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Agrimarketing : June 2009
23 Purdue Advertorial Page 2:00 Purdue Advertorial Page 6/12/09 12:38 PM Page 23 Sales and Marketing Insights from Purdue University THEPOWEROFPRICE T here is a lot of talk these days aboutwhether or not there has been a permanent shift in farmer buying behavior…and for good reason.Never have there been such dramatic swings in commodity prices in such a short period. As grain prices soared, and then crashed, farmers sawtheir fortunes follow, depending on the timing of their decisions. Both crop and livestock farmerswatched andworried as prices of their inputs gyrated, wonderingwhat to do. Should they buy nowto lock in a price? Or should they hold off, hoping for a better deal later and take the chance their preferred products would be availablewhen they needed them? Meantime, their supplierswere in a like quandary. They alsoworried about price volatility, availability of rawmaterials and their own supplier’s ability to deliverwhat they needed in time. When and howmuch inventory should they order or produce?Would the demand be there?Howshould they price?Andwhatwill happen if theymake thewrong decision? As recordmarket volatility contin- ued, it has been aworst-case scenario formany input suppliers.While crop farmers are coming off a couple of pretty good years, they are suddenly nervous about their future and are reluctant to commit. Livestock and dairy farmers—feeling the pinch of Upcoming Agribusiness SEMINARS StructuringDecisions: Innovating through Turbulence September 15-17, 2009 Strategic Agrimarketing October 12-16, 2009 Learn more at www.agecon.purdue.edu/cab Center for Food and Agricultural Business SevereMarket Volatility, Large PriceDisparitiesCreate Temporary Shift in Farmer Buying Behavior by Dr.W. David Downey high commodity prices—are struggling to survive (andmanymay not). Inputmanufacturers and the dis- tribution systemhave been scrambling to predict demand, position themselves under uncertain circumstances and find creativeways to share the riskwith others.Many agronomic retailers read all the signals, listened to the experts and locked in high-cost fertilizer to ensure an ample supply for their customers—only to be caught in an extremely painful situationwhen the recession broughtworld fertilizer prices crashing down. The result has been chaoswith lots of finger pointing. Some farmers are convinced that their suppliers are manipulating prices to become wealthy. Others,who have depended on local suppliers to provide service and information, seemto bemuch more sensitive to price variations in themarket and switch suppliers. Farmerswho have demonstrated a great deal of loyalty in the past are nowasking lots of questions. Lowmargin/low-service suppliers, recognizing their opportunity, aggressively fan the flames of discontent to get newbusiness. BUYER SEGMENTS Historically, studies at Purdue University’s Center for Food and Agricultural Business have suggested that about 20%of farmers tend to be classified as economic buyers, focused more on price or getting a deal than any other factor.Athird are considered relationship buyers because their most important concerns are trust and personalized attention.And the rest are described as business buyerswho balance awide range of factors (including price and the relationship) and carefully analyzewhere they get the best return on theirmoney. It is important to note that both economic and business buyers tend tomanage larger operations and are responsible for a growing share of themarket. However, Purdue’smost recent study ofmore than 2,500 farmers across the nation, concluded just before themarket became so volatile, suggests that evenmore farmers are considering a balance of factors as they evaluate the value proposition that is best for them. Thismay be connected to the increasing sophistication and businesslike approach that often comeswith their continued consolidation into larger farms. Purdue studies also showevi- dence that farmers see fewer differences among suppliers than they once did. The reality is that new technologies, increased competitiveness and supplier consolidation at all levels has resulted in dramatic increases in product and supplier performance in the last fewyears. The playing field has leveled. Suppliers have to be good to have survived. It ismore difficult to create and sustain a competitive differential advantage based on unique products or services.Advantages, if they are real, are quickly copied—and improved on. The upshot is that as products and services are perceived at near parity, price becomes amore visible and a relativelymore important element in the balance of factors that discerning farmers consider. A FUNDAMENTAL SHIFT? My answer is no! Price has always been an impor- tant issue to all farmers.However, market volatility has been so severe and price disparities so large that even themost relationship-oriented buyers nowfeel they cannot easily justify away price differences.Additionally,when farmers feel economically threatened, the price element in the value equation becomes even more significant. Asmarkets begin to stabilize, price differences should decrease and other factorswill once again become relativelymore important. (more on page 24) June 2009 s Agri Marketing 23
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