Department of Applied Economics and Management Cornell University Ithaca, NY 14853

1. Department of Applied Economics and Management Cornell University Ithaca, NY 14853 Modified by Georgia Agriculture Education Curriculum Office June, 2002 Strategic Planning for Your Farm Business BREAKING OUT OF THE BOX! Wen-fei Uva Senior Extension Associate

2. 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

3. 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

4. WHY STRATEGIC MARKET PLANNING IS NOW A “HOT TOPIC” • Globalization • Growing concentration in the retail sector • Changes in wholesaling

5. Depressed commodity prices

6. Depressed commodity prices • Workforce availability • Availability of pesticides (FQPA) • Changes in consumer attitudes Survival of producers is often at RISK!

7. 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

8. 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

9. Steps in Strategic Planning Step 1. Define the Firm’s (Personal) Mission • 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

10. Mission Statement • 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

11. Steps in Strategic Planning Step 2. Establish Objectives • 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

12. Steps in Strategic Planning Step 3. Assess the External Environment • 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?

13. 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

14. 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

15. Observations of Trends from the “Big Guys” • Changing Buying-Selling Paradigm • 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

16. A B Price D C Performance 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

17. Steps in Strategic Planning Step 4. Assess the Firm’s Strength and Weaknesses (Look Internally) • 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?

18. Steps in Strategic Planning Step 5. Identify Opportunity and Threats • 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?

19. Step 4 and Step 5 are the SWOT Analysis

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

21. Target market:a group of customers (people or firms) at whom the company aims its marketing effort.

22. 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

23. Porter’s 4 Generic Business Strategies SOURCE OF COMPETITIVE ADVANTAGE Competitive scope

24. Porter’s 4 Generic Business Strategies Source of Competitive Advantages • Cost leadership strategy- requires serious commitment to reducing expenses that, in turn, lowers the price in a relatively broad array of market segments Competitive scope

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

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

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

28. A fifth generic strategy is sometimesappears in some treatments: Best-cost provider- giving customers more value for the money by combining an emphasis on low cost with an emphasis on upscale differentiation

29. 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)

30. Examples of Some Alternative Strategies • 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)

31. Factors Guiding Strategies and Tactics: Product, Price, Promotion, Place, (also Process, People, & Presentation/Packaging)

32. PRODUCTSTRATEGY

33. Description of Products/Services • 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?

34. 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!)

35. 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?

36. PRICE STRATEGY

37. Pricing Questions • What are your costs?

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

39. 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?

40. Some 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

41. 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.

42. Don’t assume that price is the only reason people buy!

43. PLACE OR DISTRIBUTION STRATEGY

44. Select Place/Distribution Strategies Depend on the target market’s needs, and where you have a competitive edge - local, regional, national, or international • 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

45. PROMOTION STRATEGY

46. 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.

47. Five Promotion Tools • 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. • Sales Personnel & Direct Marketing

48. 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.

49. 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

50. 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.