Download The Market System

AGEC 3063
Week Seven
The Market System
Lecture Notes
Marketing Defined.
Sales and marketing are closely related because marketing develops the goals, strategy,
and tools necessary to satisfy customers at a profit, and sales is field-level for strategy
implementation. The marketing plan and strategies are important because they give the
salesperson direction, information, tools, programs, processes and other resources needed
by salespeople to satisfy customer needs or to close the sale
Marketing may be defined as the system a company uses for identifying and satisfying
customer needs and wants profitably. Marketing is thus a process and at the heart of any
business because it defines:
Who customers are; What they need; What they want; How a company’s product can
meet those needs and wants; How services satisfy customers; How to make a profit.
Most successful agribusinesses know that putting the customer first is the best way to
generate profitable sales. Firms that are primarily focused on “selling stuff” to customers
in order to make profit often don’t do very well in the long-run. Thus firms have adopted
a business philosophy called Marketing Concept – i.e. satisfying customer at a profit.
Why Understand Marketing
Marketing is about understanding customer need. When firms and their salespeople
understand customers needs, they better able to develop product/service “bundles” that
meet those needs, price them competitively for at a fair profit. Marketing as a process or
system involves the following basic steps
The Marketing Process
1. Mission/Vision: A firm’s marketing plan begins with a mission/vision that is drawn
from the firm’s overall corporate mission. The mission statement is a broad-based
statement indicating the general parameters within which the company wants to operate.
A mission statement defines the Problems for which the firm wants to find solutions and
for Whom – e.g. a seed company’s mission statement may be “To successfully find
profitable solutions for farmers’ agronomic seed and production needs”.
Situation Analysis & Evaluating Strengths and Weakness
2a. Situation Analysis : Is the first-step to developing a customer-centered market plan.
Analyzing the situation involves looking 2 types of factors:
External or “marketplace” factors; and Internal or “company” factors.
i. External or Marketplace Factors: Marketing is a “Long Look” ( 3 to 5 yrs) plan used in
discovering and exploiting opportunities. This long look or extended time period covered
by the marketing plan defines the selection of external or marketplace factors to be
considered. These external factors affect all firms in the marketplace and includes looks
at the current economic, political, legal and social environment as well as the analysis of
customer needs. Thus marketplace analysis includes these 5 components:
- the political/economic situation
- customer demographic, psychological and trends
- regulatory changes and trends
- impact of technology
-
competitive activity/strategy.
a. Political/Economic Situation: Political and economic situations have impact on the
market especially as we move to a global marketplace through trade agreements such as
NAFTA & WTO. For example economic/political factors that will affect crop protection
markets may include:
changes in policy, farm bills & impact of phase out subsidies; the strength (depreciation
& appreciation) of the domestic currency; political stability in foreign markets;
legislation to protect family farms; The general health of the economy also plays an
important role – e.g. the “1980s agric burst” period forced many farmers into bankruptcy
which led to state laws designed to protect the family farm. Analysis of the
political/economic factors include the world & domestic economic & political
environment.
b. Customer Demographic and Trends: Refers to the info about customers found in
census & include: the number of customers, their ages, farm sizes in acres, cropping
practices, etc. This information is critical to firms as it tells them the potential need for
their products. Psychographics analysis is also important and it describes how customers
buy or how customers buying habits and trends are changing –e.g. how customers adopt
new technology, how they process info about products, how they evaluate if they got a
fair value for the price they paid etc.’ needs and tends in those
c. Regulatory Changes and Trends: Regulation affects the entire agricultural production,
marketing and selling environment – e.g at the Federal level, the EPA evaluates test
results on every new crop protection product, & can also require lod products be reregistered or re-tested using today analytical procedures. The EPA also collaborates with
private firms to develop a product label that spells out when the product must be used,
what to do in case of spill or injury. At the state level, states may require that product
recommendations be made only by a person with post-graduate education in pest control
and certification.
d. Impact of Technology: Farmers are technology-hungry businesspeople & technology
has made US farmers highly productive and feeding many developing countries. Two
main technology trends have the potential to change the agric industry. These are:
- biotechnology and the development of crop protection solutions through genetic
research (such as insect-resistant plants, herbicides tolerant plants etc.).
- information technology, including:
precision farming
electronic info sourcing, from internet chat rooms to email with university experts.
electronic commerce, or ordering and paying for products by computer.
Competitive Activities and Strategies: In situation analysis, strengths/weaknesses of
competitive products & programs are compared in order to identify where competitors
are today and will be in future. - e.g. the merger of Sandoz and Ciba into Novartis
created the largest agro-chemical company in the world & the purchase of Pioneer HiBred by DuPont imply that competitors have to take these into account in planning their
strategies.
ii. Internal Analysis: While the external analysis deal with marketplace, the internal
analysis deals with the company itself. There are 2 major components: Strength &
weakness that cover any item or factor that can influence the firm’s success with
customers & may include product performance, services, effectiveness of salespeople,
company image & reputation, info systems, financial strength etc. Many companies
complete a formal analysis called a SWOT Analysis
S = Strength
W = Weakness
O = Opportunity
T = Threat
in order to compare their strength & weakness to their competitors, identify the
profitability of a segment market or to take advantage of a situation.
2b. Evaluating Strengths and Weakness: A strength is something that a firm is good at or
the characteristics the firm has that gives it an important capability – i.e. it can be a skill,
competence, resource etc. that puts a firm in a position of a market advantage. A
weakness is something a firm lacks or does poorly in or a condition that puts it at a
disadvantage.
3. Opportunities and Threats
Market opportunity shapes a firm’s strategy. If a firm is not well positioned to attain a
given opportunity then it has to choose a different strategic course. Very often, certain
factors in a firm’s external or internal environment can pose a threat to its survival. These
threats may come from the emergence of cheaper technologies, adverse economic trends
etc. Threats affect a firm’s situation attractiveness and its strategies.
Putting it Together: These questions have to be addressed in the SWOT analysis:
Does the firm have any internal strength or competitive advantage around which an
attractive strategy can be built?
Does the firm’s weaknesses make it competitively vulnerable? Or which of its
weaknesses do the firm’s strategy need to correct?
What threats should the firm worry about most, and what should the firm’ key defensive
strategies.
The purpose of the SWOT analysis is to identify profitable opportunities that fit the
firm’s resources and long-term strategy.
Marketing Objectives
After identifying strengths & weakness, and total marketplace, & evaluating
opportunities and threats marketing objectives are developed. Marketing objectives
development takes the findings of the SWOT analysis and apply them within the firm’s
mission or vision. Usually firm depend on their financial objectives to attain their
marketing objectives.
Financial Objective: Firms want each unit to deliver sound financial objectives – e.g.
earn an annual rate of return on investment of XX% over next 5 yrs after taxes
produce net profit of $XXXXX in this fiscal year
produce cash flow of $XXXXX in this fiscal year
The financial objectives are then converted into marketing objectives such as sales
volume goal, gross margin goals, expense level goals that are sufficient to generate profit
goals. Firms also track market share( i.e. the %age of the total market sales for a product
that their sales represent)set customer turnover ratios (lost customers compared to new
ones), set market penetration goals ( %age of all customers with whom the firm does
business). All these are designed to help lead the firm toward meeting its financial
objectives.
Segment, Target and Focus
Once there is a clear understanding of the situation and objectives, the firm will “target”,
“segment” or identify those customers with whom it wants to do business.
a. Segmentation: Means organizing all potential customers into groups of customers
according to how they make buying decisions or buying habits – i.e. a market segment is
a group of customers that will respond similarly to a given offer, because they have
common needs or values. For example customers who buy most of their clothes from
Wal Mart are different in some ways from those who buy most of their clothes from
exclusive fashion store like Nordstrom. Segmentation involves grouping customers into
who buys what, where and why.
There are 3 methods for segmenting customers:
- Demographics (size, age, income level, education etc.)
- Product usage (crops grown, pest problems, livestock raised, equipment used etc.)
- Psychographics (buying behavior & value structure)
A segmented group must meet 3 standards:
a. It must be measurable ( how many people, animals acres are there in the segment).
b. It must be accessible (can the people in the segment be found and reached)
c. It must be profitable (a sufficient volume of business in the segment).
The purpose of segmenting a market is to allow special programs to be designed to meet
the needs of each segment.
Targeting: It allows firms to channel its resources into those segments that are believed to
be most profitable – i.e. focusing extra attention on some market segments provides
opportunity for making a bigger impact where it is most important.
Focus: Determining Differential Advantage: By identifying a segment market and
targeting it, firm are searching for a differential advantage – i.e. making product and
services better than competitors.
Marketing Mix Strategies (5 P’s)
Marketing strategies refers to 5 components (5 P’s) of the marketing mix. They are also
referred to as controllable factors that mangers use to achieve marketing goals. They are:
Product; Price; Promotion; Place (Distribution); People
a. Product Strategies P1: Refers to tangible products/services and intangibles such as
people, reputation, & performance of products and services. Product strategies also
determines a firm’s product lines and services (i.e. how many product lines, how many
products within a line, and in what sizes, packages etc) and plans for introducing new
products.
b. Pricing Strategies P2 : All components of the marketing mix cost money except price
that brings in money. Firm’s headquarters usually make pricing decisions. The pricing
strategy must be in line with the firm’s core strategy: the values of its target segments;
competitors’ prices; and demand for its products. Prices must also be in line with
customers perception of the value they will receive from the firm’s product and must also
be sufficient to cover the cost of producing and distributing the product. The ff pricing
techniques are usually used.
Mark-up Pricing adds a set amount or percentage to the cost of the product.
Going Rate Pricing follows the competition.
Profit Margin Pricing prices for a given & profit on the sale of each item
ROI or Gross Margin: Target Pricing sets price so that (target price) x (target volume)
will achieve firm’s profitability goals.
c. Promotion Strategies P3: Describes all things a firm does to communicate its value to
customers. While most promotional activities are done by the firm, one of the most
effective methods of communicating the firm’s value to the customer is field selling
efforts which is provided by the field salesperson. The salesperson depends on the
promotional tools developed by the firm. Therefore, it is important for the salesperson to
understand promotional activities and plans of the firm. Some of the common
promotional tools include:
- database; - customer purchase tracking; - identify customer demographic; - segment
direct mailing; - response track/follow up; - fact-to-face communications; - personal sales
calls; - meetings; - seminars; - advertising; - radio; - trade press; - WEB-pages; - internal
promotions; - samples; - gifts; - purchase incentives; - community activities.
In an effective promotion, the salesperson must understand how customers in target
segment communicate to re-sellers and end-users (among themselves). The promotional
strategies to adopt are push and pull promotions. Push promotion is to “push” the product
through re-sellers to end-user customers by making re-sale of the product attractive
(incentives, discounts, etc). Pull promotion is to encourage the end-user customer to
“pull” the product through the re-seller by creating demand in the market place.
d. Distribution Strategies P4:Refers to how products are shipped, stored, & delivered to
re-sellers and end-users. The distribution channel refers to the path that products take
from growers or manufacturers to end-users. The distribution theory is that each channel
level (manufacturer, distributor, local dealer) will add value to the product.
There are several functions involved in product distribution and these must be
coordinated so that customers can have the value they need. Distribution may involve:
Manufacturing or formulation (provide product in the right sized and containers)
Shipping (including international shipping)
Warehousing and re-shipping to regional distributors
Tracking/billing for product shipped
Customer service/telemarketing (take and ship orders)
Coordination of product sales records with promotion/communication
e. People Strategies P5: The usual 4’Ps of the marketing concept has now become 5’Ps
with the inclusion of people/customer strategies because of the adoption of marketing
concept (satisfying consumers at a profit) by firms. Customers expectations include;
understanding of their needs and wants; understanding of the role of products/services
can play in their businesses; expertise about the product – how it works, when and how to
use it for max satisfaction; expertise in forecasting, distribution and logistics so that
products are available when needed at a fair price.
People strategy is developed at the very top of the firm and trickles down through
management structure with each supervisor responsible for setting, reviewing &
monitoring performance goals.
Action Plans
They are more specific marketing plans that help the company and management
determine among other things: what to tell the public, what media to use, when messages
must be released, how to reach their customers and positively influence their buying
decision and attitudes about the company and its product/services.
Measuring Results
The final piece of the marketing process is to measure and monitor results. The firms
goals provide the benchmark against which sales performance can be measured.
Companies need a way to measure results more often in order to change tactics if results
are not being met. Companies monitor interim performance through:
reviews of monthly or quarterly performance vs. budget;
product performance complaints;
distributor and key customer satisfaction research;
tracking key account performances.
Monitoring involves many functions – e.g. billing, customer service, and shipping
departments can help determine how much product has been delivered to re-sellers.
Communications/database departments may be able to track sales to individual
customers. Product managers track sales, satisfaction and distribution of specific product
lines.