INTRODUCTION TO MARKETING AND COST OF PRODUCTION

Transcription

1 INTRODUCTION TO MARKETING AND COST OF PRODUCTION Samuel D. Zapata Assistant Professor & Extension Economist Weslaco, TX

2 Failure Rate by Industry Industry Statistic Brain/ Univ. of Tennessee Percent Still Operating after 4 years Finance Insurance and Real Estate 58% Education and Health 56% Agriculture 56% Services 55% Wholesale 54% Mining 51% Manufacturing 49% Construction 47% Retail 47% Transportation, Communication and Utilities 45% Information 37%

3 Major Failure Causes Statistic Brain/ Univ. of Tennessee

4 Outline Marketing Principles Electronic marketing: MarketMaker Production Cost

5 Marketing

6 What s Marketing? Marketing encompass all activities and efforts conducted to understand your customers' needs and to develop a business plan based on those needs.

7 Who is your customer? Individuals consumers Institutions and organizations: Retailers, wholesalers, schools, etc.

8 Target Market Target customers are those who are most likely to buy from you. Reduced group of customers Limited marketing resources Better target = less efforts wasted

9 Marketing Mix Four P s Four key factors that influence purchasing decisions: Product Price Place Promotion

10 Four P s: Product What are you going to sell? Tailor your product to meet your customers needs. Conventional or organic Locally grown products Fresh products

11 Four P s: Price How much can you charge for your product? Production cost Customers willingness to pay Competition price Breakeven price Profit margins

12 Four P s: Place Where will your customers buy your product? Direct sales: Community Supported Agriculture (CSA) Farmer s Markets Pick your own Indirect sales: Grocery stores, retailers, wholesalers, etc

13 Four P s: Promotion How will your customers find out about your product? Traditional advertising: Newspaper, TV, Radio Producers organizations Word-of-Mouth Electronic Marketing: Internet, social media, farm website

14 Electronic Marketing e-marketing is the marketing of products and services using the Internet. e-marketing includes the use of: Websites Social Media s

15 Why Using the Internet? Access to a vast number of potential customers Two way interaction tool with almost immediate feedback digital word of mouth Low cost

16 Internet Adoption Among Americans 84% Source: Pew Research Center surveys,

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18 Number of Users Producers Buyers Number of Users 70,000 60,000 50,000 40,000 30,000 20,000 10,000-63,104 31,181 Eating Places Food Retailer Processor/Packing Shed 4,740 3,503 Wholesaler

19 Cost of Production

20 Cost of Production Cost of production is the dollar value of all your inputs for growing a specific crop. Do you know your cost of production?

21 Determining the Cost of Production Two main components: Revenues Expenses It is essential to keep records Inputs prices Inputs quantities Accurately estimates require at least two production cycles

22 Type of Costs Variable vs Fixed Costs Variable Costs: Varies with the level of production Other names: Cash costs, direct costs, or outof-pocket costs Examples: seed and plants, fertilizers, pesticides, fuel, repair and maintenance, seasonal labor, interest on operating capital

23 Fixed Costs: Constant regardless the level of production Other names: non-cash costs, overhead cost Examples: Property taxes, interest on investment, land, machinery depreciation

24 Cost Allocation Considerations Single farm with different enterprises E.g., vegetable farm Same inputs might be used by several enterprises Define the appropriate units: Unit of area: per acre, plot, greenhouse Unit of product: per Ton, per head, per bushel

25 CORN BUDGET

26 CORN BUDGET Revenues Expenses

27 CORN BUDGET Variable Costs Fixed Costs

28 Quantities CORN BUDGET

29 Prices CORN BUDGET

30 CORN BUDGET Dollar Value Profits

31 Enterprise Budgets Uses Analyze the financial impact of production decisions Price estimation Identify the major sources of production cost Identify the most profitable crops Support application for credit

32 CORN BUDGET Breakeven Price Variable Costs Breakeven Price- Total Cost

33 Enterprise Budgets Resources Build your own budget tool: bit.ly/cropbudgets17

34 Final Remarks Sell products and services that your clients want The right marketing approach depends on your budget and on your target customers The value of an enterprise budget depends on the quality of the information used Create your own budgets

35 Acknowledgment Support for this educational presentation is provided by a grant from the USDA Risk Management Agency

36 Thank you! Samuel D.