Better Decisions: Ten steps to a successful marketing plan

Wednesday, November 4, 2009

To make your marketing plan work, you need to take a disciplined approach and devote the necessary time. Here are some key elements

by JOHN BANCROFT

A marketing plan helps to develop a strategy for marketing the crops and livestock produced by a farm business. It challenges producers to identify costs, develop price goals, consider production and price risks, and review price and market outlooks.
Putting the marketing plan in writing provides the discipline to follow the plan and to monitor your decision making throughout the year. Below are 10 questions to consider when developing the key features of your marketing plan.

Does your marketing plan fit with your financial situation and business goals?
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. Net worth statements, farm income statements, financial ratios, enterprise budgets with break-even prices, and cash flow statements are some of the financial tools used to assess the level of risk.

How much price, income, and production risk are you comfortable with? Individual attitudes to risk will vary depending on the situation and resources available. They can range from a preference for avoiding price risk to preferring to use a risky grain marketing strategy with the potential for higher returns. The challenge is to understand the perceived risks and to choose the appropriate marketing tools and strategies to manage them.

How do you view the market situation and outlook? This is where you assess the market situation to determine what is affecting it now and will do so in the future. This could include seasonal trends, production expectations, supply and demand of commodities, consumer income and preferences, trade policies, currency fluctuations, politics and weather.

To develop your outlook, there are numerous sources of market information available. These can include advisors, newsletters, bulletins, websites, e-mails, seminars and courses. It is critical to choose reliable resources to provide the type of market information that your business needs. Market conditions change and a marketing plan needs to be responsive.

Who is on your marketing team and what are their roles? If time is a limiting factor, maybe securing the services of a marketing advisor would be a good investment. A broker will be needed if futures and options are part of the marketing plan. Do not forget to involve your lender to ensure sufficient funds are in place to service the marketing plan. Will there be one person or a committee responsible for the execution of the marketing plan? Communication of the marketing plan to everyone involved is a key component.

What are the pros and cons of the marketing tools that are available?
There are numerous marketing tools available that can be utilized within a marketing plan to manage price risk. These are available through grain elevators and commodity brokers using the commodity exchanges. They could include storage, cash sales, forward price contracts, minimum price contracts, hedge-to-arrive contracts, basis contracts, and hedging using futures or options. 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.

What are you producing, how much are you producing and what is your cost of production?
To market effectively what you produce, you need to know how much will be produced, when it will be ready to market, and the cost to produce it. Standard crop budgets are readily available in both paper and computer form to assist in the calculation of how much will be produced and what it will cost to produce it.

When thinking about how much will be produced, it is a good idea not only to calculate your expected production but also to estimate optimistic and pessimistic production levels. Consideration should be given to what risk management tools can be used to manage production risk.

This may involve a combination of production practices, diversification and/or crop insurance.

Does your production flow match your on-farm storage capacities and cash flow needs? With multiple crops being produced and harvested throughout the summer and fall months, it is important that the logistics of the harvest flow, the on-farm storage capacities and the planned sale of the various crops mesh smoothly. This is to help prevent the need for an unplanned crop sale in order to free up storage space or ensure cash flow payments are met.

What are your marketing goals and targets? This is where you set out what marketing tools you are planning to use to sell your crops, what will trigger a sale, when the crop will be sold and how much will be sold. Keep in mind that here are three time periods to market a crop – pre-harvest, harvest and post harvest. Also, there should be a separate plan for each crop year. 

How do you monitor your marketing plan and market information? This is where you need to set up a simple system to track key market information affecting your marketing plan. Similar to doing crop scouting, where you take time to walk your fields and record notes, time and notes are needed to monitor your marketing plan effectively.

So set aside a couple of hours each week on the same day to review the markets and your marketing goals. Set up a marketing log book to track your marketing plan and record significant market information. This could include cash prices, future prices, basis, marketing positions, action items that need to be done (for example, free up bin space in the next month for a crop to be harvested), and comments on why a decision was made. The idea is to record information to help you execute your marketing plan, to make future decisions and to evaluate your plan.

When do you evaluate your marketing plan? Identify an appropriate time to evaluate the effectiveness of the overall marketing plan, the lessons learned, and the changes needed for the future. This could be done annually to determine what has worked or not worked and why. 

Once you have developed a marketing plan, put it into action. An active marketing plan helps take some of the emotion out of the decision making. Putting a written marketing plan in place provides discipline to execute it. Be realistic when developing the plan, keep it manageable, communicate your plan to the people involved, and assign time to monitor and execute it. BF

John Bancroft is the Market Strategies Program Lead with the Ontario Ministry of Agriculture, Food and Rural Affairs. Email: john.bancroft@ontario.ca