Value-Added ProductsWe’re Going to Be Rich!! Ginger S. Myers University of Maryland Extension Extension Ag Marketing Specialist, Director, Maryland Rural Enterprise Development Center
[email protected] Extension.umd.edu/MREDC Extension.umd.edu/AgMarketing 301-432-2767
Ginger S. Myers
[email protected]
301-432-2767
Director of the Maryland Rural Enterprise Development Center Extension Marketing Specialist, College of Agriculture & Natural Resources, University of Maryland Extension. Over 30 years of experience in production agriculture, agribusiness and consulting to this position. Currently works with agricultural entrepreneurs, develops new markets and networking opportunities, works with new and beginning farmers, and assists with business development and business planning. Operates a grass-based livestock farm with husband.
Former Trader Joe executive Doug Rauch has opened a Boston market that brings healthy food to people who usually can't afford it
At the Daily Table, half of the food the store sells is prepared, a result of customers' lack of time. "Eighty percent of Americans don't know what they're having for dinner at 4pm in the afternoon," he says.
This Presentation Discusses:
Value-Added Products Ways to take advantage of value-adding opportunities. Why Value-Added Products Fail
Value-Added Products: Marketing Strategies
What is Value-Added?
A customer-driven process in which the farmer retains more of the food dollar by processing, enhancing, packaging and/or marketing the product him/herself.
Degrees of Added Value
Minimal Change of State- often used to extend shelf life Production Methods- Organic, grassfed, heirloom varieties, etc. Adding Value to the Purchasing Experience- Agritourism, Wineries
Deciding on Value-Added
May increase farm viability May increase farm visibility May expand the market season May open new markets
There is considerably more risks involved in value adding than selling the bulk commodity.
Pros & Cons of Value-Adding ProsHigher profits Master of your own destiny- value to quality products ConsCompetition will react with a vengeance if your product becomes successful and is a serious threat to their market share
Why Value-Added Products Fail 1. Product doesn’t match or satisfy a customer’s wants or needs (perception). Lack of trust in
unknown sources – particularly those seen as unregulated or lacking standards. 2. Are you starting a business or making a job for yourself?
3. Not Pricing for Profit Example: You sell gourmet apple burtter for $10.00 per jar. Selling Price
$10.00
Variable Costs Raw Material $3.00 Hourly Labor 1.00 Sales Commission (10%) 1.00 Shipping Charge 0.50 Total Variable Costs $5.50 Price minus Variable Costs $4.50 The $4.50 is called the contribution margin because it represents how much is "contributed" from each unit of sales toward paying for fixed costs and profits.
Example: Fixed expenses ( per month) Lease payment Telephone Insurance Bookkeeping Loan Payments Total Fixed Expenses
$ 800.00 $ 100.00 $ 50.00 $ 100.00 $ 300.00 $ 1,350.00
Question ??? How many jars of apple butter do you have to sell each month to pay for your variable & fixed expenses ?
Your “Break Even Point”
Selling Price = $10.00 / jar Variable costs = $5.50 /jar Contribution margin = $4.50 / jar Fixed costs = $1,350.00 /month $1,350.00 $4.50 = 300 jars per month
When you sell jar #301 you have made a profit.
4. Problems with Distribution 1. Supplying a sufficient amount of the product at the initial delivery. 2. Delivering product on a consistent basis and meeting strict delivery schedules.
Rules for Success
#1 The backbone of value-added marketing is high quality products. #2 Start Small- Determine how much high quality product can you process and deliver on a consistent basis. Then match your “placement” to that volume. #3 The emperor may have no clothes. Many claims about the sales potential for value-added products may be overly enthusiastic.
#4 Honest accounting. Be honest with yourself about how much time the business will demand. #5 Price and convenience do matter. While many customers will support locally produced, the real work suggests that price and convenience do matter to almost all customers.
# 6 Seasonality can be a significant handicap. Some customers, such as big food institutions may not easily accommodate seasonality.
#7 Only be as different as you can afford to be. Some differentiation in the market may help you capture niches, but going to extremes may yield a product that no one is willing to pay for.
Adam & Eve Hot Sauce
#8 Make a plan on how to “scale up” that matches profits to costs of growth. Not just $$, but period required for growth.
Successful Marketing Find the Right Message Use the Right Media Deliver to the Right Market Segment
http://www.extension.umd.edu/Agmarketing
http://www.extension.umd.edu/mredc
Questions?
Ginger S. Myers University of Maryland Extension Extension Ag Marketing Specialist, Director, Maryland Rural Enterprise Development Center
[email protected] Extension.umd.edu/MREDC Extension.umd.edu/AgMarketing 301-432-2767
