IIML/PGPABM/2013

Understanding Marketing of Agriculture Inputs

Agri-input Marketing
Environmental factors 1. Agro-economic, social, technological & market 2. Understanding current market 3. Competitors analysis Product/customer related factors 1. Nature of the product 2. Demand characteristics 3. Farmers buying behaviour

Marketing Strategies
(STP, Pricing, Channel, Promotion and Communication)

Product

Characteristics and nature of product (a particular input) (a) Perishability? seed - Implications: inventory cost, precise demand forecasting (b) Bulkiness? fertilizers - Implications: high distribution cost when the market is large, and scattered

Product
(c) Based on the economic contribution or use in production - yield increasing: fertilizers, HYV seeds - yield saving: Pesticides, Insecticides, (a) Ex-ante application (preventive) (b) Ex-post application (control or curative) Implications: - Farmers buying behavior is spontaneous and positive in yield increasing inputs. - Among the yield saving products, farmers are more interested in control or curative inputs as compared to preventive inputs (why?)

- Buying preventive pesticides is considered as additional cost.

Product
(d) Based on the economic life - only for one production period (seed, fertilizer, pesticides) Implications: repetitive demand, CRM is very important, farmers store loyalty would be high as farmers would not like to make search cost again and again for the store. - over several production period (farm implements and machinery) Implications: replacement demand, after sales service holds the key, search for new customers every year.

Product
(e) Based on their economic nature - land saving inputs (HYV seeds) - labor saving inputs (farm implements, tractors) Decreasing availability of farm labor in rural areas due to migration and MNREGS, has given an opportunity for input companies for renting out implements and tractors Based on skill to use - simple to use ( seed, fertilizers) - require new skills and methods (sprinkler irrigation) Implications: role of communication and extension services would be more in case of the inputs which requires technical skills

Product

Based on technical product features - High differentiated inputs (complex fertilizers, implements and machinery) - Low differentiated inputs (simple fertilizer, generic pesticides)

Implications: How to create USP for the product? How to do positioning of the product?

Product Attributes (1)

Search attributes: These attributes can be determined and evaluated prior to purchasing the product consumers look the physical features of the product and follow buying of the product. The consumers make the choice of the product at the point of the sale. The risk associated with product would be less These products would have a low uncertainty of using untried brands Low product involvement but high purchase involvement

Product Attributes (2)

Experience attributes: The consumers know these attributes after purchase and using the product. The consumer would require a lot of information from credible sources before purchase and evaluate brands The uncertainty of untried brand could be high The producer uses various promotional and other methods to create an experience for the consumers and the product enters in the consideration set of the consumers. High product involvement of consumer

Product Attributes (3)

Credence attribute: the product attributes, which can not be experienced even after its use. So the consumer cannot make a judgment even after the uses. The manufacturer conducts the demonstration and creates only desire, its benefits are found only in long run. Purchase of the product is predominantly based on trust

Product Attributes (4)

In most of the agri-inputs, the experienced and credence attributes are more important than search attributes. Information and trust play very important role in purchase behavior of the farmers. The farmer would require a lot of information from credible sources before purchase and evaluate brands The source of information can be fellow farmers, company representative, or dealer/retailer.

Product v/s Purchase Involvement

Product involvement purchase Involvement Low Low High

Picking

Subcontracted

High

Variety seeking

Problem solving

Picking

Involves a random choice, where the buyer picks a brand and is indifferent to the brand he/she buys - Low involvement in the purchase - Little uncertainty with untried brands - Few differences between the brands Example: Urea Store decision: the consumer would purchase which are convenient The time of purchase would be immediate and the consumer would not be willing to wait for purchase The product has to made available at the most convenient place and time the buyer wants

Variety Seeking

Significant difference in brands Low degree of brand loyalty Preference would be multi brand store Product decision ---- Store decision ----- brand decision

Subcontracted decision making

Buyer obtains a brand recommendation from a personnel source No intention of getting information about brand Buyers are not knowledgeable to differentiate the brand or there is time constraint Decisions are made inside the store Role of channel is very important

Problem Solving

Purchase of complex high price products Brand differentiation Buyer evaluates the brands using a set of criteria Information search by buyer Product decision ---- brand decision ------- Store decision

Characteristics of Demand for Inputs

Derived demand - Farmers do not use the inputs per se but what they can do to their crops. - How much agri-inputs should be purchased and when depends on decision on acreage under a particular crop/variety Complementary demand - agri-inputs are demanded not individually but as a package Dependent demand - depends upon weather, nature and health of the crop, subsidies, loans Dynamic nature - change in cropping pattern

Characteristics of Demand for Inputs

Low volume demand implications for transaction cost? In most cases, it is repetitive demand Highly seasonal demand and the window period is small/very small Demand is more quality sensitive than price responsive Price inelastic demand

Sector and Macro-environment Analysis

Assess the trends in the sector and macro environment, which can influence business - Opportunities and Threats Analyzed trends can represent opportunities or threats Identifying key trends that will give leverage in building competitive advantage is key

Opportunities and Threats

Dynamic approach notice the trends which are going to influence the sector in the future (months, years) How the trend will influence the company positively or negatively? Key is to notice what is unnoticed to others and to transform what appears to be a threat into opportunity. P Drucker

Agri-inputs Industry - Environment

MARKET ECONOMIC

AGRI-INPUT SECTOR

REGULATORY

SOCIAL TECHNOLOGICAL

Market Environment
Consists of the factors which have an impact on agri-input market, like client factors such as needs, preferences, and buying behavior of farmers marketing intermediary factors such as retailer/dealer, distribution channels and delivery systems. Product factors, such as demand, features, utility and the substitutes of products. Competitor-related factors such as different type of competitors, entry and exit of major competitors, and nature of competition.

Social Environment

Demographic Characteristics - population density and distribution - migration and rural urban mobility.

Social Attitudes - social customs, beliefs, practices, and changing life style patterns.
Educational levels and awareness of the farmers Social concerns, such as environmental pollution

Economic Environment

- agriculture price policy - import and export policy - land reform policy - policy related to subsidy on inputs - fiscal policy - deregulation of agri-inputs

Exercise: Sector and Macro Environment Analysis

List down the events/issues under the various factors affecting business environment of agri-input industry Classify these events/issues as threat or opportunity

Sector and Macro-environment Analysis

Factor Event/Issue
Agricultural 1. Depleting water level 2. Erratic monsoon 3. Deteriorating soil health due to imbalanced use of fertilizers 4. Reducing size of land holding
Economic 1. Reduction in subsidy on agri-inputs 2. Agriculture credit policy (doubling the crop loan) 3. High cost of cultivation due to inflation 4. Increased price of import items due to rising cost of USD 5. Agriculture support price policy

Sector and Macro-environment Analysis

Factor
Social

Event/Issue
1. Reduced interest of young generation in agriculture 2. Farmers knowledge/awareness 3. Environmental concerns 4. Reduction in labour availability in rural areas due to migration & MNREGS

Technological 1. Availability of market information (weather and market price) on internet and mobile 2. Introduction of Kissan Credit cards by banks 3. BT implantation in crops (cotton and Brinjal) 4. New irrigation techniques like drip and sprinkler 5. Poor research and development in agro-chemicals

Sector and Macro-environment Analysis

Factor Market Event/Issue 1. Increases demand for organic food 2. New distribution models like SHGs, e-choupal, producers company 3. Introduction of crop insurance products 4. Interlinked transactions in rural markets 5. Death of cooperative institutions

Environmental Scanning

It results in a mass of information related to different sectors of the environment. Identification of different issues based on - intensity of their impact - relative probability of such an impact

Identifying High Priority Environmental Issues

Impact on Business Probability of occurrence High Medium Low High Critical High priority To be watched Medium High priority High priority Low priority Low Low priority Low priority Low priority