Direct Marketing Principles

Direct Marketing Principles Denise Mainville Agricultural & Applied Economics Virginia Tech mainvill@vt.edu Presentation for Agricultural Outlook Meetings February 19, 2007 What is Direct Marketing? • What is direct marketing? – Sales direct to consumer – Branded sales—identity of producer is maintained – High-value marketing • Examples – Pasture-fed beef – Farmers’ markets – Agri-tourism 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 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 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 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) 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 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 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 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 don’t like to interact with strangers What Products can be Direct Marketed? • Virtually any product, but some do better than others • Perishable, high-value products particularly wellsuited – 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 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 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 Seek insight and feedback from others • Seek insight and feedback from others – Other direct marketers – Extension agents 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 Opportunities in Direct Marketing: Consumer 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 Opportunities in Direct Marketing: Products • Virtually any product, but some do better than others • Perishable, high-value products particularly wellsuited – 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 Opportunities in Direct Marketing: Product 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 Opportunities in Direct Marketing: Outlets • 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