December, 2001

Fruits of Thought

Spread The Gospel

All too often it seems that companies do marketing without really understanding their purpose in doing so. It is easy and natural to say that a company promotes to sell more product.

In the produce industry – in most cases in the short term – this just is not true.

Typically a grower or shipper has a fixed amount of product available for sale during the course of the season. While in the long run, of course, a grower can plant more and a shipper can get more growers, for any given deal those numbers are pretty immutable.

Assuming that the product isn’t going to wind up being dumped, it is going to be sold. So, no amount of marketing, no expansion of the sales force, and no form of promotion can increase the volume of sales.

As such the purpose of these sales and marketing efforts are to achieve two things: First to assist the shipper in upgrading the caliber of its customers and, second, to help the shipper raise its average sales price.

What does it mean to upgrade the caliber of one’s customer? It can mean many things, but three points stand out: Upgrade the sales terms, upgrade the credit quality and upgrade the future potential.

Perhaps some of one’s sales are on a consignment or a price-after-sale basis, and one would rather sell on a firm basis. Then the purpose of the marketing efforts is to build demand from firm buyers so one can replace the less desirable business.

One customer may pay in ten days and another in thirty days; still another customer may have a Fort Knox-like balance sheet, while another is a bit shaky. Marketing efforts attract more customers and thus make it possible to phase out those with less desirable credit profiles.

Every sale one makes also is part of a relationship. If your customer is the one with declining market share, you may be setting up your own company for decline. On the other hand, hook up with a rapidly growing customer and one’s own company can zoom. Many obscure food producers had the good fortune to have their products picked up by Costco or Starbucks when they were small and have grown apace with these giants.

Effective sales and marketing are tools to align oneself with the most rapidly growing customers.

This is really Marketing 101, but in produce there is a special twist. One can use marketing efforts to raise the average price one receives, even if one’s marketing efforts do not lead customers or prospects to purchase even one additional box from a given shipper. How can this be?

It’s the impact of certain types of marketing – specifically those designed to assist retailers with effective merchandising techniques – on the whole industry.

It is well known that commodity promotion boards assist the industry in more effective merchandising techniques. Private companies, however, can often benefit substantially from helping the industry sell more of a given item – even if the vendor’s own customers are deaf to the advice.

Let’s go back to first premises. Remember that growers and shippers generally have fixed amounts of a given item to sell.

But this isn’t only true on an individual company basis; it is true on an industry-wide basis. The implications of this are profound for marketing efforts because it means that every additional sale a retailer makes – of any shipper’s product – reduces pricing pressure on every shipper of that same product.

This perspective turns one big concern on its head. Oftentimes I’ve heard shippers with merchandising ideas say they want to make sure that only “their” customers get the info. Merchandising, however is a fairly public activity, and it is unlikely these “ideas” can be kept secret, but, more important, it’s probably not a good idea.

Imagine a world of just two shippers and two supermarkets. Shipper A and Shipper B both have 100 trailers of product to sell every week. Unfortunately, though, Supermarket A buys exclusively from Shipper A but it only needs 80 trailers a week. Equally Supermarket B buys exclusively from Shipper B but it also needs only 80 trailers a week.

Now Shipper A knows a lot of very effective strategies for effective merchandising. But Supermarket A, its customer, is sluggish and non-responsive. What should Shipper A do? Get the merchandising techniques out in the industry.

Look at what happens: Through effective marketing, Shipper A spreads its gospel throughout the industry. Though its own customer, Supermarket A, is indifferent, Supermarket B is enthusiastic. It implements the techniques and sales increase. Now instead of selling 80 trailers a week of the commodity, Supermarket B needs 100 trailers – meaning that Shipper B is now sold out.

But what about poor Shipper A who came up with the ideas and promulgated them? Well shipper A is a winner too.

The immediate effect is now that shipper B is sold out every week, it has to stop calling Supermarket A every week to offer product. This means Shipper A can be much tougher on pricing. By increasing general market demand, Shipper A reduced pricing pressure on its own sales, even though its customer base ignored the suggestions.

And it won’t be much longer before Supermarket A catches on to what Supermarket B is doing. It may have ignored its supplier’s calls for more effective merchandising, but it is unlikely to ignore a competitor’s proven success with such techniques.

So when all is said and done, by effectively marketing to increase the quality of industry merchandising, Shipper A both raises the general price level and gets its own recalcitrant customers to do better, as they benchmark themselves against leading competitors. This means better prices, sold-out crops and happy owners for Shipper A. All from recognizing that in a commodity business, increasing general levels of demand helps every shipper.  pb