A22-Lancaster Farming, Saturday, August 29, 1998
DIRECT RETAIL
Farm Marketing
JOHN BERRY
Penn State Extension
Marketing Agent
Agricultural marketing activi
ties account for more than 17
percent of the nation’s gross
national product.
Seventy cents of cvcty consum
er food dollar goes to cover mark
eting expenses.
Being involved in marketing
helps producers decide what to
produce and when. Clearly, per
forming some marketing chores is
a possible source of increased
revenue.
According to academics, there
are nine functions of marketing:
buying, selling, storage, transpor
tation, processing, grades and stan
dards, financing, risk taking and
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marketing information.
One aspect of marketing that
generates many questions is the
function of selling.
“What should I be pricing my
melons at?” is heard on many visits
to local farm markets.
Of the nine functions of market
ing, only selling generates cash.
The prices must be a part of your
overall marketing plan.
Cost of production is the basis of
calculating price. However, pric
ing must be flexible enough to
meet the competition and adjust
able to changing situations.
As an integral part of the mark
eting plan, price must be set to
meet the sales and financial goals
of the enterprise.
Having a clear idea of your
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marketing objectives and the target
market for your products makes
selection of a “proper price”
easier.
Cost Plus Method
Price mark-ups are an area of
great confusion.
Mark-up should be given as a
percent of the selling price. Net
profit is greatly affected by calcu
lating your mark-up incorrectly.
Cost plus mark-up equals sell
ing price.
Here’s an example. Let’s say
my marketing plan calls fora gross
profit goal of 20 percent. Let’s say
a watermelon costs me $l.
The proper selling price is
$1.25, not $1.20.
The cost of $1 plus mark-up of
25 cents equals a selling price of
$ 1.25. This represents a 20-pcrcent
gross margin on the selling price.
A common incorrect method of
calculating margin would be to
take the cost at $l, add 20 percent,
and get a selling price of $1.20.
The trouble with this incorrect
method is when the accounting is
YEARS
1947-1998
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Problem Solvers
$1.25
$1.95
$3.95
$2.95
I
. $9.95
$69.95
$28.95
$6.99
$85.95
$79.95
$89.95
$99.95
$1.99
.$1.75
$2.35
.. $.99
$4.89
$21.95
$2.39
. $2.79
$25.95
$.59
$2.45
$3.55
$4.45
$7.95
$5.50
$6.95
$5.35
$4.95
$2.90
$2.95
$1.50
$4.99
$5.70
I
done, I have received a 16-percent
margin, not the 20 percent called
for in my planning.
This “cost plus" method docs
not take into consideration the
competition.
Remember, pricing at the level
of the competition reflects the
costs and perceptions at other farm
markets, not yours. Your price is a
resultof your costs and the percep
tion of your products by your
customers.
We are trying to maximize total
profits, not the profit per unit
Are you willing to take a lowei
price if you could sell more units?
The following table gives you a
picture of this game. The first row
states that if your margin is 10 per
cent and you reduce your price 5
percent, it will take an increasec
sales volume of 100 percent tc
meet your planned revenue goals
MILK
Where's your mustache?
Point Is Profit
ELK C. ,EEK F MILY ,N
Sat Hern ■ n & Evemn^
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Current
% Profit % Price Increase in
Margin Reduction Sales Volume
10 5
15 5
IS 10 200
20 5
20 10 100
25 5
25 10 67
An effective pricing strategy
depends on four factors.
1. You must know your cost fo
each product
2. Possible sales response u
price change is vital.
3. What are the costs and prices
of the competition?
4. What are the probabli
responses from the competition t<
what you do?
Proper pricing is essential to
long-run business success. Pricing
is as much a marketing concern as
an accounting one.
Good pricing is a measure of
management effectiveness.
Good pricing allows a retail
farm market to more easily reach
their marketing and financial
goals.
m
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Required %
100
(