Marketing Strategy

I'm taking a farm business course put on by Everdale Organic Farm and Environmental Learning Centre. A question from one of the students (Monique, who is one of the interns at Whole Circle Farm) is about how much to spend on marketing.

My answer posted to the class discussion site as follows:

Monique’s question and Dave’s comment hit on a lot of issues concerning the creation of a marketing strategy and how much of the budget should go toward marketing. The objective of marketing consist of four steps. They are, to figure out: 1. who are your customers; 2. How to attract your various types of customer; 3. How to satisfy the customers; and; 4. How to retain them. These are four distinct things. Answering these steps will answer how much resources, be it money or otherwise, to go toward a marketing campaign.

In the case of how to retain customers, a good illustration was when I had an office job, in the good old days. On the way to the office every day I had the choice of buying my coffee from two street vendors. Their coffee tasted the same, and one vendor was more conveniently located than the other. So the conveniently located vendor was able to attract me to his stand (Step 2 above), but he wasn’t able to satisfy or retain me as a customer (Steps 3 & 4 above). The less convenient vendor was able to retain me as a customer for ten years. Why? Because he gave me and all his customers a big smile. The conveniently located vendor looked like he’d swallowed a mouthful of sand. So, at $1.25a cup every day for ten years, the convenient vendor lost out on almost $4,000in gross revenue from me. His smile would have been worth $4k! And that’s just for one customer. The smiling vendor figured out who his customers were, and was able to satisfy them with a cup of coffee, which had a cost to produce, and a smile, which cost him nothing.

Like the smiling coffee vendor, knowing who your customers are will help to determine how to develop your product, including how well to process it, how to price it, how to package and present it and, how to advertise. A Loblaw’s purchasing agent, as we know, won’t be influenced by a big smile.

Through her research Monique might find that customers love honey produced on a biodynamic farm, and are willing to pay a higher price for it. If she has a fairly limited supply this would influence her marketing strategy, especially, how much to spend on advertising. She could make a virtue of the limited supply, by advertising through word-of-mouth that each batch is a “limited run,” and by providing numbered honey jars. Or, she could inexpensively advertise to the customer base of the farm where she’s producing her honey. Monique’s customers could be made to feel that they are part of a special exclusive club, and will be retained season after season.

I agree that selling out is a mixed blessing. That’s why it’s important to have a way to measure the success rate of your advertising campaigns, which by the way, is part of Step 2 - How to attract customers. For example, if you distribute flyers to advertise your product you can measure how many customers you’ve attracted. You could also figure out how many customers you retained. Lots of businesses do this by including a coupon with a flyer. Suppose you distribute 10,000 flyers with a coupon included. If 500 customers buy your product using your coupon, you’ll have a measure of the attraction rate of your flyer campaign. ([500 customers divided by 10,000 flyers] x 100 = 0.5% success rate). If you keep track of the sales you made to those 500 customers you can also figure out the success rate, in dollar terms, of your flyer campaign. You could also measure how well you retained those customers, that is, the customers who bought once and then came back. If you have a low retention rate you should ask yourself: Did they not like the product? Was the customer service bad (should I smile more!)? Was the customer later attracted to the competition? Etc etc. You could find this out through customer surveys, or simply by chatting with customers, especially the ones who complain. A complaining customer is a valuable source of information. Flyers with coupons are one of many types of advertising campaigns, and there are many other ways to measure the success rate of your campaigns.

Back to Dave’s point, by the practice of measuring the success rate of your advertising campaigns you’ll get a better sense of the level of increased demand caused by each campaign, and you’ll hopefully avoid the situation of creating more demand than your supply will allow. If you produce something that stores well and inexpensively you could have a lot of stock on inventory, in case your advertising campaign is wildly successful. If you run a farm CSA you’ll have a limited supply of shares – you’ve already planted your crops weeks before - and therefore should be more thoughtful about the extent of your advertising.

The inherent limitations of your product might dictate who your customers are. For example, the garlic I’m growing might be of two types: premium garlic, and industrial garlic. The premium garlic will have an appealing look, with well shaped bulbs. The customers for this are likely personal consumers. The industrial garlic might taste just as good, but it won’t sell to those fussy personal consumers (that’s another debate). So it makes sense to find a different customer for the industrial garlic, and figuring out how to process the garlic for this group. This can include making jarred minced garlic; and garlic infused cooking oil, etc. It could mean you’ll fetch a different price if you have to sell it to a processor instead of to a personal consumer.

In farming, the soil conditions of the farm may determine which products to grow, and their quality. Knowing this will help to figure out who are your customers. It’s not like building a factory where you can pre-determine the type and quality level of your products.

Marketing costs will be determined to some degree by your distribution model, and distribution will be determined by who you figure out will be your customers. Are they personal consumers? If so, which type? Are they the fussy type who won’t appreciate a rustic farm store? Or, are they truly appreciative of what you’re doing? Depending on where they are on the spectrum of personal consumers will affect your decision about how to reach them, and the cost of reaching them. Or, is your customer another farm which has agreed to include your produce in their CSA? If so, than your marketing costs are negligible.

I’m very interested in critiques of this from the group, as it will help me to create my own marketing strategy, including how much to spend in the first year.

Profit vs Altruism at the Farmers' Market

 A farmer friend of mine, let's call him Henry, has been selling lettuce mix at a price of $4 for an 8 ounce bag at a farmers' market in Toronto. On 20 bags his gross for the day is $80. Whole Circle Farm and another farmer I know charge $7 per 8 ounce bag. Another farm, The New Farm, charges almost double this price. Why is he charging such a low price?

Henry wants to provide some of his produce to customers who’re in a lower income bracket, hence the lower price. It fits with the philosophy of many farmers, that everyone should have access to healthy food. The challenge is, how to pursue this worthy objective and also get a fair price for their produce.  Henry claims that other vendors at his market also charge $4 per 8 ounce bag, making it difficult for him to change his price even if he wanted to.

This got me to thinking about what Henry or any market vendor could do to make sure they  fetch a fair price. Here are a few ideas:

• Know Your Costs: The most important thing is to understand the cost to produce your products. Two good resources for this are "Organic Farmers Business Handbook, by Richard Wiswall. It explains how to do cost analysis. Another great book, Crop Planning for Organic Vegetable Growers, by Daniel Brisebois, explains how to break down production cost to bed foot per crop;
• Set Price Based on The Value of Your Product: Don't necessarily set price solely on what other farmers or vendors at your market are charging or, on the price charged by supermarkets. Perhaps the other farmers are following each other's lead, a likely scenario, since many farmers are price followers and takers, not price makers.  Henry could consider discussing price with the other vendors. However, discussing price with your competition may be contrary to the Ontario Business Practices Act. So I can't officially encourage anyone to do that. Henry could simply point out to his fellow vendors that their market is priced well below other farmers’ markets;
• Sell Your Products and Yourself: Do a good job of explaining to customers the value they are getting: organic, local, freshly harvested. Whatever it is, talk it up. Having good signage on your table is important. Giving away samples of your  vegetables is a good idea. Our Hakurai Turnip sold like cupcakes after customers had a sample from our market table.

Henry has the additional challenge of wanting to provide discounted lettuce for his lower income customers while at the same time charging a higher but fair price for the other customers.

An option for Henry would be to set a two tier price: If he brings 20 bags of lettuce mix to the market he could sell 15 bags x $7 bag = $105 gross. For low income customers he can offer them at a $3 discount. In other words, 5 bags at $4 each = $20. Henry’s gross for the day would be $125, $45 more than what he earns with his current pricing.

How would he know which customers to charge the $4 price?  He likely knows them, and can offer the discount to them. However, that could be tricky if nearby customers see that they’re not getting a discount. Another solution would be to charge $7 for all bags sold at the market, and at the end of the day, give away 5 bags through a food bank. Other deserving families will get lettuce, and Henry, bless his charitable heart, will have more revenue at the end of a long day at the market. On 15 bags at $7 each his gross would be $105, $25 more than he currently earns, and $550 more for the season.

Here’s a summary of some possible pricing scenarios Henry could follow while still being true to his philosophy of providing food for everyone regardless of their income:

Suggested Pricing Scenarios	Price Charged per bag of Lettuce (20 bags weighing 7 oz each)	Gross Sales per Week	Gross Sales Increase per Week over the Current Pricing	Total Gross Sales in a 22 week Season
Current Pricing	$4 each bag	$80	n/a	$1,760
Two Tier Price	15 bags x $7 ea  and 5 bags x $4 ea	$125	$45	$2,750
One Price	15 bags x $7 ea and 5 bags donated at end of the day	$105	$25	$2,310

 Whatever Henry does, it would be easier to implement any changes before the new season starts.

Distribution Models

One of the most important things for farmers to consider is their distribution model. Who is going to eat your vegetables, beef, pork, chickens, mushrooms, strawberries, preserves, yoghurt, etc etc.

Some Distribution Models:
Consumer Supported Agriculture (CSA) - Community Supported Agriculture (CSA) has become a popular way for consumers to buy local, seasonal food direct from a farmer. The consumer pays the farmer at the beginning of the season and then receives a basket of food once a week throughout the growing season. The farmer has the security of knowing who his customers are before the crops are planted, and the consumer is assured of getting fresh local food through the season, weather permitting. At the core of the CSA model is the relationship between the farmer and each customer, and the "story" behind the farm. At Whole Circle Farm, for example, virtually all the 200 CSA customers know Abhi, the garden manager. And many are aware of the ebb and flow of the farm either through our newsletters or, through conversations with Abhi, Johann, Maggie, or the farm interns.

As part of their relationship with the farm it's important that CSA customers understand the complexities of growing food. They'll be more understanding if there is a bad crop or, if the carrots are not perfect shaped or have a little dirt on them. It would help if prospective customers are screened before being accepted. They'll want ever more to be your customer when they find out that joining the CSA is not simply a matter of mailing a check.

Advantages: Get paid in advance, demand is guaranteed, so you know how much to grow. customers share in the bounty, and accept if there is a less bountiful season.

Disadvantages: Lots of responsibility. Consistent hard work every week during the CSA schedule. Problematic if the soil is susceptible to compaction say, when it rains, and harvest has to be done in time for the CSA delivery. It's best to avoid trudging through wet fields.

Farmgate - Farms situated on a busy road can do well through selling at an on-farm store. Ideally the store would have a weigh and pay honour system, where customers leave their money in a jar.

Advantages: Low maintenance and labour cost. A great way for customers to get familiar with your farm.

Disadvantages: People coming to your farm means you need parking, and have to be mindful of kids running around.

Farmers' Markets - They're great, if you can find a good one. The problem is that there are more farmers than there are farmers' markets. Good farmers' markets have a waiting list of vegetable and other produce vendors. I'd not want to start a farm based solely on the assumption that I'll sell my produce at a farmers' market.

Advantages: Can be great source of income. Inspiring to see people excited about your food.
Opportunity to see what other vendors are selling.

Disadvantages: Getting up early on a weekend. Long drive. Weather dependent. Unsold food may spoil.

Wholesale - This seems to be potentially the most price sensitive model. it includes selling to retail stores and large supermarkets with organic produce departments. Based on feedback from some farmers I've talked to, some of them with hundreds of acres in production, and some of whome are growers, distributors and wholesalers of organic produce, the purchasing departments of the major supermarkets are focussed mainly on price.
Whatever claims they make about supporting Ontario or Canadian local agriculture are not necessarily confirmed by their purchasing departments. Protective Covenants.

Advantages: Can sell large volumes.

Disadvantages: Fickle, manipulative buyers. Might require large storage facility. Possibly low price per item. No chance for face-to-face contact with end consumers.

Some combination of all these models is possible. And there are many other scenarios which build on these models, such as farmer coops which combine produce into one CSA product.