Department of Applied Economics and Management Cornell University Ithaca, NY 14853 Wen-fei Uva Senior Extension Associate BREAKING OUT OF THE BOX! Strategic.

Department of Applied Economics and ManagementCornell UniversityIthaca, NY 14853

Wen-fei UvaSenior Extension Associate

BREAKING OUT OF THE BOX!

Strategic Planning Strategic Planning

for Your Farm Businessfor 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

Depressed commodity prices

Workforce availability

Availability of pesticides (FQPA)

Changes in consumer attitudes

Survival of producersis 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

Fewer buyers, buying more from top (or preferred) suppliers, reducing “spot” buying, & more contracting

Changing retail marketing practices

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

CD

PerformanceP

rice

Steps in Strategic Planning

• Assess resources within your controlWhat 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

the SWOT AnalysisSWOT Analysis

Steps in Strategic Planning

Step 6. Develop Alternative Strategies

Product-Market Growth MatrixProduct-Market Growth Matrix

Products

Markets

PresentProducts or

Services

New Productsor Services

PresentCustomers

MarketPenetration

ProductDevelopment

NewCustomers

MarketDevelopment

Diversification

Products

PricePlace

Promotion

TargetMarket

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

Lower Cost Differentiation

BroadTarget

1. CostLeadership

2. Differentiation

NarrowTarget

3. Cost Focus 4. DifferentiationFocusC

om

pet

i tiv

e sc

op

ePorter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies

Lower Cost Differentiation

BroadTarget

1. CostLeadership

2. Differentiation

NarrowTarget

3. Cost Focus 4. DifferentiationFocus

Co

mp

etit

ive

sco

pe

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 StrategiesPorter’s 4 Generic Business Strategies

Differentiation strategy - requires uniqueness or significant points of differences in product offerings

Lower Cost Differentiation

BroadTarget

1. CostLeadership

2. Differentiation

NarrowTarget

3. Cost Focus 4. DifferentiationFocus

Co

mp

etit

ive

sco

pe

Source of Competitive Advantages

Porter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies

Cost-focus strategy - involves controlling expenses and, in turn, lowering prices in a narrow range of market segments

Lower Cost Differentiation

BroadTarget

1. CostLeadership

2. Differentiation

NarrowTarget

3. Cost Focus 4. DifferentiationFocus

Co

mp

etit

ive

sco

pe

Source of Competitive Advantages

Porter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies

Differentiation focus strategy- utilizes significant points of difference to one or a few market segments

Lower Cost Differentiation

BroadTarget

1. CostLeadership

2. Differentiation

NarrowTarget

3. Cost Focus 4. DifferentiationFocus

Co

mp

etit

ive

sco

pe

Source of Competitive Advantages

Porter’s 4 Generic Business StrategiesPorter’s 4 Generic Business Strategies

A fifth generic strategy is

sometimes appears in some

treatments:

Best-cost providerBest-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

Products

PricePlace

Promotion

TargetMarket

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

Sell the Sizzle!

Ask - Would you buy this product/service?

Why or Why not?

Description of Products/ServicesDescription 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!

What are your products and services?

What are their benefits?

How do they differ from competitors’ products and services?

PRICE

STRATEGY

Pricing QuestionsPricing Questions

• What are your costs?

ProfitProfit

Costs and RevenueCosts and Revenue

Variable CostsVariable Costs

Fixed CostsFixed Costs

Price Price (Revenue)(Revenue)

Contribution

Break-even

(cost items that do not vary with production)

(cost items that vary with production )

Pricing QuestionsPricing 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 ValueSome aspects of Qualitative Value

Unique Value - If consumers believe the product offers values that cannot be found in other products, they are willing to pay more

Substitute Awareness - If consumers are aware of close substitutes, they will be sensitive to price changes

Difficult Comparisons - If they have difficulty comparing prices, prices will be less important, within reasonable limits

Total 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 StrategiesDepend 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?

To provide information about products

To stimulate demand

To differentiate products and/or to build a brand image

To remind current customers about product benefits

To counter competitors

To respond to negative news, or to take advantage of positive news

To 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.– A broad effort to influence public’s attitudes toward

the firm or it’s products. - Create an image.Create an image.

• Sales Personnel & Direct Marketing

Five Promotion Tools

Processes- Businesses 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.

ImplementationImplementation• 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 PlansSuccessful Strategic Plans