Direct Marketing Principles

1
Direct Marketing Principles

• Denise Mainville
• Agricultural Applied Economics
• Virginia Tech
• mainvill_at_vt.edu
• Presentation for Agricultural Outlook Meetings
• February 19, 2007

2
What is Direct Marketing?

• What is direct marketing?
• Sales direct to consumer
• Branded salesidentity of producer is maintained
• High-value marketing
• Examples
• Pasture-fed beef
• Farmers markets
• Agri-tourism

3
Why Direct Market?

• Growing demand for direct marketed agri-food
  products
• Tension between farm urban land
• Increasing constraints on commodity production
  (waste removal, land values, legal cultural)
• Increasing interest in nostalgia for rural way
  of life!
• Increasing concern over food quality and safety
• High-value, high-profit potential
• Protection from commodity input price
  fluctuations
• High revenue per acre potential benefits smaller
  producers who do not benefit from scale economies
  in commodity production

4
Behavior of Direct Markets

• Direct Markets behave very differently from
  commodity markets
• Risk management in commodity markets heavily
  oriented to price (output input) risk
  management
• Different types of risks exist in direct markets
• Product farm liability

5
Characteristics of Commodity Markets

• Many buyers sellers
• Standardized, homogeneous product
• Easy access to market information
• Highly competitive markets that punish higher
  cost producers
• Need for price risk management to mitigate
  effects of commodity price fluctuations

6
Characteristics of Direct Markets

• Products are not standardized
• Products of different producers not easily
  interchangeable
• Less information available
• Characteristics of products traded are diverse
  and often intangible (local, experience)

7
What do Customers Want?

• What do customers want?
• Product
• Quality
• Fresh
• Service
• Experience
• Relationships
• Concept of product as a bundle of attributes is
  particularly relevant to direct marketing

8
Why High Margins

• Higher production cost
• Value-added services
• Processing
• Marketing
• Price premiums
• Customers are less price sensitive than in
  commodity markets
• Hard to compare products across producers

9
Planning for Direct Marketing

• Decide whether it is right for you
• Decide on a product and a market
• Develop a business plan
• Seek insight and feedback from others

10
Is Direct Marketing Right for You?

• Direct marketing puts very different demands on
  your time and your resources
• A huge proportion of your time will go into
  marketing
• Direct marketing might not be right for you if
• you love producing and hate marketing, or just
  hate marketing
• you dont like to interact with strangers

11
What Products can be Direct Marketed?

• Virtually any product, but some do better than
  others
• Perishable, high-value products particularly
  well-suited
• Fruits and vegetables
• Meats, eggs
• Processed products (cheeses, jams, etc.)
• These are well-suited to local markets,
  high-value for volume, subject of consumers
  concerns over food safety

12
Choose a Direct Market Outlet

• Types of Direct Market Outlets
• Farmers Markets
• Pick-your-own (aka U-Pick)
• Roadside stands markets
• Community Supported Agriculture (CSAs)
• Internet marketing
• Self-service
• Sales to restaurants local stores

13
Develop a Business Plan

• Can help you decide whether direct marketing is
  right for you before you invest
• Can help you determine best way to match your
  farm resources with your farm goals and values
• Make specific plans for investment, production,
  marketing, finances and management

14
Seek insight and feedback from others

• Seek insight and feedback from others
• Other direct marketers
• Extension agents

15
Keys to Success

• Choose something you like (love) to do
• Know, and provide, what your customers want
• Build and maintain a loyal customer base
• Produce quality
• Start small and grow
• Keep good records
• Involve, and learn from, others
• Stay informed
• Plan for the future
• Evaluate continually
• Persevere
• Secure adequate capitalization

16
Opportunities in Direct MarketingConsumer
Segments

• Consumers
• Great opportunity exists in proximity to
  urban/suburban areas (e.g. North Carolina
  metropolitan areas)
• Smaller cities with social conscience (e.g.
  Abingdon) and a vibrant food culture
• Tourist lifestyle destinations (e.g. SW VA
  area)
• Niche consumer groups--ethnic

17
Opportunities in Direct MarketingProducts

• Virtually any product, but some do better than
  others
• Perishable, high-value products particularly
  well-suited
• Fruits and vegetables
• Meats, eggs
• Processed products (cheeses, jams, baked goods,
  etc.)
• Products that carry an identity
• These are well-suited to local markets,
  high-value for volume, subject of consumers
  concerns over food safety

18
Opportunities in Direct MarketingProduct
Attributes

• What do customers want?
• Tangible qualities
• Quality
• Fresh
• Unique
• Intangible qualities
• Non-industrialized
• Local
• Environmentally animal friendly
• Experience
• Relationships
• Concept of product as a bundle of attributes is
  particularly relevant to direct marketing

19
Opportunities in Direct MarketingOutlets

• Types of Direct Market Outlets
• Farmers Markets
• Established infrastructure
• Generally looking for vendors!
• Community Supported Agriculture (CSAs)
• Unique, risk sharing arrangement
• Limited potential for expansion
• Sales to restaurants local stores
• Pick-your-own (aka U-Pick)
• Roadside stands markets