand which exports the majority of its products. Political factors Political factors are also an issue in the marketing of products. Marketers need to monitor political changes and trends in the countries where their products are going, and be aware of how changes in the political climate could affect their business. Technological factors Evolving technology may bring about major changes to how we live, both in personal and business aspects. These changes in technology can very quickly create or destroy existing industries; e.g. with both partners of many families now working, time for household activities has decreased. Hence an increased demand for time saving domestic products such as microwaves. Buying takeaway food is another area where demand has increased as households are looking for time saving ways of living. Process and pre-prepared meals are replacing the traditional “leg of lamb” in many cases. The Internet is also having a huge affect on how we live; e.g. goods purchased on the internet is increasing at a huge rate, putting pressure on some industries, e.g. travel agents, sales teams, book shops. Competition This is a market force arising from the same, or similar, product under different brand names satisfying the same need or demand. E.g. ATV’s. Yamaha versus Honda versus Suzuki, etc. Competition may also arise from completely different products competing for the same market. E.g. A yoghurt drink versus a soft drink. A cheese product versus a chocolate bar versus a piece of fruit. The marketer has to find a way of beating the competition, and one method is by branding. A brand may simply be a fun sticker such as a cartoon character on an apple to attract the children market. Often a brand becomes a recognisable and familiar association. E.g. Anchor, ENZA, Zespri. All these brands help New Zealand producers compete with other countries. Buyers may pay more for a known brand, as it may indicate a perception of quality, or a particular image (New Zealand as clean green producer). Environmental factors – animal welfare How international buyers of our products perceive our industry can have a huge effect on our ability to market our products. Animal welfare can impact on the market in two ways: Consumer becoming more aware of how a product has been produced and making a conscious decision to buy “animal friendly” products This may impact on the price the buyer is prepared to pay – a premium for animal friendly products The supplier/producer may be required to change methods of production meaning higher costs are incurred. E.g. Transport and slaughter. Offsetting the effects of market forces Market forces have a constant effect on our Agribusiness, and managers and operators may need to consider options to offset these effects. These could include; Diversification. E.g. Fruit growers producing schnapps, cider or other juice products to utilise second grade or reject fruit. Modifying Production Targets. (As demand increases or decreases). E.g. Sheep producers growing lambs to heavier weights, input limitations, etc. Environmental Issues. Decisions on chemical use or genetic modification need to be considered when targeting certain markets. Eg. Any decisions concerned with GM or chemical residues in products, if organic and non GE markets are to be targeted, need to be balanced against possible disease or pest risk. Limitations to nutrient inputs will also affect production decisions. (Nitrogen, phosphate). Investment. Additional investment in some areas of the business may be required to maintain market share. I.e. Research and development, production technology. Many primary industries pay a levy to fund research and development. (DairyNZ).3.6 cents/kgMS Animal Welfare Issues. Changing husbandry policies to cater for market opinions. Target Markets. An industry that deals mainly in one market may need to consider exploring further afield. Others may need to consider down sizing or changing their target markets. Timing of supply. When you are going to supply a product into the market.