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Direct Marketing to Increase Profit

June 11, 2014
local meat
Understanding the ins-and-outs of direct marketing can help increase profitability for livestock producers.  
 
 

Understanding the ins-and-outs of direct marketing can help increase profitability for livestock producers.

By: Shannon Sand, Livestock Business Management Field Specialist, SDSU Extension

Direct marketing is a popular concept among small to medium sized producers and is a good alternative for beginning producers. Direct marketing in essence removes the "middle man" from the marketing process, as a company’s message is provided directly to potential customers. Some important questions for producers to ask themselves are: what are the legal liabilities, who are our target customers, can we meet demand and what are the costs? Information Sheet 1 below contains additional information and questions to consider when thinking of direct marketing products.

Once a producer answers these questions they can then begin to think about the different marketing channels available to them. A marketing channel is a set of practices or activities required to transfer the ownership of products, and/ or to move the products, from the point of production (on the farm/ ranch) to the point of consumption (restaurant, consumer, institution) this includes all of the marketing activities done during the marketing process.

There are several different ways to direct market products:

  • Producers could sell their meat at a farmers market
  • Create a Community Supported Agriculture (or CSA)
  • Through the internet
  • A roadside stand
  • A U-pick style in which consumers come and pick the animal they want and they have it processed

For additional information and a comparison of different direct marketing techniques see Information Sheet 2.

In recent years, a consumer driven movement to know where their food comes from has evolved. This movement is anecdotal evidence of greater demand for locally produced meats and direct marketing (though direct to consumer sales only accounted for 0.4 percent of total agricultural sales in 2007). Support for direct marketing of meat products is not surprising given the value animal agriculture can bring to communities, particularly in a state like South Dakota. By processing locally, farmers and ranchers can capture a greater portion of the revenue stream. In 1997, locally produced farm products in the U.S. accounted for $551 million dollars in sales. By 2007 sales jumped to $928.9 million (in 1997 dollars to account for inflation), an increase of 59 percent. Among all vegetable and melon farmers 44.1 percent sold directly to consumers in 2007, while only 6.9 percent of livestock producers sold directly to consumers (Martinez, et al. 2010). Sixty-five percent of gross farm sales for fruit, vegetable, and nut farms came from the sale of locally produced products (this includes local sales through packers to local supply houses). However, only 37 percent of gross annual sales of livestock and field crop producers came from local markets (Low and Vogel, 2011). This leads to the question why aren’t more livestock producers selling directly to the consumer?

In order to market meat directly it is necessary to have a stable supply in order to meet the demand of the market. If for example a producer is marketing directly to a restaurant then the producer needs to be able to supply that restaurant with the level of quality they desire, as well as the volume of product needed in order for the restaurant to meet their consumer demand year round. However, if a producer is unable to meet the volume needed for a restaurant they may be better off marketing directly to consumers at local farmers markets, word of mouth, or online advertising. It is also possible for a group of producers to market as a group to an entity in order to meet the demand. For more information about creating a marketing group/ co-op, visit the SARE: Direct Marketing Meat & Animal Products website.

In the end producers have many options in direct marketing their products directly, whether to consumers or businesses. There is some initial cost and research required by the producer, in order to determine if direct marketing is profitable for their business. Producers who direct market have the potential ability to capture some extra revenue through the use of direct marketing their product.

Information Sheet 1.

Checklist of Questions for Direct Marketing

Should we direct market our product? This is a question many producers are beginning to ask themselves. It is important to consider a few things before beginning direct marketing.

Below you will find a list of questions which can help you decide if direct marketing is for you.

  1. What are my goals?
    • Create brand awareness/increase profits
    • Establish new market outlet/increase profits
    • Be informative
  2. Who are my customers?
    • Foodie
    • Organic
    • Parents
  3. What kind of direct marketing do we want to do?
    • Farmers markets
    • Community Supported Agriculture (CSA)
    • Internet
    • Roadside stand
    • U-pick
  4. Can we meet the demand of our customers?
  5. How much (time/money) am I willing to invest?
  6. Are we able to get our product to the customer in a cost effective manner?
    • Do consumers come to us?
    • Do we have pick up areas
    • How much is shipping?
  7. Is it profitable?
  8. Legal liabilities?
    • What type of liability insurance do I need?

Now that you have answered these questions you should have a better idea of whether or not direct marketing is for you. Begin your direct marketing efforts with the simplest option. Whether that is starting a Facebook page, Twitter account, or YouTube channel, begin getting your name and business out there. Get friends and family involved - invite them to your website or page and have them like it. This helps further spread the word about your product because it will show up in their social media feeds and their friends will see it. It is all about getting your product’s information out there in the hands of those who would be most interested in it.

Information Sheet 2.

Comparison of Different Types of Direct Marketing for Agricultural Products*

U-Pick/ Pick your Own

  • Investment: Signage, parking and supplies for packaging; restrooms
  • Grower Liability: Liable for accidents, need liability insurance
  • Other Costs: Labor for supervision in fields; transportation to field site; promotion
  • Pricing: Sales per customer may be large; no product transportation costs; no sales or brokerage fees
  • Quality: No grading; very fresh
  • Barriers to Entry: Limited demand; limited crops’ locations
  • Special Advantages: Average value of purchase may be higher than other direct marketing outlets
  • Special Disadvantages: Open to weather, damage to field/farm by visitors; location may be critical

     

Roadside Market

  • Investment: Signage, stand, parking and supplies for displaying, storing and packaging
  • Grower Liability: Liable for accidents, need liability insurance
  • Other Costs: Sales labor, promotion; some storage, packaging and handling costs; may need to buy additional products to sell
  • Pricing: Hard to sell large volumes; No transportation costs
  • Quality: Can sell more than one grade; sell seconds; expect spoilage
  • Barriers to Entry: Limited demand; location; roadside access; marketing management; zoning
  • Special Advantages: Can be expanded as needed; can be tailored to specific customer preferences
  • Special Disadvantages: Open to weather, location may be critical

Farmer’s Market

  • Investment: Stand, and supplies for displaying, storing, and packaging
  • Grower Liability: Need liability insurance unless covered by market
  • Other Costs: Sales labor, stall or sales fees; transportation
  • Pricing: Smaller sales per customer, direct competition from other producers
  • Quality: Highest quality needed
  • Barriers to Entry: Municipal restrictions; conflict with goals of organizers
  • Special Advantages: Potential for many customers; low overhead; advertising done by organizer
  • Special Disadvantages: Time consuming; transporting product; less control of overall promotion

     

Internet Sales

  • Investment: Website, website design, photos, videos
  • Grower Liability:
  • Other Costs: Internet promotion (internet ads); some storage, packaging and handling costs; may need to buy additional products to sell
  • Pricing: Smaller sales per customer, transportation costs are a big factor, potential for large sales depending upon product (i.e. hay, carrots, honey)
  • Quality: Can sell more than one grade; expect spoilage
  • Barriers to Entry: Cost of setting up a website and the task alone can be daunting, knowledge of interstate law for food products
  • Special Advantages: Potential for many customers; can be expanded as needed; can be tailored to specific customer preferences
  • Special Disadvantages: Transportation, legalities may seem murky, can seem very time consuming

*Adapted from Deborah Young, Characteristics of Direct Marketing Alternatives.

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