February 7, 2018

Help farmers see cutting costs is not what creates value

By Barney Bernstein, Senior Associate

Another growing season is upon us as we continue plowing through a multi-year stretch of a tight farm economy. With high inventory and low prices plaguing the corn and soybean markets in particular, there seems to be no end in sight—and that has farmers and businesses in every sector carefully monitoring what’s going out so they can maximize what’s coming in.

In the retail world, tighter margins at the farmgate mean tighter margins for you. As we discussed in last month’s article, A New Era for Ag Retail, it’s more important than ever for retailers to be working in partnership with farmers to help them make smart decisions that protect their assets so you can minimize your own losses, protect capital, and run a prosperous business for the long haul.

One theme prevalent throughout agriculture is the need to do more with less. Grow more food with less land and water. Produce more but spend less on inputs. Holistically speaking, as an industry we most definitely need to be more efficient with resources, and growers’ choices and actions are a major part of the equation—but cutting costs isn’t necessarily the best way to get there.

More value for the money is what will drive growers’ success.

But what is value? Some define value in terms of price—getting a product or service at a steep discount sure feels like a great value. But if we instead measure value based on the benefit it brings to the business and how well it meets the customer’s needs, it’s about getting more bang for your buck. And that carries more positive implications both now and in the long run.

While watching costs carefully is critical to operating a successful business, it’s not what creates value. You can’t save your way to prosperity. Retailers need to work with their grower customers to evaluate what solutions make sense for their situation. Can you help your customers drive the revenue side of the equation?  A 10¢/bushel gain in corn basis, or a 5 bu/acre yield increase is worth more than saving $10/acre on chemicals. 

On the cost side, when planning for weed control, will a generic alternative meet their needs, or do they need the peace of mind of a manufacturer guarantee? The lower price point of generics may entice both growers and retailers because of the instant savings, but is the cheaper product worth the tradeoff of losing all the benefits associated with the brand? If the retailer has a private label branded product can they provide a lower but acceptable level of guarantee for the growers that provides improved profitability for the retailer, too?

Put Yourself in Their Boots

It’s important for retailers—and ag suppliers as well—to sell your value at the farmgate every single day, reinforcing to growers you’re doing everything you can to bring value and keep them profitable in the difficult environment we’re in.

One thing’s for certain, in this day and age there’s no “one size fits all” for anything. In a world where customization and personalization are not only desired but expected, that means retailers and suppliers need to spend more time listening and tailoring programs to suit individual growers’ needs. For instance, an Iowa cooperative, Innovative Ag Services, provides data management services that aggregates data and provides their growers benchmarking analytics. This allows the growers to see alternative production practice options and compare hybrid/variety performance across similar soil types. This is a value to growers and the growers should be invoiced for this service to remind them of the value that is created for them.

Creating more value for growers starts with knowing what value means to your customers. But how do you go about doing that? Here are a few steps in the right direction:

1. Understand growers’ production strategy and offer solutions that support their goals and objectives. Is the ultimate goal to maximize yields? Minimize costs? Maximize profitability? Working with farmers when they’re putting their budgets together is a critical window of time to present your best options: Do your homework and come to the table fully prepared with solutions that will meet their specific needs. You must show your growers that you’re fighting alongside them every step of the way.

2. Educate growers to make sure they’re getting the most out of the products and services you sell to them. Retailers are well-positioned allies who can coach growers on how to make the most of their investments. And there’s an important opportunity here for suppliers, too, who need to nurture the partnerships they have with retailers to bring programs and services to fruition that support growers. It’s critical that manufacturers spend time educating retailers and dealers so they’re ready and on board to sell their value and benefits at the farmgate. Make sure retailers believe and see how your product is a better value once you factor in the programs and other benefits, so that way they are prepared to make a compelling case with their grower customers on your behalf. 

3. Comprehensively communicate the total value your customers are getting by doing business with you. The problem with value is it isn’t always apparent or easy to quantify. The key is to capture everything. Write it all down, including the intangible benefits. The invoice you send to growers should account for everything you put into the relationship…even the freebies. And if you can, put a dollar amount on promotions even if they’re cancelled out by a rebate. That’s all part of the value. When they’re not down on paper, those additional services and perks that increase value go unnoticed or are taken for granted. For example, if you’re throwing in soil sampling and regular crop scouting at no charge, but the value is $7/acre, put that on the list along with the rebate. If you included data management for precision ag data, itemize it with its real value, even if it’s a free service to them.

A value summarization also could be captured in a thank you letter at the end of the season, giving you a way to acknowledge all that went into the partnership. However it works for you, having it all documented is a great way to show farmers the total value they’re getting from their investment.

One thought around transparency—being upfront about the benefits and value created is key to maintaining your credibility with farmers. If, based on trials, you expect a product can bring a $5/acre benefit 70% of the time, give-or-take, then be transparent about that and charge accordingly.

In recent years some pharmaceutical companies have moved toward a performance-based pricing model, where consumers pay full price only if the drug was 100% effective. It would be interesting to see how that might play out in ag—with all the digital technology available, is there an opportunity to develop a value-based pricing strategy based on outcome? Who would be first to give it a try?

Value is More than Price

When planning strategies and budgeting for the season, it’s tempting to go straight for price—especially when the goal is running a more efficient operation. You probably have your own experiences that prove the lowest price isn’t always the greatest value. Focus instead on the benefits, create services that add value, and forge the partnerships that can bring beneficial solutions to market that create real value…because that’s what has the greatest impact.

If you’re interested in learning more about creating value for your customers, contact Barney Bernstein at bberstein@entira.net.