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									         Preface: Economics of Agricultural
         Markets: Ronald Shrimper                                       Review from 9/26/09

     The primary purpose of this course is to help students
       develop analytical tools for thinking about the
       overall business environment in which they operate                                       AEC 305:
       in some fashion for the rest of their lives

     Even if students do not intend to make their                       •   Impacts all of us as ag producers and
       livelihood from the sale of agricultural or food                     consumers
       products, they will definitely be spending some of               •   Economic theory + Applications
       their income in these markets
                                                                        •   Current Events-Oriented
     Hopefully the kinds of skill and knowledge provided                •   Daily Journals (equivalent to an exam)
      by the material in this book will equip students to
      better understand opportunities and challenges
      that those markets will provide.




                                                                            An Introduction to Ag Marketing
          AEC 305 – Course Outline                                          (9/1/09)
       OVERVIEW OF THE AGRICULTURAL
       MARKETING SYSTEM, CURRENT                                   1. Agricultural Markets vs
       ISSUES, AND METHODS/TOOLS OF
       ANALYSIS
                                                                      Agricultural Marketing
       SUPPLY AND DEMAND ANALYSIS OF                               2. Approaches to Studying
       AGRICULTURAL MARKETS
       AGRICULTURAL MARKET                                            Ag Marketing
       STRUCTURE, CONDUCT AND
       PERFORMANCE
                                                                       a) Micro vs Macro
       AGRICULTURAL PRICE DISCOVERY                                    b) Institutional, Functional,
       METHODS                                                            vs Behavioral
       SPATIAL ASPECTS OF
       AGRICULTURAL MARKETS                                        3. Ag vs Non Ag Markets
       TEMPORAL ASPECTS OF
       AGRICULTURAL MARKETS                                            a) Differences/Uniqueness
                                                                       b) Emerging Ag Mkt Issues


AEC 305, Food and Agricultural Marketing Principles            AEC 305, Food and Agricultural Marketing Principles




         General Statements About
         Agricultural Markets
          Complex (lots of players)
            Millions of farmers to thousands of agribusiness
            firms to hundreds of governments to billions of
            consumers
          Multi-stage
          M lti t
            Farm production, transporting, processing,
            storage, wholesaling, retailing
          Multi-market mechanisms
            Auctions, futures markets, contracts, marketing
            boards, cooperatives,
          Global -- Interconnected/Cultural Differences
AEC 305, Food and Agricultural Marketing Principles




                                                                                                                     1
               Markets vs Marketing                                                                                   What is a Market?
                     Market                                                                                              Market
                           Who has to be present?                                                                            A sociopolitical institution that represents a
                                                                                                                             mechanism by which people (buyers and
                           What has to occur?                                                                                sellers) interact to make economic decisions
                           Where? Do market participants have                                                                about what goods and services to produce
                           to be in the same location?                                                                       and consume. Schrimper, p. 7-8.
                                                                                                                             All of the possible buyers and sellers of a
                     Marketing                                                                                               product or commodity, Rhodes et al, pp. 355
                           How does “marketing” differ from the
                           term “market.”
AEC 305, Food and Agricultural Marketing Principles                                                         AEC 305, Food and Agricultural Marketing Principles




                                                                                                                      Examples of an Ag Market
              Different Types of Markets                                                                              Analysis
                                                                                                               Supply and Demand Conditions Affecting the World
                                                                                                               Soybean Market
                                                                                                               Examining the Export Demand of French Wines to the
                                                                                                               United States
                                                                                                               Evaluating the Effects of Hi h T
                                                                                                               E l ti     th Eff t f Higher Taxes on D         ti
                                                                                                                                                         Domestic
                                                                                                               Tobacco Consumption in the U.S.
                                                                                                               Investigating the Impact of Biotechnology on
                                                                                                               Kentucky White Corn Yields and Prices
                                                                                                               Assessing the Impact of the Value of the U.S. Dollar on
                                                                                                               the Demand for Thoroughbreds at the Keeneland Sales
                                                                                                               Farmer Jones Evaluating the Effects of Higher Prices
                                                                                                               for Pumpkins Sold at his local Farmers Market
                              http://www.youtube.com/watch?v=MgPkMQIZL4E
                                                                           http://www.youtube.com/watch?v
   http://www.youtube.co
                                                                           =W1jhF7KlESE
   m/watch?v=EQyzyIz5A        http://www.youtube.com/watch?v=D9R4UO4qwA
   S8                         Q


AEC 305, Food and Agricultural Marketing Principles                                                         AEC 305, Food and Agricultural Marketing Principles




                                                                                                                                                                              2
           What about Marketing?                                                     Agricultural Marketing System

              Marketing                                                                                  Government Intervention

                     The performance of all business                            Input
                                                                               Suppliers
                     activities involved in the flow of
                     products and services from the point                                                        “Middlemen”
                     of initial production until they are in                            Farmers                (assembly, processing,
                                                                                                                wholesaling, retailing
                                                                                                                                                 Consumers
                     the hand of consumers

            All entities involved in this process
            are part of a marketing system                                                                 Macroeconomic Factors


AEC 305, Food and Agricultural Marketing Principles                                   Potential Exam Question: Define Consumer Sovereignty.




           Example:
           Tobacco Marketing System                                                  Ag/Food Marketing Chain
                             Buyout/Labor Laws/Trade Policy
                             Government Intervention
                              Taxes/ Smoking Restrictions/
                           Consumer Education/FDA Regulation
     Input
  Fertilizer, Seed
 Chemicals, Labor,
   Suppliers
 Credit, Extension

             8,000 KY               “Middlemen”
                                  Tobacco Companies               45 million
             Farmers
             16,000 US            (assembly, processing,
                                  Processors, Retailers         Consumers
                                                                U.S. tobacco
              Farmers              wholesaling, retailing         consumers




                                     Interest Rates,
                              Macroeconomic Factors
                                  Exchange Rates,
                                   Disposable Income

                                                                                 Source: pg. 9 The Agricultural Marketing System, (Rhodes, Duave, Parcell)




          Where Do We Generally Purchase
          Our Food Items in the U.S.?                                                Ag/Food Marketing Chain
              Supermarkets                           Restaurants
              Neighborhood food                      Cafeterias
              stores                                 Specialty food stores     Value Increases as one moves along the marketing chain
              Convenience stores                     Online and catalog
              Drug and discount                      orders
              stores
              Gas stations
              Vending machines
              Food stands, street
              vendors                                                            Source: pg. 9 The Agricultural Marketing System, (Rhodes, Duave, Parcell)




                                                                                                                                                             3
          Marketing is a Value-Added Process As
          One Moves Along the Marketing Chain                                           Ag/Food Marketing Chain
 For Example: Potatoes grown on farms in Idaho are shipped to
 processing/packaging facilities and then onto distributors who
 transport them to shelves in local stores in Lexington.
                                                                                 Value Increases as one moves along the marketing chain
     Seeds    Potatoes     Chips     Flavoring   Packaging     Location




 Value is added at each stage of the marketing system as the raw
 potatoes are transformed and moved to become products that                         Source: pg. 9 The Agricultural Marketing System, (Rhodes, Duave, Parcell)
 consumers are willing and able to buy




       KY Examples of Direct Marketing to Enhance                                    KY Examples of Direct Marketing to Enhance
       Value Received by Agricultural Producers                                      Value Received by Agricultural Producers

                                      KY Ag Events: Sept. 1

                                      Crop Circles in Chaney’s Corn Maze
                                      Chaney’s Dairy Barn, Bowling Green:

                                                         ee ie glo
                                      Late one night an eerie glow filled
                                      the sky at Chaney’s Dairy
                                      Farm. Farmer Carl dashed to the
                                      window in time to see Ms. Glimmer,
                                      his beloved Jersey cow, trapped in a
                                      UFO’s tractor beam of light…Ms.
                                      Glimmer escaped and is now hiding
                                      somewhere on the farm. Pick up a
                                      card at the Dairy Barn’s register and
                                      find the four clues in the corn maze
                                      to discover Ms. Glimmer’s hiding
                                      place.




          An Introduction to Ag Marketing                                               Macro vs Micro Analysis of
          (9/1/09)                                                                      Agricultural Marketing
    1. Agricultural Markets                                                      Micro – firm level decision making analysis
       vs Agricultural                                                                      How many dollars do I spend to advertising/promote my
       Marketing                                                                            product?
                                                                                            Will consumers prefer a smaller package or the intro of a
    2.
    2 Approaches to                                                                         slightly differentiated product?
       Studying Ag                                                                          Should I contract my production?
       Marketing
                                                                                 Macro – analysis of entire markets
        a) Micro vs Macro
                                                                                            How are energy prices affecting food prices .. fertilizer
        b) Institutional,                                                                   prices?
           Functional, vs                                                                   What impact will the falling U.S. dollar have on U.S. trade?
           Behavioral
                                                                                            What will be the effect of current farm and energy policy
                                                                                            on U.S. corn and soybean acreage?

AEC 305, Food and Agricultural Marketing Principles                           AEC 305, Food and Agricultural Marketing Principles




                                                                                                                                                                4
          An Introduction to Ag Marketing                                             Approaches to Studying
          (9/1/09)                                                                    Agricultural Marketing
    1. Agricultural Markets vs                                                 Institutional – “Who Is Involved?”
       Agricultural Marketing
    2. Approaches to Studying                                                  Functional – “What Occurs?”
       Ag Marketing                                                            Behavioral – “How The Market or
        a) Micro vs Macro
        b) Institutional, Functional,                                          Marketers Behave and Perform?”
           vs Behavioral
    3. Ag vs Non Ag Markets
        a) Differences/Uniqueness
        b) Emerging Ag Mkt Issues


AEC 305, Food and Agricultural Marketing Principles                         AEC 305, Food and Agricultural Marketing Principles




          Approaches to Studying                                                      Approaches to Studying
          Agricultural Marketing                                                      Agricultural Marketing
          Institutional – study of the various individuals, agencies
            and businesses that perform/affect the marketing
            processes.
                                                                               Institutional
            Examples include:?                                                 Functional – specialized activities performed
                 Farmers/Producers                                             within the marketing process
                                                                                                   g
                      f
                 Manufacturers/Agribusinesses                                     Exchange Process – buying and selling
                 Processors                                                       Processing – markets over product forms
                 Wholesalers
                                                                                  Storage – markets over time
                 Retailers
                 Organizations (e.g. commodity exchanges, auctions, trade         Transportation – markets over space
                 associations, cooperatives, farm groups)                         Financing – capital requirements
                 Government Agencies                                              Market Information – informed buyers/sellers
                 Lawyers, Media Personnel, Bankers,                               Standardization – uniform quality/quantity measures
                 Consumers



AEC 305, Food and Agricultural Marketing Principles                         AEC 305, Food and Agricultural Marketing Principles




          Approaches to Studying
          Agricultural Marketing                                                      Examples of Behavioral Issues

             Institutional                                                               Can changes be made in the marketing
                                                                                         system to lower the cost of food to
             Functional                                                                  consumers?
                                                                                         Are producers/manufacturers
             Behavioral – examining the                                                  responding to the needs of the
             performance of management                                                   consumer?
             decisions made by coordinated and                                           Are producers receiving an “adequate”
                                                                                         return on their investments?
             interdependent firms
                                                                                         Are manufacturer’s abusing their
                                                                                         market power or providing incorrect
                                                                                         market information?
AEC 305, Food and Agricultural Marketing Principles                         AEC 305, Food and Agricultural Marketing Principles




                                                                                                                                        5
          Journal Entry for 9/1/09:
          1) Identify the Four P’s of Marketing and                                      Journal Entry for 9/1/09:
          provide a brief explanation                                                    1)
             Product – developing your                                                   1.  Identify the four P’s of Marketing and
             product to meet consumer
             preferences                                                                     provide a brief explanation
             Price – establishing a price to                                                1)
             meet firm’s objectives                           Product

             Place (Distribution) –                   Price                                 2)
             determining the optimal location                         Promo
             and distribution methods to                                                    3)
             reach your consumers                             Place
             Promotion – communicating the
                                                                                            4)
             positive attributes of your                                                 2. Identify two unique features of ag/food
             product to enhance sales
                                                                                             markets vs other markets
                                                                                            1)
                                                                                            2)
AEC 305, Food and Agricultural Marketing Principles                           AEC 305, Food and Agricultural Marketing Principles




   List Some Unique Characteristics of                                           List Some Unique Characteristics of
   Agricultural Commodity and Food Markets                                       Agricultural Commodity and Food Markets

   Everyone is an Agricultural Consumer – The World is the                       Price Volatility – Agricultural prices tend to be more volatile than
   Marketplace                                                                   the prices of non-farm goods and services

   Agricultural Commodities Tend to be Bulky/Low Per Unit Value                  Market Structure --Various Market Structure Models are Present
                                                                                          competition
                                                                                 (Perfect competition, Imperfect Competition to Markets with
   Biological Nature/Weather (Supply side)                                       Monopoly Market Power)
      Production lags
      Uncontrollable output                                                      Political Influence-
      Perishable goods                                                              Despite declining farm numbers, agriculture and agribusiness
                                                                                    still very influential politically.
      Supply is very dependent on the weather
                                                                                    Govt Regulation/Food Safety/Bioterrorism issue
   Nature of Demand – How do consumers respond to changes in food
   prices?


AEC 305, Food and Agricultural Marketing Principles                           AEC 305, Food and Agricultural Marketing Principles




          Emerging Factors Affecting Food                                             Reading Assignments for
          and Agricultural Markets                                                    September 3, 2009

       Demographics (age, ethnic pop)                                                                                  Twenty Years of Competition
                                                                                                                               Reshape the
       Incomes
                                                                                                                        U.S. Food Marketing System
       Changing Lifestyles (dual working families, convenience
       foods)
       Health Nutrition Food Safety
       Health, Nutrition,                                                                                                  ERS/USDA, April 2008
       Changing Consumer Preferences
       Work-Force (woman, immigration policy)
       Production Technologies
       Mergers/Consolidation/Vertical Integration
       Contracting/Direct Marketing                                                   August 31, 2009
       Globalization
       What about Government Policy and Regulation?
                                                                                   www.time.com/time
                                                                                                                     www.ers.usda.gov/AmberWaves/Ap
                                                                                   /covers/0,16641,200
                                                                                   90831,00.html                     ril08/Features/FoodMarketing.htm
AEC 305, Food and Agricultural Marketing Principles




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