Module 5.1 - Seed marketing principles
- 1. SEEDS TOOLKIT MODULE 5 Seed Marketing
- 2. PRINCIPLES OF SEED MARKETING
- 3. What is seed marketing? Process by which seeds and associated services are valued and exchanged. • It is much more than the physical distribution of seeds and providing accompanying services. • You need to understand the marketplace (needs of farmers in terms of crops, varieties, packaging size, etc.) • You need to fully meet the needs of the customers (satisfying the specific needs of farmers).
- 4. Functions of seed marketers 1. Exchange or sale (buying and selling)
- 5. Functions of seed marketers 2. Physical supply (storage and transportation)
- 6. Functions of seed marketers 3. Facilitation (market research, production planning, seed processing, packaging, branding, promotion and sales).
- 7. Final goal of seed marketing • Identify, satisfy and retain customers. • Focus on the needs/desires of target markets and deliver better value than existing competitors.
- 8. Differences between seed sale and marketing • Selling is product focused and largely producer driven with the aim of maximizing sales and profits. • Seed marketing is based on needs of the farmer. These are reflected in production planning, pricing, promotion, seed distribution and receiving feedback after sale.
- 9. Seed selling and marketing concepts
- 10. Marketing Concept • Seed companies should strive to satisfy the needs and desires of their customers. • The customer is Queen and comes first!
- 11. Elements of the marketing concept • Target market. The market which gives your company the best returns on investment as determined by market research. • Needs and demands of the target market. Farmer needs and demands in the target market, which determine the varieties and seeds to multiply. • How to deliver value to the target market. The best ways or marketing strategies to satisfy the target market.
- 12. Hard thinking! • A producer must think hard how to determine the needs of the market and may choose to do market research. • A producer must decide which marketing strategy to adopt to satisfy the target market.
- 13. Outcomes of the hard thinking • Develop a marketing philosophy depending on your company structure. Choose between setting up a separate marketing department, becoming entirely customer oriented, or using social contacts and personal communication. • Do market research to identify right market segments, ascertain their size, characteristics and specific needs. • Identify the right varieties, charge the right price, get seed to right place at right time, and create awareness, i.e. you achieve the right marketing mix.
- 14. What is marketing mix in seed industry? • Four controllable parameters in seed business: – Product, – Price, – Place – Promotion • Commonly referred to as the 4Ps • To succeed, any business must create have an appropriate mix of the 4Ps subject to external constraints of the marketing environment.
- 15. Marketing Mix: (1) Product Seed for sale must have the right characteristics (desired crop/variety and high quality in terms of purity, germination capacity and health)
- 16. Marketing Mix: (2) Price Seed must be both affordable for famers and able to generate a reasonable profit for the enterprise.
- 17. Marketing Mix: (3) Place Seed must be in the right place at the right time (normally within easy reach of the farmers and in an area where the enterprise is able to compete for market share).
- 18. Marketing Mix: (4) Promotion Farmers made aware of the existence and availability of the seed through appropriate messages.
- 19. Successful enterprises must combine all 4Ps to develop a marketing strategy. For example: Marketing strategy: Create a trusted brand • Product: Maintain high quality by monitoring growers and obtaining only seeds from the best plots. • Price: Sell new seed at discount price to encourage more farmers to buy and try. • Place: Deliver seed orders free to remote places. • Promotion: Be honest and credible – label all packages with clear information as required by farmers.
- 20. TARGET MARKET Farmerslocated in rain-fed high altitudes PRODUCT Variety: new, drought tolerant, high yielding, early maturing Quality: Certifiedseed Packaging: Excellent Brand name: Renowned Labeling: Full Guarantee: Assured PRICE Retail price: 25% above grain price Wholesale price: 3% less than retail price Discounts: Buy 3, get 1 free PROMOTION Advertising: Radio& TV Sales promotion: Posters, free samples (mini-kits), Publicity: Seed fairs and field days Personal selling: wordof mouth PLACE Wholesalers: In large shoppingcenters Retailers: At local markets Agents: Door to door Transport: Free delivery for bulk purchases Other: Onlineshopping and mail order
- 21. Demand and Supply in Seed Markets Demand and supply are 2 fundamental aspects of any seed market. • Demand is the desire and willingness of farmers to buy a specific kind of seed. • Supply is the desire and capacity of enterprises to produce and make available a particular type of seed for sale. Enterprises need a good understanding of demand and supply in order to make smarter and better-informed marketing decisions for greater profitability.
- 22. Nature of demand for seed The price of the seed in question. The income available to the household. A household’s decision about the quantity of seed of a particular variety to demand depends mainly on: Quantity demanded is the amount (number of units) of seed that a farming household would buy in a given time period and at the current or given market price. The most important relationship is that between prevailing market price (P) and quantity of seed demanded (Q). In examining the relationship between Q and P, we should assume all other factors (income, wealth, other prices, tastes, and expectations) constant.
- 23. The Law of Demand The law of demand states that there is a negative, or inverse, relationship between price and the quantity of a good demanded and its price. This means that demand curves slope downward.
- 24. Theoretical structure of demand and price Q1 P1 Q2 P2 Quantity of seed demanded Demand is downward sloping As price increases, demand falls Slope depends on proportional change in demand with respect to change in price (elasticity)
- 25. Other determinants of household demand Normal Goods are goods for which demand goes up when income is higher and for which demand goes down when income is lower. E.g., certified seed Inferior Goods are goods for which demand falls when income rises. E.g., non-certified seed Substitutes are goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up. E.g., two similar varieties of a crop Perfect substitutes are identical products. E.g., two perfectly identical varieties of a crop. Complements are goods that “go together”; a decrease in price of one results in increase in demand for the other, and vice versa. E.g., improved seed and fertilizer
- 26. 26 of 48 Shift of Demand Versus Movement Along a Demand Curve A change in demand is not the same as a change in quantity demanded. A higher price causes lower quantity demanded and a move along the demand curve DA. Changes in determinants of demand, other than price, cause a change in demand, or a shift of the entire demand curve, from DA to DB.
- 27. A Change in Demand Versus a Change in Quantity Demanded To summarize: Change in price of a good or service leads to Change in quantity demanded (Movement along the curve). Change in income, preferences, or prices of other goods or services leads to Change in demand (Shift of curve).
- 28. 28 of 48 The Impact of a Change in Income Higher income decreases the demand for an inferior good Higher income increases the demand for a normal good
- 29. Let elasticity of demand Percentage change in quantity demanded Percentage change in price = = %ΔQD %ΔP d= Elasticity of demand d d 1= Elastic d = Inelastic1 is more elastic than QD P QD P
- 30. Quantity of seed demanded P1 P2 Q1 Q2 Q3 Q4 More elastic e.g. rice, beans Less elastic e.g., HYB maize • Demand for rice and bean seed is relatively elastic since farm-saved seed is a close substitute. A moderate increase in seed price gives greater drop in seed demanded. • Demand for hybrid seed of maize is less elastic, since farmers cannot produce their own seed. A moderate rise in seed price causes little change in demand. Demand schedule for seed of different crops
- 31. Forecasting seed demand • This is the process of predicting future demand for seed and making projections based on past patterns and current trends in seed use. • You can get a good demand forecast by asking farmers about their future effective demand for seed. This method is only reliable when farmers know about the benefits of using quality seed. • You can use seed replacement rate (SRR) to estimate demand. SRR is the number of generations that seed from a previous crop can be used before replacing it.
- 32. Forecasting seed demand using SRR SRR = seed replacement rate for a given crop Q = amount of quality seed used by farmers A = area under the crop K = seed rate per unit of area This approach is often used by policy-makers, since recommended seed rates are available and it is easy to estimate the area under cultivation.
- 33. 33 of 48 Law of supply The law of supply states that there is a positive relationship between price and quantity of a good supplied. This means that supply curves typically have a positive slope.
- 34. Q1 P1 Q2 P2 Quantity of seed supplied Theoretical structure of supply and price Supply is upward sloping As price increases, supply rises
- 35. Other Determinants of Supply The price of the good or service. The cost of producing the good, which in turn depends on: – The price of required inputs (labor, capital, and land), – The technologies that can be used to produce the product, The prices of related products.
- 36. A higher price causes higher quantity supplied, and a move along the demand curve. A change in determinants of supply other than price causes an increase in supply, or a shift of the entire supply curve, from SA to SB. Shift of Supply Versus Movement Along a Supply Curve
- 37. 37 of 48 In this example, since the factor affecting supply is not the price of soybeans but a technological change in soybean production, there is a shift of the supply curve rather than a movement along the supply curve. The technological advance means that more output can be supplied for at any given price level. Shift of Supply Curve for Soybeans Following Development of a New Seed Strain
- 38. 38 of 48 To summarize: Change in price of a good or service leads to Change in quantity supplied (Movement along the curve). Change in costs, input prices, technology, or prices of related goods and services leads to Change in supply (Shift of curve). Shift of Supply Versus Movement Along a Supply Curve
- 39. Market equilibrium is the condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for the market price to change. Market Equilibrium 39 of 48 Only in equilibrium is quantity supplied equal to quantity demanded. At any price level other than P0, such as P1, quantity supplied does not equal quantity demanded.
- 40. Peq. Qeq. Quantity of seed demanded and supplied Theoretical structure of equilibrium price Equilibrium point, where supply equals demand
- 41. 41 of 48 Changes in Equilibrium Lower demand leads to lower price and lower quantity exchanged. Lower supply leads to higher price and lower quantity exchanged.
- 42. Price determination • “Cost plus” pricing: Total cost per unit of seed + profit margin = selling price of seed • Willingness to pay: Selling price based on affordability and willingness of farmers to pay a certain price for quality seed. • Effective price determination involves a combination of both methods.
- 43. Distribution (delivering seed to farmers) • The route the seed follows to reach the farmer is the distribution channel. • The distribution channel may involve a single step if sales are made directly to farmers, or a series of steps, if intermediaries (e.g. wholesalers, retailers or dealers) are involved. • The choice of distribution channel is influenced by factors including costs, intermediaries, type of seed, nature of competition and needs of farmers.
- 44. Seed distribution channel GROWER Seed Multiplication DEALER Seed sales SEED ENTERPRISE Processing Storage and Marketing FARMER Purchases Sows A B C D
- 45. Marketing Margin • The difference in value for a fixed quantity of seed between one stage and another in the distribution channel. • The cost of seed builds up as it passes through the channel since intermediaries at every stage incur costs and expect to earn some profit when they re-sell at future prices. • The desire by all intermediaries to make a profit increases the total cost of marketing the seed.
- 46. Calculating margins Margins are expressed as % of costs incurred Grower’s cost 131.25 Buying price from grower 157.50 Grower’s margin 26.25 Grower’s % margin 20% Seed enterprise cost price 197.26 Seed enterprise cost margin 39.76 Seed enterprise % cost margin 25% Seed enterprise profit margin 9.74 Seed enterprise % profit margin 10% Selling price by enterprise 217 Retail margin 10.85 Retail % margin 5% Example ($/t): Selling price of seed to the farmer 227.85
- 47. FARMER Grower Margin 20% Enterprise cost margin 25% Profit margin 10% Retail margin 5% Grower Grower Enterprise Enterprise Dealer $131.25 $157.50 $197.26 $217.00 $227.85 Stage A $26.25 Stage B $39.76 Stage C $19.74 Stage D $10.85 Share of retail price important in margin analysis Grower share = 26.25/227.85 = 11.5% Enterprise share = 19.74/227.85 = 8.6% Dealer share = 10.85/227.85 = 4.4% Rest are costs = 75.5%
- 48. Examples of distortions in the seed market • Subsidies: organizations receiving hidden subsidies and distributing free or cheap seed. • Fake seed: unlicensed dealers distributing poor- quality fake seed to farmers at low prices. • Emergency seed: demand usually guided by disaster relief or political considerations, where farmers become dependent on free sources of seed and not motivated to purchase.