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Agrimarketing : November December 2006
50 AgriMarketing November/December 2006 The retailer/dealer continues to play an essential role in the dis- tribution channel for agricul- tural inputs. However, retailer/ dealer organizations are often ham- mered by dramatic changes both before (manufacturer) and after (farmer/grower/rancher) their posi- tion in the channel. These challenges include: 1. The changing farm customer base including consolidation and chang- ing purchasing strategies; 2. Continuous cost pressures as ris- ing labor, energy and regulatory compliance costs continue to erode profit margins; 3. Commoditization of product offer- ings/generics as suppliers in general are increasingly facing more compe- tition from lower cost generic and off-patent products; 4. Commoditization of service as it becomes part of the "standard" offer, and provides little differentiation; and 5. Consolidation in the channel as players capture economies of size and "shorten" the channel with fewer players from manufacturer to farmer; and Of course, such changes bring opportunities as well as challenges and a key question becomes how should a retailer/dealer strategi- cally position itself to survive and thrive in such a chaotic market environment? We offer the follow- ing thoughts on this question. 1. Segmentation will be even more aggressively pursued. Given increasing consolidation among agricultural producers, "value add" will be defined by the customer, not the retailer/dealer. Large grow- ers/producers will consider each element of the product/service/ information bundle individually. Flexible approaches allowing sub- stantial tailoring to meet individual needs will be required. This will place heavy demands on staffing to execute such a segmentation strat- egy at a high level of performance. 2. "Owning" business-focused rela- tionships will be more important. Moving to the "supplier of choice" position will force retailers/dealers to pursue key account management ideas. A deep understanding of the producer 's business goals and strate- gies is essential in creating value here. For marketers, communications on the customers' terms, be it e-mail, podcast, cell phone call, or some- thing more traditional is essential. 3. Significant opportunities exist for local branding. As retailers/ dealers consolidate, they achieve scale to justify investments in building a local brand. Branding here is built around superb execution of a local, customer-focused model. In an envi- ronment when the quantity of com- munication keeps escalating, a well developed local brand can play a very important signaling role to producers literally drowning in information. 4. Services will be managed as a profit center. This point covers the service waterfront: service pricing, quality management, cost measure- ment and management, and profitabil- ity analysis. Some retailers/ dealers may likely adjust their service portfo- lio as a result of the search for profit from services --- dropping some ser- vices that no longer create value, and moving into new areas where produc- ers will "buy" instead of "make." 5. Efficiency gains will be driven through multilocation management skills. There is no question that effi- ciency and cost management will become increasingly important. At the same time, there will be pressure to keep service levels high. This requires retailers/dealers to carefully look at every aspect of multilocation management: plant economies, num- ber of locations, timing of opera- tions, utilization of equipment/peo- ple, and purchasing economies. 6. Profit growth will require ex- ploiting capabilities into related businesses. Successful retail/dealer organizations have a variety of core capabilities: deep relationships with growers, information management capacity, service-oriented staff, regu- latory compliance, and logistics abilities to name a few. Managers of these firms will look broadly for opportunities to apply these capabil- ities in their geography --- and some of these opportunities will lie out- side what we typically consider "agriculture." 7. Access to employees with neces- sary skills and abilities will sepa- rate winners from losers. As retail/ dealer organizations get larger, by necessity more opportunities for pro- fessional growth are created. These organizations will clearly communi- cate the advantages of working in a smaller/mid-size organization (flexi- bility, responsibility, impact, etc.), and work toward a culture that truly val- ues employees. Change always creates challenge, but one firm's challenge is another 's opportunity. We see real opportunity for those retail/dealer organizations that move quickly, and strategically, to position their operations in the face of this new market reality. AM Drs. Jay Akridge, Mike Boehlje, and Allan Gray are professors of Agricultural Economics at Purdue University. They can be reached at firstname.lastname@example.org; email@example.com; or gray@ purdue.edu. STRATEGIC POSITIONING by Dr. Jay Akridge, Dr. Mike Boehlje, and Dr. Allan Gray Sales and Marketing Insights from Purdue University SEMINARS Upcoming Agribusiness ASTA Management Academy March 5-9, 2007 Stragegic Decision Making Under Uncertainty March 20-22, 2007 Center for Food and Agricultural Business