Transcript Price - AgriBusiness

Market Forces
AS91530
Level 3 Agricultural and Horticultural Science
What is a market?

A market is simply any group of people or
organisations who wish to purchase and have the
ability to purchase a product or a service which
meets their needs.

It is not necessarily limited by geographical
boundaries unless we specify those boundaries.

It does not describe the people or organisations by
anything other than their wish to purchase and
their ability to make that purchase.

It does not describe the product or service except
as a need satisfier.
Competitive markets

Should have a large number of buyers and
sellers and not be dominated by any single
group of buyers or sellers.

Neither can any restrictions be placed on the
number of buyers and sellers entering or
leaving the market.

Such market is also known as an open market
or free market.

In many situations, the conditions for a free
market operation to exist are not met; so
various unique market situations have evolved
for many agricultural products.
Segmenting a market
There are specific rules for segmenting a
market. Every segment must be capable of
being;
1. Measured.
2. Commercially viable i.e. be of a minimum
acceptable size.
3. Reached by the marketer in a way that is
time and cost efficient.
4. Responsive i.e. they must see themselves as
being in the market for the segment – size,
need, - fulfilling product or service.
Why segment?
The more alike a group of consumers are, the better the marketer can design
and deliver the most appropriate product or service to fit unique needs of that
group.

Geographic – multinational, region of the world, national, regional, state,
province, district, city, town, general urban, suburban, rural, density of
population, climatic zone, topography.

Consumer markets – age, sex, marital status, family size, family lifecycle
status, personal income, income type, occupation, religion, ethnic,
education, nationality.

Demographic – conditions of life in communities of people seen in statistics
e.g. life, death, diseases, ownership of property.

Psychographic – measurement of the soul, spirit or mind of an individual or
group of individuals.

Business to business – time in operation, type, size, ownership, turnover,
sources of income, markets served, location, expertise.

Behaviour based – buying occasion, use rate, prime benefit sought, product
loyalty, brand loyalty, purchase intention, price,

Marketing is all about fishing where the fish are.

Market segmentation allows the marketer to see
how big the pond is, then how many fish are in it, of
what type and size, and from all of this, how to best
set about becoming a successful catcher of the
chosen fish.
Questions

Explain what is market segmentation?

Who are the potential consumers of:
A
roadside stall selling eggs
A
florist shop
A
7 day dairy

What is a target market?

What are the benefits of market
segmentation?
Market Niche

Producers of goods, product
manufacturers and marketers are always
looking for opportunities to develop a
new product for a new market, or a new
segment of a market (market niche).

E.g. Organic kiwifruit is a niche market.
Marketing of primary
products.

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Incorporates the concepts of adding value to
goods as they pass through a chain of
production.
Combination of all the activities that
contribute to the value of the final product.
Inputs e.g. fertiliser, seed,
Transformation into products e.g. cartooned
juice, frozen beans.
Must reflect needs and wants and be
presented in such a way that the consumer is
prepared to pay for the ‘added value’.
Marketing

Markets are used to describe a place of selling products such as
supermarket, garage sale, and mail order.

Market places for Agricultural and Horticultural products include;

Direct selling
 Gate

sales and pick your own
Indirect selling
 Auctions
 Wholesale
market
 Cooperatives
 Brokers
/ Producer Boards
and private treaties
 Contracts
 Retail
market.
Direct Selling
Gate sales

Where the producers sell directly to the consumers, as in
gate sales and pick your own.

Good way to sell produce quickly

Produce usually grown on the property

Produce costs less than the supermarket due to lower costs
(no transport costs, minimal packaging)

Provides cash flow

Produce is fresh

Near a large population

Near a popular holiday area

Has a main highway passing by.
Farmers markets
Where the producers sell directly to the
consumers
 Good way to sell produce quickly
 Produce costs less than the supermarket
due to lower costs (minimal transport
costs, minimal packaging)
 Provides cash flow
 Produce is fresh



Near a large population
Near a popular holiday area
Indirect Selling

Where the producers sell to at least one middleman who then
sells to the retail market.

Retail market is where the consumer buys the produce.

The producer and consumer do not meet.

Examples are auctioneers, wholesalers, and retailers.

Higher prices.

Produce that is less fresh

More consistent quality of produce
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Wider distribution

Out of season produce.
Auctions
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Where goods are sold to the highest bidder.
Buyers bid for produce by offering price to auctioneer.
Sold to the buyer who offers the highest price.
Auctioneer tries to sell everything that is on offer.
Auctioneer takes a % of price paid – commission.
Advantages: Producers get a fair price, do not need to
keep in communication with all the buyers, rewarded with
higher prices when the produce is in short supply and
payment is reliable.
Disadvantages: Price may fluctuate, may not cover the cost
of production, do not know buyers, and delays in
payments.
Wholesale markets

Positioned between producers and consumers

3 functions
 Buys
goods from producers
 Stores
 Sells
goods in warehouses
the goods to retailers.

Advantages: Easier to sell in bulk, not storing
products.

Disadvantages: charges for the goods, plus storage
and any other costs.
Cooperatives / Producer Boards.

A group of producers group together to collectively fix
prices that they will accept for their products.

Producer boards tend to be Government legislated
marketing authorities.

Cooperatives tend to be a group of buyers getting
together to agree on minimum price.

Tend to market overseas e.g. Zespri, Fonterra.

Disadvantages:

There is a loss of individual choice of product produced and how
it is sold.

The cooperative members need to find the capital for
manufacturing, storing, marketing, and stockpiling products in
hard times.

Advantages:

Reduces competition in the overseas markets and prevent
buyers playing off against another to lower the price

Enable small producers to trade in large markets

Ensures a more regular supply of product on to the markets.

Enables specialist marketing staff to be employed

Enables specialist production advice to be made available to
small producers

Through an electoral system it lets small producers have
some day in their industry

Can even out good and bad year returns
Brokers and private treaties
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Brokers are businesses that buy produce on behalf of buyers, e.g.
supermarkets.
A broker enters into a private agreement or treaty with the
producer.
The broker charges a commission.
Potatoes, carrots, cabbages, and tomatoes are often sold this
way.
The grower agrees to supply a certain quantity of product over a
specific time and at a price similar to what they would get at
auction prices.
Produces reaches the market quickly and regularly.
Growers know in advance that their produce is sold and for how
much.
Contracts

A contract is an agreement between a producer and a major user
e.g. a processing factory.
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Negotiated every year.

Covers:

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The amount of produce to be bought by the factory

When the produce has to be ready for the factory

Description of the product quality, variety and size.
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How the produce is to be grown (chemical free, organic)
Advantages:

Producers know the products are sold at a set price

Buyer knows that there is a fixed supply at a set price

Buyer may offer technical advice to grower

Producer can budget / plan ahead.
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Disadvantages:
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If market price goes up, the seller might not get the best
possible price.

If producer cannot deliver, there may be a penalty in the
contract.

Large consumers in a small market may dominate the market
and force down prices.

Producer many need to plant more crop than is theoretically
needed to ensure there is enough available to meet the
contracted amount.

Excess crop will be sold on the open market or taken at a
different price (possibly lower) by the contract buyer.
Retail markets
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Sells small quantities of goods to consumers.
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E.g. supermarkets, dairies.
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Provide a range of products at a range of prices.
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Buy in bulk and repackage into small quantities
selling under their own brand.

Advantage for the producer: Wide range and
number of people have access to the products.
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Advantage for the consumer: A range of goods to
choose from at varying prices.
Factors involved in marketing
overseas
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Geographic location – southern hemisphere

Transport – more expensive due to distance to market.
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Quality – maintain New Zealand’s reputation
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Packaging – own packaging needs to deliver in top condition. Plays
a role in promotion.
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Storage – different storage requirements for each crop.
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Promotion – encourage consumers to buy New Zealand grown.
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Research – find new crops and cultivars to maintain quality.
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Pest and disease control – maintain quality.
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Trade agreements – between our trading partners.
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Selling methods - sold on consignment through exporter.
Sound Marketing requires
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Planning:
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To get the right product – someone wants to buy it
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The right market
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The right time – when it is required

Suitable to the market
Price:
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That satisfies the buyer and the seller
Promotion:
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Awareness of the product
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Information on the product – its different uses
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Inducing the buyer to purchase the product
Distribution:

In the form that the buyer wants it

To the markets on time
Factors that affect the
distribution of products

Climate

Temperature – affect germination, emergence, microorganisms

Rainfall – irrigation, pests and diseases, quality, harvesting.

Sunshine hours – ripening, harvesting.
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Wind – speed more than direction
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Aspect – affect temperature
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Soils – fertility, well drained, liable to flooding
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History – population centres, settlement patterns.
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Transport – availability, closeness to markets export
opportunities .
5 Ps of marketing
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Product – what attributes does the product have
that makes you want to buy it?
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Price – ease of knowing what the price is,
comparative pricing, size relationships, methods of
payment, discounts, ordering etc.
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Promotion – to stimulate demand, inform,
persuade, branding, packaging.
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Place – how is the product displayed, shop layout
out
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People – shop assistants
Factors affecting the marketing of a
product:
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Price
Supply
Demand
Demographics of the buyer – age, sex, country, beliefs, education
Social and cultural (e.g. customer requirements, fashion.)
Economic
Political and legal
Technological
Competition
Environmental (e.g. animal welfare issues)
Global (quota, tariffs, trade restrictions, currency exchange rates,
disease status.)
Demographics
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Study of populations, their size and distribution.
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Important in the design of marketing programmes internationally.
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Changing trends have a huge impact on the demand for certain
goods; e.g. New Zealand average age is increasing.
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Marketers must react to trends and modify their products to meet
the needs of a changing market.

Population distribution and climatic variations also influence
marketing factors; e.g. demand for farm equipment and clothing
(gumboots) is far higher in rural towns then in the cities. Cities with
colder climates such as Invercargill have more demand for warmer
clothes.
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To market successfully overseas we must carefully study demographic
factors in those target markets and develop products and marketing
programs accordingly
Japan’s demographics.
 In Japan the population is decreasing therefore the average
age is increasing. In 1989 only 11.6% of the population was
65 years or older. By 2007 is was 21.2% which makes it one
of the “greyest” countries on Earth.
 Japan is very much an urban society with only about 5% of
the labour force working in agriculture. With low fertility
rates combined with increased life expectancy Japan has a
population structure weighted towards older people.
 The Japanese are great savers with the average household
having $210,000 (USD) in the bank.
 Through market research, it has been established that the
Japanese market focuses on food safety, packaging, and
traceability so with an aging population that has strong
spending power it is essential for successful exporting to
Japan that we meet their particular requirements.
China’s demographics

The speed of urbanisation in China has increased
substantially in the last 20 years. At the end of 2011 there
were more Chinese living in urban areas (690 million) than
those living in rural areas (656 million). This has resulted in
approximately 51.3% of China’s population living in urban
areas compared with 20% in 1990. It is estimated that by
2025 two-thirds of the China’s population (64%) will live in
cities.
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This combined with the rising affluence of the emerging
middle class has and will continue to have a big impact on
the international market.
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The quality of products being sold by NZ dairy companies
into China has to be very high as consumers’ expectations
have risen markedly.
Cultural factors

Consumers’ perception of goods, and demand for
products is very much influenced by aspects of culture.
Selling or marketing a product to one culture may not
be a viable option to another, as cultural pressures
affecting the consumer vary. An example of this is
marketing pork products to Australia as opposed to a
similar marketing program to a country such as
Pakistan.
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Considerable research is also important before brand
names and logos are put into place and marketed to
certain countries. Words and logos can mean different
things to different cultures, and in some cases may
offend.
Economic factors
The demand and supply for a product is affected by:
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Government policy
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Economic conditions of a country
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Trading partners
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Interest rates
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Money supply
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Credit availability
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Inflation
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Price control regulations
The economic policies of a country are an important market
force, especially New Zealand which exports the majority of its
products.
Political factors
Political factors are also an issue in the marketing of products.
Marketers need to monitor political changes and trends in the
countries where their products are going, and be aware of how
changes in the political climate could affect their business.
Technological factors

Evolving technology may bring about major changes to
how we live, both in personal and business aspects.
These changes in technology can very quickly create or
destroy existing industries; e.g. with both partners of
many families now working, time for household
activities has decreased. Hence an increased demand
for time saving domestic products such as microwaves.
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Buying takeaway food is another area where demand
has increased as households are looking for time saving
ways of living. Process and pre-prepared meals are
replacing the traditional “leg of lamb” in many cases.
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The Internet is also having a huge affect on how we
live; e.g. goods purchased on the internet is increasing
at a huge rate, putting pressure on some industries, e.g.
travel agents, sales teams, book shops.
Competition

This is a market force arising from the same, or similar, product
under different brand names satisfying the same need or demand.
E.g. ATV’s. Yamaha versus Honda versus Suzuki, etc.

Competition may also arise from completely different products
competing for the same market. E.g. A yoghurt drink versus a
soft drink. A cheese product versus a chocolate bar versus a
piece of fruit.
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The marketer has to find a way of beating the competition, and
one method is by branding. A brand may simply be a fun sticker
such as a cartoon character on an apple to attract the children
market.
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Often a brand becomes a recognisable and familiar association.
E.g. Anchor, ENZA, Zespri. All these brands help New Zealand
producers compete with other countries.
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Buyers may pay more for a known brand, as it may indicate a
perception of quality, or a particular image (New Zealand as clean
green producer).
Environmental factors
– animal welfare

How international buyers of our products perceive our industry can
have a huge effect on our ability to market our products.
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Animal welfare can impact on the market in two ways:
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Consumer becoming more aware of how a product has been produced and
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making a conscious decision to buy “animal friendly” products
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This may impact on the price the buyer is prepared to pay – a
premium for animal friendly products
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The supplier/producer may be required to change methods of
production meaning higher costs are incurred. E.g. Transport and
slaughter.
Offsetting the effects of market
forces
Market forces have a constant effect on our Agribusiness, and managers
and operators may need to consider options to offset these effects.
These could include;
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Diversification. E.g. Fruit growers producing schnapps, cider or other
juice products to utilise second grade or reject fruit.

Modifying Production Targets. (As demand increases or decreases).
E.g. Sheep producers growing lambs to heavier weights, input
limitations, etc.

Environmental Issues. Decisions on chemical use or genetic
modification need to be considered when targeting certain markets.
Eg. Any decisions concerned with GM or chemical residues in
products, if organic and non GE markets are to be targeted, need to
be balanced against possible disease or pest risk. Limitations to
nutrient inputs will also affect production decisions. (Nitrogen,
phosphate).
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Investment. Additional investment in some areas of the
business may be required to maintain market share. I.e.
Research and development, production technology. Many
primary industries pay a levy to fund research and
development. (DairyNZ).3.6 cents/kgMS

Animal Welfare Issues. Changing husbandry policies to cater
for market opinions.
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Target Markets. An industry that deals mainly in one market
may need to consider exploring further afield. Others may
need to consider down sizing or changing their target markets.

Timing of supply. When you are going to supply a product into
the market.