Marketing 101 - A Marketing Plan
Marketing has a direct impact on your overall business success. Changing buyer demands, local and global competition and other market forces have resulted in the business of agriculture moving from being focused on production to being market driven. A marketing plan develops strategies for marketing your cattle. It challenges you to identify costs, develop price goals, consider production and price risks, and to review price and market outlooks. Like a road map, it provides the details, responsibilities, and actions for marketing your cattle. This helps to minimize the guesswork and emotion when making key marketing decisions. Market planning is a continuous task that needs to be flexible to accommodate changing market and production conditions. A marketing plan is a farm business management tool to assist in facilitating the successful marketing of your production.
Here are the seven essential elements of a marketing plan:
- Know your cattle and business - Very simply, this is tying together your production and financial situation to achieve your farm business goals. It means fitting your production plans (type of cattle, how many and when they are available to sell) into your cash flow to ensure financial commitments are covered in a timely fashion. Consideration should be given to risk management tools (i.e. production practices, diversification, and insurance) that can be used to manage production risk. Review your current financial situation and business goals to ensure your marketing plan is in line with your overall business plan. The financial health of the business provides an indication of the amount of risk the operation can bear. Individual attitudes towards accepting and managing risk will vary. Focusing on relatively simple strategies to increase income and reduce risk could be a place to start. A simple marketing goal could be to cover the cost of production plus a reasonable return as opposed to simply trying to maximize the price received.
- Cost of Production - To effectively market your cattle you need to know your cost to produce an animal. A cattle budget will determine the number of cattle to be produced, the costs involved, and establish a production flow. One suggestion is to break out the costs into animal replacement, feed, other variable, and fixed costs. This will be useful when establishing price targets.
- Market Information - Remember this: good market information gives the producer marketing power! Market information includes market prices, fundamentals, analysis, outlook, and strategies. Understanding the market fundamentals helps to make informed marketing decisions to capitalize on market pricing opportunities. The ultimate challenge is to have a future market perspective that takes into consideration the current market conditions, the seasonal trends, and the historical market information. To develop your outlook there are numerous sources of market information available. These include advisors, newsletters, bulletins, websites, emails, seminars, and courses. It is critical to choose reliable information resources to provide the type of market information that your business needs. Market conditions change and a marketing plan needs to be responsive.
- Marketing Tools -This is where producers evaluate the pricing and delivery opportunities available to them. This may include cash sales, forward price contracts, and hedging using futures or options. Also, check with your lender to see what tools are available to manage currency risk. The first step is to understand how each marketing tool can manage price risk. Next, review the strengths and weaknesses of using them in your marketing plan. Finally, consider any special requirements (i.e. extra credit) needed to make them work effectively. Individual attitudes towards accepting and managing risk will vary depending on the situation and resources available. It can range from a preference to avoid price risk to preferring to use a risky marketing strategy to generate potential higher returns. The challenges are to understand how each marketing tool can manage price risk and the pros and cons of using them in your marketing plan.
- Price Targets - Knowing your cost of production helps to establish
target prices to recognize acceptable market prices that are compatible
with your financial situation. A marketing plan, no matter how
good, may not be able to lock in prices that cover all the costs
of production all the time. Key target prices that compensate
for specific costs are important to have in years where opportunities
to cover all costs are limited. Three price targets to consider
- Survival price: the lowest acceptable price based on cash outflow
- Acceptable price: the breakeven price based on total costs
- Favorable price: the breakeven price plus a return to management and risk
- Take Action - Taking action to make a pricing or marketing decision will probably be the hardest part. Having a combination of strategies and examining "what if" situations in advance as part of your planning process will help. Put someone in charge (i.e. yourself, spouse, etc.) of executing your marketing plan with support from your marketing team (i.e. yourself, spouse, market advisor, lender, etc.).
- Evaluate and Monitor - Walking your cattle pens and noting the cattle performance helps to make production decisions. Similarly, a market log book can be used to record market information to assist in executing and evaluating your plan. The information could include cash prices, future prices, basis, marketing positions, and notes on why a decision was made. Set aside (assign) appropriate time to review the markets and your marketing goals/targets.
The bottom line is that a marketing plan helps to achieve your farm business goals and objectives. A written marketing plan helps the decision making process and provides discipline to execute it. Be realistic when developing the plan, keep it manageable, and monitor your progress.
For more information:
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|Author:||John Bancroft - Market Strategies Program Lead/OMAFRA|
|Creation Date:||04 November 2010|
|Last Reviewed:||06 March 2012|