Learn the Language of Marketing

Published on: 18:32PM Oct 08, 2010

Learn the language of marketing

China is often in the news for its purchases and rumored purchases of grain. Let’s look at China and your marketing in a different light: language.
If you could speak and write Chinese, would it help you with your marketing? Not likely. However, it may be helpful to know this: There are approximately 80,000 Chinese characters, and a person needs to know only a few thousand to read and write modern Chinese. That’s about 5 percent. Translation for your marketing: There are approximately 10,000 combinations of marketing tools available, and you need to know only a fraction of them in order to begin to position yourself for marketing success.
Knowing 11 marketing tools—or about 0.1 percent of what you could implement—will help you understand how you can take advantage of opportunities and protect against risk. Marketing tools can help you do marketing well. So, wouldn’t understanding 11 of them be worth your time?
Ultimately, you need to both understand the tools and know when to use them in order to become confident with your marketing. Successful marketing also demands a number of other factors, including time commitment and constant preparation. Understanding tools is just your first step to doing marketing well . . . and you can do marketing well.
The 11 most common marketing tools are:
  1. Futures, buying and selling
  2. Calls, buying and selling
  3. Puts, buying and selling
  4. Bear put spreads
  5. Bull call spreads
  6. Bull/bear fences
  7. Ratio Call spreads
  8. Ratio Put spreads
  9. Forward contracts
  10. Hedged-to-Arrive contracts (also known as futures only contracts)
  11. Basis contracts
How might some of these tools apply to your marketing?
The price of corn has risen significantly since July. At the beginning of this rally, buying calls was probably the simplest solution. With the benefit of hindsight, it’s easy to see how this marketing tool would have positioned you to sell at today’s higher price than the July cash price. Keep in mind, some producers sold early into the rally at the cash price.
Now that the market has moved substantially higher, getting a long position in place is a bit more complicated. The downside risk or even a downside correction risk is very high and at least equal to what rally potential may be left in the market. Looking at your toolbox, you might pull out a ratio spread, if you feel the need to re-own right here.
A ratio spread is composed of selling an at-the-money call and buying three or more out-of-the-money calls. The general idea is that if the market goes higher, the delta of the bought calls more than offsets the one sold call working against you for a net gain.
In the event the position is put in place and the market falls apart, the sold call premium will cover a good portion of the bought call premium, lowering your cost exposure. The risk with this position is a stagnant market, where both positions generally work against you. The maximum risk would be if the market closed at the level of the bought calls at expiration. It is best to liquidate the position at least 60 days before expiration.
You could do nothing. Perhaps the market will go higher. If it did, would you sell? The risk with doing nothing is that it’s akin to being unprepared. And, lack of preparation causes you to time the market and make decisions based on emotion. It’s an approach that likely will not help you achieve a better than average price for your entire crop.
Do you want to do marketing well? I encourage you to learn how and why marketing tools get implemented, even if they seem like another language to you. Very few things in life are achieved without effort. Yet, when you put the right effort into your marketing, in the right places, you can do marketing well.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at [email protected].
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