Marketing 101 - A Marketing Plan
Marketing has a direct impact on your overall business success. Changing
buyer demands, local and global competition and other market forces have
resulted in the business of agriculture moving from being focused on production
to being market driven. A marketing plan develops strategies for marketing
your cattle. It challenges you to identify costs, develop price goals,
consider production and price risks, and to review price and market outlooks.
Like a road map, it provides the details, responsibilities, and actions
for marketing your cattle. This helps to minimize the guesswork and emotion
when making key marketing decisions. Market planning is a continuous task
that needs to be flexible to accommodate changing market and production
conditions. A marketing plan is a farm business management tool to assist
in facilitating the successful marketing of your production.
Here are the seven essential elements of a marketing plan:
- Know your cattle and business - Very simply, this is tying
together your production and financial situation to achieve your
farm business goals. It means fitting your production plans (type
of cattle, how many and when they are available to sell) into
your cash flow to ensure financial commitments are covered in
a timely fashion. Consideration should be given to risk management
tools (i.e. production practices, diversification, and insurance)
that can be used to manage production risk. Review your current
financial situation and business goals to ensure your marketing
plan is in line with your overall business plan. The financial
health of the business provides an indication of the amount of
risk the operation can bear. Individual attitudes towards accepting
and managing risk will vary. Focusing on relatively simple strategies
to increase income and reduce risk could be a place to start.
A simple marketing goal could be to cover the cost of production
plus a reasonable return as opposed to simply trying to maximize
the price received.
- Cost of Production - To effectively market your cattle you need
to know your cost to produce an animal. A cattle budget will determine
the number of cattle to be produced, the costs involved, and establish
a production flow. One suggestion is to break out the costs into
animal replacement, feed, other variable, and fixed costs. This
will be useful when establishing price targets.
- Market Information - Remember this: good market information
gives the producer marketing power! Market information includes
market prices, fundamentals, analysis, outlook, and strategies.
Understanding the market fundamentals helps to make informed marketing
decisions to capitalize on market pricing opportunities. The ultimate
challenge is to have a future market perspective that takes into
consideration the current market conditions, the seasonal trends,
and the historical market information. To develop your outlook
there are numerous sources of market information available. These
include advisors, newsletters, bulletins, websites, emails, seminars,
and courses. It is critical to choose reliable information resources
to provide the type of market information that your business needs.
Market conditions change and a marketing plan needs to be responsive.
- Marketing Tools -This is where producers evaluate the pricing
and delivery opportunities available to them. This may include
cash sales, forward price contracts, and hedging using futures
or options. Also, check with your lender to see what tools are
available to manage currency risk. The first step is to understand
how each marketing tool can manage price risk. Next, review the
strengths and weaknesses of using them in your marketing plan.
Finally, consider any special requirements (i.e. extra credit)
needed to make them work effectively. Individual attitudes towards
accepting and managing risk will vary depending on the situation
and resources available. It can range from a preference to avoid
price risk to preferring to use a risky marketing strategy to
generate potential higher returns. The challenges are to understand
how each marketing tool can manage price risk and the pros and
cons of using them in your marketing plan.
- Price Targets - Knowing your cost of production helps to establish
target prices to recognize acceptable market prices that are compatible
with your financial situation. A marketing plan, no matter how
good, may not be able to lock in prices that cover all the costs
of production all the time. Key target prices that compensate
for specific costs are important to have in years where opportunities
to cover all costs are limited. Three price targets to consider
- Survival price: the lowest acceptable price based on cash
- Acceptable price: the breakeven price based on total costs
- Favorable price: the breakeven price plus a return to management
- Take Action - Taking action to make a pricing or marketing decision
will probably be the hardest part. Having a combination of strategies
and examining "what if" situations in advance as part
of your planning process will help. Put someone in charge (i.e.
yourself, spouse, etc.) of executing your marketing plan with
support from your marketing team (i.e. yourself, spouse, market
advisor, lender, etc.).
- Evaluate and Monitor - Walking your cattle pens and noting the
cattle performance helps to make production decisions. Similarly,
a market log book can be used to record market information to
assist in executing and evaluating your plan. The information
could include cash prices, future prices, basis, marketing positions,
and notes on why a decision was made. Set aside (assign) appropriate
time to review the markets and your marketing goals/targets.
The bottom line is that a marketing plan helps to achieve your farm business
goals and objectives. A written marketing plan helps the decision
making process and provides discipline to execute it. Be realistic
when developing the plan, keep it manageable, and monitor your progress.
Click here to view
other Virtual Beef articles
For more information:
Toll Free: 1-877-424-1300