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.
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.
