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Although retailers across the country specialize in helping growers produce a wide variety of crops from rice to soybeans to peppers, retailers have one thing in common providing value and service.
In a trend at odds with the consolidation in the ag industry, the retailers we talked with find value in treating each customer as an individual with unique concerns and needs.
Using programs and incentives
“As a company, we look at rebates and combinations from our suppliers,” says Corinne Schornack, manager of Cooperative Elevator Company's Ruth, MI, location. “The key is to find the programs that, first and foremost, benefit our customers and allow us to generate profit so we can stay in business to service those customers.”
Gordon Cockrum, manager with the McGregor Company in Colfax, WA, says any company can offer a good deal but the key is finding companies that can back the deals up.
“We choose companies based on experience and with the financial resources to deal with product concerns,” Cockrum says. “Businesses must be stable and produce certificates of insurance. That doesn't mean we won't work with small companies, but we do it on an incremental basis.”
Glyphosate products may have started the margin ball rolling, but no matter how you look at it, margins today lack consistency and continue to shrink, putting more pressure on the retailer to supply value.
“Take glyphosate as an example,” Cockrum says. “Branded products have more local representation, but there are still five choices of the same molecule formulation. Our job is to sort out the value for our customers.”
Understanding the customer's needs
“All levels of the ag supply chain must come to grips with the fact that a certain segment of growers shops on service and another segment shops on price,” stresses Steve Hawkins, head of marketing for field crops with Syngenta.
“Customers drive our purchasing decisions, but they also understand that it's necessary to contain costs,” Cockrum says. “Price is a major consideration for them like it is for any consumer.”
Lack of loyalty is also a big issue for today's retailers. “We have a segment of growers who do business with us based on loyalty and the level of service we provide,” Schornack says. “Our goal is to expand on that level of loyalty by treating growers as individuals, knowing their farms, being there on a day-to-day basis, helping them add value and working as a part of their farming team.”
Cooperative Elevator Company operates eight locations across a three-county area in the thumb of Michigan. “Because we're also a dry bean- and grain-receiving facility, we utilize marketing programs that tie crop inputs with grain delivery incentives, adding value for our growers and ourselves,” Schornack says.
“It's the responsibility of the local retailer to provide an offer that's worth the support of the grower,” Cockrum says. “The main motivators should be cost containment for farms and net income to growers.”
Schornack adds that retailers must understand that some growers shop on price alone, and if they don't find value in the services or products retailers provide, then a better job needs to be done of educating them.
“We are not a Wal-Mart and we cannot service them with that mentality,” she adds.
“The value system is complicated and takes a lot of explaining,” Cockrum admits. “But customers need to know that purchasing from us keeps us here. Hopefully that adds value for them.”
Selecting products for value
“The key to selecting products that bring value to our customers is based on the simple formula of cost versus performance,” Cockrum stresses.
The McGregor Company uses 43 locations to serve Washington, Oregon and Idaho. Growers produce everything from nonirrigated wheat, barley, peas and lentils to irrigated canola, carrots and seed alfalfa to tree and vine crops.
“Our fieldmen are specialists in their areas and help choose the products that bring value to their specific areas of expertise,” Cockrum says. “For instance, in irrigated vegetable products, direct food processors dictate the inputs and require full accountability on their contract acres.”
Product performance is critical, but every grower's needs and views of value are different. “Every producer is different, and we need to identify value for them,” Schornack says. “Our crop protection line ranges from full service to generics, but we won't service generic products because typically we do not have support from the manufacturer of those products.”
Retailers add value through side-by-side test plots for seed and crop protection products, GPS programming, soil sampling, field maps and plain old-fashioned service.
Cockrum notes that the future is not settled on the manufacturing or retailer side of the ag equation. “There's still more change to come, and I think most of us realize that,” he says. “The industry is still trimming out excess capacity, and while no one will be without service or products, they will be available on a more limited basis. It's a trade-off as efficiency comes to the marketplace. It's not a good or bad thing but the reality.”
Role of margins and responsibility
Today retailers make money on service whether it's crop scouting, custom application or GPS mapping.
“We are a service-oriented business and view our relationship with the grower as a partnership,” Schornack says. “If we are not providing growers with the best options for their farms to make them profitable, then we are putting our growers and ourselves at risk.”
Cockrum points out that retailers carry a strong responsibility to educate their customers. “They depend on us to make good value decisions. Retailers who promote lower-cost options without explaining the downsides of service aren't being honest,” he stresses. “Retailers have the real responsibility to be more up front and educate their growers.”
Growers need to make their choices with a balanced view of the product and service. “Telling a grower that it is the same product only cheaper is not true,” Cockrum says. “Risk management can be a major issue with a less expensive option. We make sure growers fully understand the coverage and service options. Most product complaints are answered as a marketing issue, not a legal or product failure issue.
“Most growers want to know the limits and boundaries on service,” Cockrum says, “and our business is selling products to customers who want to buy them.”
Market segmentation
Today's growers fall into two broad categories: those who shop on service and those who shop on price. Not only are there two categories of shoppers, the market also has become more complex on every level, adding to the confusion.
Retailers are facing biotechnology in seed and crop protection, with huge numbers of cropping options on one hand and more sophisticated, businesslike growers on the other.
“The core base of a local retailer's business is to offer value and programs with value, realizing that all growers have a different price point,” says Steve Hawkins, head of marketing for field crops with Syngenta. “They can do this by looking at their growers and the market in a segmented way.”
Subgroups
The market can be broken up into groups that buy or behave in a certain way. For example, they might apply their own crop protection products or they embrace stacked seed traits.
“By matching an offer or program to these unique segments of growers, the retailer is securing better margins while the grower gets a customized cropping plan,” Hawkins says.
Each of these groups has a different “value point.” The value point is the price plus services (crop scouting, newsletters, Web sites, etc.) minus cost.
Market analysis
According to Hawkins, Syngenta has invested significant financial resources, time and effort into studying market segmentation at the grower and retailer levels.
“Syngenta is currently taking their marketing expertise to the retailer and their grower base,” Hawkins says. “It can be a win-win situation for everyone.”
However, not all retailers see the value in segmentation.
“There are retailers who see this concept on their own and our services help make it happen a little faster for them,” Hawkins says. “And there are retailers who don't believe that level of marketing is required to meet their customers' needs.”
Embracing the concept and practice of segmentation helps a retailer look into the future and try to pick a supply partner based on products, technology and service. Who are the players going to be in the long run for seed, biotechnology and crop protection?
“Retailers are going to continue being challenged on all levels, making it difficult to deliver value to the customer and profits to themselves,” Hawkins stresses. “The stakes are high.”
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