Chapter 3 - Understanding the market

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Researching the market
Marketing information
Sources of information
Gathering information
Market segmentation

Researching the market

While most organizations possess information on the basis of their own knowledge and experience of the market place, there is a constant need to improve and update this information. The purpose of market research is to find out as much as possible about the market place so that the customers can ideally be given what they want, when they want it.

Market research is just as important for a small seed company as it is for a large national organization. If a small seed company does not have the resources to support one individual to carry out market research, it still needs to devote time and resources for such information to be gathered.

It is obvious that the better the quality of the marketing information the better the quality of the decisions that will be taken. However, there are costs involved in gathering and analysing information, and it is therefore necessary to identify and focus on the most important issues. Seed companies must decide the information that is really needed and set priorities accordingly.

The kind of information that is needed involves finding out not only how large the market is, but also what factors influence farmers in their buying of seeds and the particular varieties they choose. Such information is categorized into:

quantitative data which is factual and considers how big a market is in terms of volume and value, what percentage of farmers buy seed and what share a given variety has. This helps in planning seed production and market development activities;
qualitative data which is about attitudes and opinions, such as why farmers buy seed and how they select a variety. This helps in variety research programmes, seed production planning and in marketing.

Marketing information

The information required to make business decisions and to plan and control seed marketing activities falls under the broad headings of:

general economic and political factors;
the market place;
the company and its products;
the competition;
the distributors;
the farmers;
the traders and industrial users who buy farm produce.

Considering the above headings, the following items are not intended to be an exhaustive list, but a guide to the kind of information required by managers of a seed company and how it might be used. The information required on general economic and political factors includes:

national economic performance and political indicators;
agricultural policy;
seed sector policy;
seed legislation;
infrastructure development;
crop and regional development assistance;
industrial development in the food sector.

These are factors which should be considered in longer range planning and when making investment decisions. They are important when setting up new breeding programmes, as ten years may elapse before the new products become available.

The following information is needed about the market place:

size, volume and value of seed required;
structure, farm size and type and regional differences;
trends, changes taking place in the market;
seed supply, the volume of seed certified, imports;
import regulations and duty payable;
geographic and climatic factors.

Such market data are used when creating sales forecasts and making seed production and purchasing decisions. This basic market data is also needed when consideration is being given to new products and markets.

Information required by managers on their company and its products:

the image and reputation of the company among distributors and farmers;
satisfaction of the dealers and their customers with the company's products and service;
aspects of the company's product presentation and service which should be improved;
the responsiveness of the organization to customers' needs and changes in the market;
the reason why farmers choose the company's products, e.g. for cost benefits, technical benefits, superior yield;
new products in the pipeline;
progress reports on production and processing and stock available for distribution.

Several of the above factors fall into the category of qualitative data. This can be collected by questions to customers and may be used in making changes to the internal organization of the company as well as in planning promotional campaigns. Also included is internal information, such as variety performance and stock availability, which is required by management for day-to-day operations.

Information required about competitor companies includes:

ownership and organizational details;
market shares by variety, breeder, distributor;
new varieties undergoing official trials;
distribution systems used, number and location of outlets;
pricing to distributors and farmers, price history, margins and commission, terms of trade;
promotional activities, extension, product and market support, advertising, packaging;
number and location of sales representatives and their areas of operation;
dealers shared with other suppliers and how much they sell from each company;
responsiveness of competitors to customers' needs and changes in the market.

In a market economy seeds of the same or similar varieties will be available from various sources, allowing customers to choose between different brands. It is therefore important to know as much about the competition as possible since choice is based on many factors, not just product performance.

Seed companies will also require the following information on their distributors:

the company's distributors and their location;
methods of communication with the distributors;
their purchasing pattern and history;
the level of support they need;
the factors limiting their purchases of the company's products;
their financial soundness;
alternative channels of distribution.

This is operational information that is used to manage and control the channels of distribution and to evaluate alternative methods.

Information needed regarding farmers includes:

factors which limit or influence their demand for seeds;
land ownership and who makes the buying decisions;
banking and credit sources to which farmers have access;
agronomic problems such as pests, diseases and weeds;
the leading farmers in the area;
literacy level;
availability of transport and in what form;
sources of information used by farmers.

Customer information of this type helps in market planning and focusing the target of sales and promotion efforts. Such information is also useful to distributors and dealers. Indeed distributors and dealers may be used to collect information on farmers.

Finally, information is required from the buyers of farm produce grown from the company's seeds. This information includes:

marketing arrangements that exist for farm produce;
the uses to which the product is put;
quality requirements;
quality premiums available to the farmer;
contract growing systems and whether seeds are supplied or varieties specified;
developments in the commodity and final products markets, including demand, price and replacement by substitutes.

This will indicate the extent to which the buyer or industrial user influences the farmer's decision to buy a particular seed. Often industrial users provide seed as part of a buy-back contract. Research gives an indication of the strength of the market for farm produce and, therefore, future demand for seed. There are also quality factors which should be understood and incorporated into plant breeding objectives. Examples are barley used for making malt, wheat used for bread making and cotton used for high quality yarn.

Sources of information

Internal information

Much of the information required by management can be found within the company so that is the best place to start. Often, extensive records are kept but the data is not made available in a form that can be readily used by management. All organizations collect information in the course of their everyday operations. For example, orders are received and delivered, costs are recorded, activity reports are submitted and invoices are sent out. As an example, the information that can be derived from invoices includes:

sales by territory:
sales by customer type (if they are classified):
average order size by customer type and area;
sales by product type and variety, package type and size;
average sales by the personnel responsible;
frequency and seasonality of orders;
sales incentive or promotion programmes;
payments outstanding.

Such information helps managers analyse sales performance, target the sales and promotion effort, evaluate distribution channels and dealer performance, and follow up late payments when credit is given.

External information There are many sources, depending on the particular type of information required. Some of these sources are listed below, with examples of the kind of information available.

dealer network
variety and types of seed grown, buying habits, competitors' products and prices, stocks

farmers and farmers' organizations
consumer profiles, factors affecting seed purchasing, level of input use

government agricultural and trade statistics
crop area, yield and farm size and number, imports and exports

provincial and regional government offices
precise statistical data and local knowledge, support programmes

government organizations breeding institutes, certification and extension services
crop agronomy and variety, information, seed certification tonnages

international agencies
statistics, special studies, crop and commodity reports

seed associations and other trade organizations
seed company listings and details, seed production and supply data

product catalogues
competitor product range, treatments, prices, terms of trade, sales organization

trade directories
company listings, product details

related industries
agrochemical, fertiliser and machinery companies

agricultural banks
economic data, credit and loan facilities, linkage with development programmes

universities and other teaching establishments
library facilities, technical and research data, studies and specialist knowledge

journals and publications
technical articles and special features, product and market reviews

Attention must be given to the accuracy and reliability of the source and attempts made to cross-reference and double check. Data must be treated with care. Seed import, export and production figures, for example, may no/distinguish between seed used for sowing and oil seed for crushing.

Commissioned market research projects

There will be occasions when it is desirable to commission work from professional market research organizations. In order to get exactly the right kind of information from a commissioned study, it is important to adequately brief and agree on Terms of Reference with the company selected to carry out the research. This involves defining with care exactly the sort of information that is required.

If the research is conducted by means of a questionnaire, the market research company will begin by preparing the questionnaire and running a set of pilot interviews. The company should then report back to the client before undertaking the survey proper to ensure that the questions have been formulated appropriately, and make any necessary recommendations.

Although commissioned market research is expensive and will be beyond the means of many small seed companies, serious consideration should, nevertheless, be given to seeking professional help when the consequences of making business decisions based on insufficient or inaccurate data can be costly.

Gathering information

The main techniques for gathering data are through:

desk research;
personal interviews;
group discussions;
telephone interviews;
postal surveys.

Desk research is the term given to making use of data that already exists or published data which can be accessed. This is always the starting point of any market research project but the information may not provide sufficient detail or may be out of date, thus making it necessary to undertake field research to generate new information.

Government statistics provide information on a regional basis such as crop areas, yield, number and size of holdings. These can be used to determine total seed demand and give information about the farmers and the quantity of seed they will be likely to use. Fertilizer distributors will have records which will indicate the general level of inputs used. The seed certification service will know the quantity of seed that has been certified and the extension service will be familiar with the use of the different categories of seed, e.g. seed retained on farm, unlabelled and certified seed. information needs to be collected in such a way that the respondent has little opportunity for an opinion to tee expressed. For example, questions might be phrased as follows, " What variety of rice did you grow last year?"-"What area did you plant?"

Conversely, qualitative information may require a more discursive approach so that farmers are given the, opportunity to express their opinions with questions like, "Variety A, B and C are similar. " - "Why did you choose variety B.?" Thus, the researcher needs to consider the type and quantity of information required in choosing the method of communication.

Face-to-face interviewing is the best form of contact as it involves two-way communication, providing instant response and reaction. The information is usually immediate and the closer personal approach is frequently a good way of getting detailed and accurate information. However the process can be time consuming and expensive if travel is involved.

This form of contact and information gathering happens all the time on an informal level, but for a formal study it requires a very structured approach and the use of a questionnaire.

Group discussions bring a group of people together to judge their opinions and can be used to test new ideas and concepts. But the presence of a professional is needed to ensure that the exercise is effective.

Questionnaires are often used as a way of collecting both quantitative and qualitative information through face-to-face interviews, by post or over the telephone. Some principles of questionnaire design are:

the questionnaire must suit the contact method to be used;
questions should be unambiguous and unbiased;
questions should be asked one at a time;
questions should be clearly related to the objectives of the study.

Questions are of three basic types

1. Single choice, yes/no, for example,
"Do you buy rice seed ? "

2. Multiple choice, for example,
"How often do you buy rice seed ? "-"Every year? ...
... Every second, third, fourth year?"

3. Open-ended, for example,
"Why do you not buy seed each year?"

Using these three types of questions the questionnaire can be:

structured using all single- or multiple-choice questions;
semi-structured using a combination of the above with open-ended questions;
unstructured using open-ended questions determined by the interviewer.

As a guide, for large samples using a team of interviewers looking for relatively simple information a structured or semi-structured questionnaire should be used. An unstructured or semi-structured questionnaire would normally be used for in-depth interviews of a smaller sample group.

Market segmentation

Individual customers have different needs but an organization cannot provide a different product and service for each customer, neither can customers be served properly if they are all treated as being the same. The technique of market segmentation is used to help solve this dilemma.

Market segmentation is the process of identifying and then separating a total market into parts so that different marketing strategies can be used for each part. This involves collecting marketing information about the different segments that the company has identified.

Distinguishing between the different characteristics and needs of consumers order to identify a particular market segment is called differentiation To be of value to the marketing manager the segments should include, within the segment, customers that are very similar to each other but, between segments, customers that are as different as possible from each other. The manager will look for segments that are large enough and have sufficient purchasing power to give an adequate return and make a differentiated marketing approach worthwhile. This information is critical to the selection of target markets.

An example of differentiation could be the difference between vegetable growers with small holdings supplying a range of fresh produce to local markets and specialist growers producing vegetables to supply a canning factory.

Segments on the basis of geographical factors include:

physical characteristics, rainfall, soil types, altitude

irrigated or dry land
different cropping patterns and input regimes, farming systems

Segments on the basis of crop species can include:

type or variety
white or yellow maize, hard or soft wheat

winter, spring or summer sown

maturity groups
early, medium, late

use and quality
forage or grain, feed or bread making, oil or meal, etc.

non hybrid or hybrid vegetables,
maize, sunflower

There are a number of broad classes of crops. These include cereals, pulses, oils, fibres, industrial crops, vegetables and flowers. Vegetables can be further sub-divided by type, e.g. leafy, legumes, fruit, and root. Each of these types has, in turn, a range of species and varieties. Thus a complete study could involve too much work for the resources available. Crops must therefore be chosen which are directly relevant to the company's business or form part of an evaluation of new opportunities.

Farmers can be grouped according to the kind of farm they operate; since different farms have differing needs the services provided to each type will require specialists who can meet the requirements of that particular farm type. Accordingly, the marketing manager may choose to separate the larger managed farms for personal attention and target farmers who sell their crops for cash rather than those who retain crops for use on the farm.

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