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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.