Department of Applied Economics and Management

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Strategic Planning for Your Farm Business
BREAKING OUT OF THE BOX!
Wen-fei Uva Senior Extension Associate

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

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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

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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

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WHY STRATEGIC MARKET PLANNING IS NOW A
HOT TOPIC

• Globalization

• Growing concentration in the retail sector

• Changes in wholesaling

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• Depressed commodity prices

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• Depressed commodity prices

• Workforce availability

• Availability of pesticides (FQPA)

• Changes in consumer attitudes

Survival of producers is often at RISK!
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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

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WHO Should be Involved in Strategic Planning?

• Cant 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
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Steps in Strategic Planning
Step 1. Define the Firms (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
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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

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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
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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?

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4 Consumer Motivators in Todays 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

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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

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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

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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 competitors product against new
  product (learn what customers do or dont want)
• Offers marketing ideas

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Steps in Strategic Planning
Step 4. Assess the Firms 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?

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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?

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Step 4 and Step 5 are the SWOT Analysis
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Steps in Strategic Planning
Step 6. Develop Alternative Strategies
Product-Market Growth Matrix
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Target market a group of customers (people or
firms) at whom the company aims its marketing
effort.
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• 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
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Porters 4 Generic Business Strategies
SOURCE OF COMPETITIVE ADVANTAGE
Competitive scope
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Porters 4 Generic Business Strategies
Source of Competitive Advantages
Competitive scope

• Cost leadership strategy - requires serious
  commitment to reducing expenses that, in turn,
  lowers the price in a relatively broad array of
  market segments

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Porters 4 Generic Business Strategies
Source of Competitive Advantages

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

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Porters 4 Generic Business Strategies
Source of Competitive Advantages
Competitive scope

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

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Porters 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

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• A fifth generic strategy is sometimes appears 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
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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)

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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)

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Factors Guiding Strategies and Tactics Product,
Price, Promotion, Place, (also Process, People,
Presentation/Packaging)
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PRODUCTSTRATEGY
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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?

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• 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!)
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• 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?

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• PRICE
• STRATEGY

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Pricing Questions

• What are your costs?

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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
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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?

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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

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

• Total Expenditure Relative to Income - Most
  people wont 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.

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Dont assume that price is the only reason people
buy!
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• PLACE
• OR
• DISTRIBUTION
• STRATEGY

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Select Place/Distribution Strategies
Depend on the target markets 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

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• PROMOTION
• STRATEGY

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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.

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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 publics attitudes
  toward the firm or its products. - Create an
  image.
• Sales Personnel Direct Marketing

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• 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.

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• 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

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• 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.

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Implementation

• 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 plans weaknesses

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Successful Strategic Plans

• 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.