Chapter 5 - Supplying the market
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as a product
The seed product portfolio
Seed portfolio analysis
Product life cycle
Managing the life cycle
Developing a product marketing plan
Seed as a product
The word product has already been used several times to refer to what is sold. In the widest sense seed is the product but from a marketing point of view it is individual varieties which are the products. The seed product range is therefore all the varieties of all the crop species that are being sold.
In making the decision to buy a particular variety from a given supplier the consumer will probably expect a whole range of benefits. These include those which relate to the performance of the product as well as less obvious benefits associated with the performance of the supplier.
Some examples of 'product performance' are:
· genetic or variety characteristics, such as plant type, pest and disease resistance, yield, quality, response to inputs;
· seed quality characteristics, which include purity and germination, grade, treatments, and general appearance of the seed sample.
Some examples of 'supplier performance' are:
· packaging, among which are package size, appearance, information useful to the consumer, use of packing materials that contribute to the maintenance of seed quality;
· the reputation of the supplier, as to the availability of seed, competitive pricing, credit arrangements, product range;
· after sales service and customer contact to assist in solving problems such as poor seed performance, or for on-farm technical support;
· the corporate or brand image, for example "if the seed comes from Company X or is the same as Brand Y then it must be good".
A company may choose to distinguish the products it sells by identifying them with a brand name. Where a company has developed a strong name when a new variety is launched the farmer will recognize the name and will be more confident of trying the new variety. Where two companies are marketing the same or a similar variety it is these supplier performance features which will finally influence the purchase decision.
The seed product portfolio
The term product portfolio is commonly used in the seed industry to refer to the range of products offered by a company. The product range can be described as the number of product lines, crop species, individual products or varieties of each line and brands. Companies can use brands to differentiate between seed quality levels and treatments as well as to differentiate markets for the same products. Some companies specialize in certain seeds while others diversify their range of products to spread the business risk, achieve better utilization of their assets or smooth out seasonal cash flows. A seed company will normally try to offer a wide range of seeds to capture as much of the customers' business as possible. The factors to be considered by seed companies in determining their range of products may include:
· the range of crops grown in the marketing area;
· the size of the individual seed market segments;
· market trends, e.g. whether the market is increasing, static or declining;
· the strength of the competition;
· the price farmers are willing to pay for seed, and there fore the likely return from supplying the seed;
· the factors in favour of the farmer purchasing seed, such as the difficulty of retaining his own seed or the choice of using hybrid seed;
· the source, ownership and exclusivity of varieties and variety development costs;
· seed production difficulties which might arise;
· the suitability and capacity of processing and storage facilities for the range of crops;
· the seasonality of crops;
· the implications on staff training, recruitment and administration of introducing new products or a new distribution system;
· government policy and support for different crops and seeds.
As well as thinking about the different product lines, a decision has to made about the number of individual varieties within a product line that can be maintained in the market. This decision will be influenced by overall market volume and the specific requirements of the identified market segments, such as:
· time to maturity;
· pest and disease resistance;
· quality features related to the end uses;
· agronomic features.
Seed portfolio analysis
A commercial seed enterprise should constantly review the performance of the individual products which make up the product range since overall profitability may be positively or negatively affected by a few products. This exercise is referred to as a Portfolio Analysis, which involves examining each item according to its cash generation, taking account of market share, market growth and its competitive positioning. Cash generation relates not only to the volume traded but the gross margin earned, which is the difference between the cost of seed and the sale price. Some seeds are more expensive to produce and this may not always be reflected in the price which can be charged. Also there is a cost to continuing the supply of pure seed stocks for commercial seed production. This may become too great when sales decline.
The gross margin earning ability of products can be used to characterize the type of seed business and product portfolio offered. Products can be categorized based on performance or competitiveness and on owners/lip or exclusivity.
The performance or competitiveness of products can be appraised as:
· superior or better than competitors' products;
· competitive, but no better than products offered by competitors;
· inferior or not as good as competitors' products.
Ownership or exclusivity refers to whether products are:
· public varieties which are available or accessible to all;
· proprietary varieties, the availability of which is controlled by the breeder or licensee.
A variety which is superior and sold on an exclusive basis would be expected to have higher earning potential than a competitive variety.
Although a variety may be competitive in genetic terms, good quality, a strong brand name and effective promotion can create a sales advantage. It is common for breeding companies to make their own selections of standard varieties in order to create some identity and ownership of the variety. This is particularly true of vegetable varieties.
Product life cycle
There will always be a demand for new products. A product may last on the market only for one season, albeit a rare occurrence, or for many years. The concept of the product life cycle is an essential one for planning changes in marketing activities. The product life cycle recognizes that products have a finite market life and charts their lifetime through various phases. In general a development phase exists for all products before they are launched onto the market.
The life cycle can be broken down into five distinct stages as is shown in Figure 4. In the introductory phase, growth is slow and volume is low because of limited awareness of the product's existence and perhaps a reluctance to accept an unproven product. Sales then rise rapidly during the period of growth and profitability per unit of sale should reach a maximum as increased volume enables the benefits of economies of scale to be realized, with unit costs decreasing as fixed costs are spread over a greater number of packs of seeds. Towards the end of this phase, competitors enter the market to promote their own, similar products and this reduces the rate of growth of sales. This period is known as maturity. The market then becomes saturated with the product and sales decline as competitive products erode market share, eventually leading to the withdrawal of the product when it is no longer profitable. The stages in the seed product life cycle are:
breeding, selection, yield testing, official registration
variety launch and promotion, field demonstrations and extension
increased awareness and acceptance of variety, build-up of commercial quantities of seed as dealers increase orders in response to demand created at the farm level
Figure 4 Stages in the product life cycle
Figure 5 Product portfolio life cycles
growth in sales of the product slows down as maximum cover is reached; there will usually be a choice of varieties available and better performing varieties will be introduced
maximum penetration has been reached and growth ceases
innovative farmers switch to a new variety while some stay for longer with tried and tested varieties
the variety becomes outclassed; when it is no longer profitable to maintain and produce at very low volumes a decision to withdraw it has to be taken
Managing the life cycle
To prolong the life of a product a company will need to alter the ingredients of its marketing mix. Changes might include:
· the improvement of the product arising from changes or modifications and an extension of the product line;
· the alteration of distribution patterns or the choice of different distribution channels (i.e. place);
· the use of price changes to stimulate sales or respond to competitors;
· change the style and emphasis of promotion.
Improvements to seed are made continuously through breeding and through Distinctness, Uniformity and Stability (DUS) testing by government agencies; thus any improvement in a variety may be considered to be a new product. The time scale of the life cycle stages will vary with different seed products ant markets. The development stage of a new variety may take 10-12 years, but the successive stages in its life cycle are dependent on variables such as the competition, the sophistication of the market and the pressure of new products in the breeding pipeline.
Most companies produce a range of products (i.e. the product portfolio, see Figure 5) each of which has its own life cycle. Also, it is important to remember that new products may fail to meet registration criteria and existing ones may have to be withdrawn from the market prematurely. For example, resistance to disease could break down in a cereal variety due to the occurrence of a new strain of rust. Marketing programmes will have to be reviewed when such situations arise.
Developing a product marketing plan
One aspect of marketing in a seed company is the design of a product marketing plan which, in turn, forms the basis of the production plan. This is how a market-driven organization should operate. Unfortunately, in many non-commercial public sector agencies the reverse is the case. Those who do not sell the seed are making the production decisions.
A three to five-year marketing plan should be created for each variety of seed. These plans should, in turn, be combined to form a product group plan. It is important to think in terms of a three to five year time frame as seed from one generation is used to multiply the next generation. The stock of early generation seed must therefore be sufficient for the production of the later commercial generations. Not only will the plan have to be communicated to the production department but also to the breeders. Successful seed supply requires a planned and integrated approach. If a variety is being produced under license from a foreign breeder, stock seed may have to be imported from abroad, adding a further stage in the process.
In a large company a product manager usually works closely in a team with plant breeders and staff from the sales and production sections in formulating the marketing plan. Even in a small organization, where one person may have several functions, it is important to maintain this integrated approach.
A standard internal production agreement form should be created by the marketing manager, giving the following details:
· variety, plus parental lines for hybrids;
· volume requirements with underlying assumptions, such as market shares;
· inventory policy, especially important for vegetables where stock may be heft to cover part of the following year's sales, or where stock of high margin seed is held to meet additional demand and for security of supply;
· packaging type and size;
· quality standards;
· labelling details;
· seed dressings;
· target cost and gross margin assumptions;
· target date for availability.
It is important that seed stocks are built up in advance of the launch of a new variety so that the sales growth phase is not slowed down by a shortage of seed. A delay of two or three years will mean that any yield advantage will be eroded by successive new varieties. It is also very easy to lose the momentum behind a marketing campaign. The dealers lose interest, the farmers turn to other varieties and the sales team are demotivated because they cannot deliver the seed. Work on varietal purity and early generation seed production would normally commence during the last few years of the trial period but building up commercial seed stocks prior to variety registration involves some risk.
Stock and inventory policy
It is important for a seed company to establish a stock policy based on product portfolio and marketing needs. There will always be some unsold stock, resulting from over production or lower than expected sales. Careful management and planning is needed to ensure that stock levels of commercial generation seed are kept to a minimum, thus avoiding losses and additional costs.
As a general rule, of lower value, higher volume crops, such as cereals, and seeds of crops which are difficult to store, such as soybean, are produced to meet seasonal needs. To ensure timely delivery a company may hold buffer stocks, particularly of its leading hybrid and higher margin varieties, or where sowing follows closely upon seed harvesting. The maintenance of adequate stock levels is vital to the success of vegetable seed businesses in particular since:
· there is often a continuous demand to cover seasonal and multiple cropping;
· there is a large number of product lines which have to be maintained and produced;
· seed of each line may not be produced in successive years;
· there are many biennial species where seed production will span two seasons;
· there may be difficulties in producing the seeds.
The production plan
The production department should evaluate its variety plan in terms of:
· the date when the seed is required for sale in relation to the harvest period;
· the area required for each generation, allowing for the estimated loss of seed crops, contracts not honoured, crop and inspection failure and processing losses;
· the preferred production location;
· the availability of contract farmers;
· the harvesting period;
· transport and handling into the processing plant;
· processing and storage capacity;
· production risks;
· yield and cost estimates.
The marketing section should have some say in the production location. Where feasible, this should be related to the market location, and to arrangements for transport and the cost of transporting bagged seed from the plant to the point of sale.
Seed packaging helps to maintain the quality while facilitating handling and identification of the product. Packaging is a very powerful seed marketing tool and several factors have to be taken into account when deciding on appropriate packaging to be used:
The quality of the seeds has to be maintained from the time of packing to the time of use by the farmer. The packing material and pack type chosen will depend on the nature of the product and the environment but packaging has to be resistant to moisture penetration, pest damage, adulteration, slipping in the stack and to rough handling.
Ease of handling and convenience
It is important that the pack is adapted to market requirements in terms of size, weight and unit cost. Consideration must also be given to the mode and availability of transport from the point of purchase. A serious consequence of an over-large pack size is that the retailer will break bulk to sell the seed. This will provide the opportunity for deterioration and adulteration, and may invalidate the legal status of the labelling.
Thus a number of factors need to be considered when planning for pack size. These relate the package size to the seed's value, its use and the area normally being sown. Likewise, handling, portability and onward transport at the retail level are important so that retailers do not have to break bulk to sell the seed. Local knowledge can be important in determining if people are charged by weight or number of packages when transporting seed. Also, a bag that when empty has other uses may be a factor considered by the farmer in choosing which seed to buy.
Presentation is a vital aspect of successful marketing. Packaging materials must be suitable for printing ant should be carefully designed to attract attention as well as being distinctive, in order to give the product and the supplier instant recognition. The packaging should form an association in the mind of the farmer between the seed and the supplier (known as the brand image) as well as providing information about the product and giving information on safety, storage and use of the seed. A clear pictorial representation is particularly important for vegetables. Finally, the package should provide as much protection from counterfeiting as is feasible.
A balance should be struck between cost, technical requirements and visual appearance of the packaging, in relation to the value of the seeds. If, in order to reduce costs, a standard bag or pack is used for a product line which requires a variety label or stamp to be applied this must be securely attached and be clear to read. Language and the use of graphic representation are also important considerations which will be dictated by regional and local factors. The promotional effect of packaging should not be underestimated.
Information on the label should fulfil both the legal requirements of 'truthful labelling' and provide evidence of certification, where appropriate, as well as technical information about the product.
Examples of lables
Specific information provided should include:
· species, variety, germination, purity and contents;
· seed treatment and appropriate danger signs, plus warnings;
· seed lot number for tracing back to source;
· year of production and date labelled;
· expiry date of validity of certification, if required;
· statement invalidating quality assurance if the bag is tampered with.
Normally there will be a company label plus the official tag if the seed has been certified. The legal requirements vary from one country to another but usually state not only the technical information that should appear but print size, label size and colour. Colour coding is used for certification tags to denote the different generations. Labels should also be made of materials resistant to damage and have secure fixings. It is normal practice to place an additional label in the pack in case the one on the outside becomes detached. Product leaflets are also frequently included as a service to farmers.
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