understanding & competing in a maturing …...1 understanding & competing in a maturing...
TRANSCRIPT
1
Understanding & Competing in Understanding & Competing in a Maturing Marketplacea Maturing Marketplace
Dr. Charlie HallDr. Charlie HallEllison Chair in International FloricultureEllison Chair in International FloricultureTexas A&M UniversityTexas A&M [email protected]@tamu.edu
The key to profitability in this The key to profitability in this industry is industry is notnot selling more selling more flowers/plants, flowers/plants, per seper se..
The key to profitability is The key to profitability is getting more dollars for the getting more dollars for the flowers/plants we do sell.flowers/plants we do sell.
2
Value of a 5" Poinsettia corrected for inflation
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
1965 1975 1985 1995 2005 2007
Retail ‐ INF Whole ‐ INF Actual Wholesale
DISTRIBUTION &LANDSCAPE FIRMS
MINING
OIL WELLS
FORESTRYFISHERIES
Extractive & Manufacturing
PAPER MILLS
PRINTED MATERIALS:(Catalogs; signs; packaging)
Wrappings,Containers
Packaging materialsLabels
Irrigation materials
PLASTICSMANUFACTURING
PETROLEUMPRODUCTS
FERTILIZER;PESTICIDES
CHEMICAL PLANTS
FERTILIZERPLANTS
METAL WORKING
TOOLS &MACHINERY
Production
AG COLLEGES;RESEARCH FARMS
Nursery& Greenhouse
Firms
Marketing
ConsumptionRETAILING• Garden centers• Retail nurseries• Retail greenhouses• Florists• Supermarket floral depts.• Discount mass merchants• Home improvement centers• Farm markets• Mail order & internet sales
INDIRECTMARKETING
FIRMS
• Installation• Maintenance• Storage• Transportation• Financing• Information
FUNCTIONS• Brokers• Landscape contractors• Lawn maintenance firms• Re-Wholesalers• Terminal market firms• Cooperatives• Auctions
DIRECTMARKETING
INSTITUTIONAL• Schools; Churches• Hotels; Resorts• Hospitals• Restaurants• Interior landscapes• Malls• Corporate landscapes• Public buildings• Community parks
IMPORTS:• Columbia, The Netherlands,• Ecuador, Mexico, Canada, • Guatemala, Australia, Israel,• England, Costa Rica, Hawaii,• Philippines, Japan, China,
Africa
EXPORTS:• Market Area to
Market Area• Other states• Canada• Europe
TRADE PRESS & PUBLICATIONS
Trade AgreementsTrade Barriers & Import RestrictionsAPHIS/PPQPatents, Royalties & CopyrightsEnvironmental ProtectionPesticide and other chemical regulations
TRADE
ASSOCIATIONS
Regulatory
End Consumer
3
Outdoor Living
• Homeowners are now viewing their inside and outside space as a whole.
• Backyards and patios now serve as playgrounds, living rooms, home offices and kitchens.
Source: Garden Media Group
Nursery and greenhouse crop consumption by household
$112$117
$122$131$132$135$139$143
$149$152$152
$146$147
$90
$100
$110
$120
$130
$140
$150
$160
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
4
Source: National Gardening Surveys, NGA.
$33,
519
$33,
404
$37,
734
$39,
635
$38,
371
$36,
778
$35,
208
$34,
077
$35,
102
30,00031,00032,00033,00034,00035,00036,00037,00038,00039,00040,000
Mill
ions
($)
1999 2000 2001 2002 2003 2004 2005 2006 2007
Total U.S. household lawn and garden retail sales
Reasons for not gardening
Source: Bill Calkins, Ball Horticultural Company
5
Consumer Gardening Trends
• In 2007, 71% of U.S. HH (82 of 115M) participated in L&G activities– 67% lawn care (55M HH)
– 42% indoor houseplants (35M HH)
– 42% flower gardening (35M HH)
– 37% landscaping (31M HH)
– 30% vegetable gardening (25M HH)
– 26% container gardening (21M HH)
Source: 2007 National Gardening Survey, NGA.
Consumer Gardening Trends
• Average 2007 Expenditures: $428/HH (+7%)– Lawn care ‐ $208/HH
– Indoor houseplants ‐ $34/HH
– Flower gardening ‐ $71/HH
– Landscaping ‐ $350/HH
– Vegetable gardening ‐ $58/HH
– Container gardening ‐ $48/HH
Source: 2007 National Gardening Survey, NGA.
6
Consumer Gardening Trends
• Highest level of participation from:– 55+ years of age; 35‐44 years of age
– College graduates
– Married
– HH Income ≥ $75,000
– 2‐person HH, no children, South
Source: 2007 National Gardening Survey, NGA.
Source: National Gardening Surveys, NGA.
05,000
10,00015,00020,00025,00030,00035,00040,00045,00050,000
2001 2002 2003 2004 2005 2006
Mill
ions
($)
Total U.S. HH lawn & garden retail sales vs. lawn/landscape services
DIY L&G activities = $34.1Bn in 2006
L&L services = $44.7Bn in 2006
7
Trend in Total U.S. Housing Starts
U.S. nursery and greenhouse grower cash receipts($1,000).
$0$2,000,000
$4,000,000$6,000,000
$8,000,000$10,000,000
$12,000,000$14,000,000
$16,000,000
$18,000,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
p
Industry has shown recession resistance and strong correlation to housing starts.
8
9
Average annual growth rate,1967-2007.
• In the 1970’s: 13.64%13.64%
• In the 1980’s: 9.91%9.91%
• In the 1990’s: 4.64%4.64%
• In the 2000’s: 2.87%2.87%
2.2%2.4%
5.4%4.6%4.8%
4.4%2.0%
9.3%4.6%4.9%
4.6%1.9%
5.6%4.3%
11.9%7.2%
8.4%12.6%
9.5%5.6%
14.3%12.8%
9.8%7.0%
14.6%13.1%
17.1%10.4%
20.7%15.2%
10.9%18.0%
10.5%5.8%
3.2%3.7%3.9%4.1%
20042003200220012000199919981997199619951994199319921991199019891988198719861985198419831982198119801979197819771976197519741973197219711970196919681967
Year
Source: USDA Situation & Outlook, 1967‐2007.
1.0%20051.0%2006
1.5%2007
10
The Rising Cost of Gettin’ By
• Chemicals ↑7%
• Fuel ↑49%
• Fertilizer ↑69%
• Containers ↑11%
• Machinery ↑7%
• CPI ↑4%
*** price increases since May 2007*** price increases since May 2007
11
The Cost-Price Squeeze
Retail consolidationFewer buyersOversupply
• Product tags/labels• JIT delivery, setup & care• Barcode/pre-pricing• Returnable shipping
equipment• Pay-by-scan• Take back unsold product• Consistent pricing• Continuous volume
replenishment• Rising input costs (e.g.
fuel)• Labor availability
12
•• ““These staggering costs have us scared to deathThese staggering costs have us scared to death””
•• ““We are surviving, but profitWe are surviving, but profit‐‐wise, itwise, it’’s a squeeze.s a squeeze.””
•• ““Costs of energy, labor, fumigants, pots, Costs of energy, labor, fumigants, pots, polyethylene, delivery polyethylene, delivery –– everything is going up. Iteverything is going up. It’’s s really beginning to hurt.really beginning to hurt.””
Emotional reactions to rising costs?
Quotes from article in Florists Review.
MAY 10, 1979!MAY 10, 1979!
Signs of a maturing industry
Slowing demand breeds stiffer competition.
More sophisticated buyers demand price alignment.
Greater emphasis on cost reduction and service.
“Topping out” problem in adding production capacity.
Product innovation and new end uses harder to come by.
International competition increases.
Industry profitability falls due to decreasing margins.
Mergers and acquisitions reduce number of industry rivals.
13
So the $64 question is this…
What do firms need to do to compete successfully in a maturing floriculture market?
14
“I skate to where the puck is going to be . . .
not to where it has been.”- Wayne Gretsky
© RoyaltyFree/PhotoLink/ Getty Images
Two Elements of Strategy
External PositioningInternal Alignment
• Understand completely, the external environment
• Match firm’s strengths and weaknesses to external opportunities and threats
• Align all activities to the firm’s market position and make them consistent
• Develop core competencies which lead to new and better competitive advantages
15
External strategic responses…
1. Become a low‐cost operator and play the volume (commodity) game.
2. Differentiate in some way ‐ specialize by product, service, customer type, or geographic area.
3. Increase customer value via horizontal and/or vertical coordination.
My thoughts…
• The most meaningful increase in margins in the future (for most firms) will have to come from the demand side of the equation (price).
• There is but one way to accomplish this –by successfully differentiating ourselves in the mind of customers!
16
External strategic responses…
1. Become a low‐cost operator and play the volume (commodity) game.
2. Differentiate in some way ‐ specialize by product, service, customer type, or geographic area.
3. Increase customer value via horizontal and/or vertical coordination.
Differentiation Strategy Defined
• An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being customers perceive as being differentdifferent in ways that are important to them.
17
• Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
• Customers value the differentiated featuresmore than they value the low cost
• Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals
• Not spending more to achieve differentiation than the price premium that can be charged
Keys to Success
Drivers of Uniqueness
•Product features & performance
•Complementary services (credit, delivery, repair)
•Intensity of marketing activities
•Technology in design and manufacture
•Quality of purchased inputs
18
Drivers of Uniqueness, cont.
•Rigor of procedures (quality control, service, frequency of sales visits)
•Employees’ skills and experience
•Location, location, location
•Degree of vertical integration (in‐house control)
Examples of innovative differentiation strategies used in
the green industry:
New plant introductions.
Innovative packaging & labeling.
Advertising and branding efforts.
Generic promotions.
Value‐adding services.
19
new plant introductions
Plant SelectionsPlant Selections
20
2008 Pack Trials, Photos by Chris Beytes
Ellison’s Greenhouses, Brenham, Texas
21
While new products have generated interest, the product life cycle has
shortened!
Time
0
Dol
lars
Intro
duct
ion
Gro
wth
Mat
urity D
eclin
e
Sales
Profits
22
innovative packaginginnovative packaging
23
brandingbranding
24
25
•Good For Your Sole – a national campaign for the Stepables® brand of plants, a line of groundcovers that withstand foot traffic.
Under the Foot Plant Co.Under the Foot Plant Co.
26
Frederique van der Wal
27
Paradox of choice?Paradox of choice?
• the paradox that more choices may lead to a poorer decision or a failure to make a decision at all. It is sometimes theorized to be caused by analysis paralysis, real or perceived, or perhaps from rational ignorance (when the cost of educating oneself outweighs any potential benefit).
““sustainablesustainable”” brandingbranding
28
Wollemi pine
29
ONE WAY AHEADONE WAY AHEADNo No GreenwashingGreenwashing!!
30
generic promotionsgeneric promotions
Project EvergreenProject Evergreen
Project Evergreen’s goal is to promote the qualities of healthy landscapes to U.S. consumers and is funded primarily by turfgrass and lawn‐chemical companies.
31
• civic pride
• community involvement
• cooperation between government, business, private citizens & communities
• economic development
• increased property values
• increased tourism
• decreased vandalism
• feedback from judges
32
cause marketingcause marketingPretty in Pink Garden, Hick’s Nurseries
External strategic responses…
1. Become a low‐cost operator and play the volume (commodity) game.
2. Differentiate in some way ‐ specialize by product, service, customer type, or geographic area.
3. Increase customer value via horizontal and/or vertical coordination.
33
Spot/CashMarket Specification
Contracting
StrategicAlliances Formal
Cooperation
VerticalIntegration
Characteristics of “Invisible‐ Hand”Coordination
Self Interest
Short‐term Relationship
Opportunism
Limited Information Sharing
Flexibility
Independence
Mutual Interest
Long‐term Relationship
Shared Benefits
Open Information Sharing
Stability
Interdependence
Characteristics of “Managed”
Coordination
THE VERTICAL COORDINATION CONTINUUM
NOTE: The diagonal line represents the mix of invisible‐hand and managed coordination characteristics found in each of the five alternative strategies for vertical coordination. The area above the diagonal indicates the relative level of invisible‐hand characteristics and the are below the diagonal indicates the relative level of managed characteristics
Source: Peterson and Wysocki. 1998 AAEA Symposium
Examples of Coordinated Marketing
34
Examples of Coordinated Marketing
Examples of Coordinated Marketing
35
The reasoning behind coordinated strategies…
• “If we can’t live together, we’re going to die alone.”
• Making Cents blog post May 23, 2008 “The value of building strategic networks”
• Formal contracts do not make successful relationships. People do.
Cost of goods sold (COGS)
Product price (P)
Perceived value (PV) = ∑ of perceived benefits
Objective value (OV) = ∑ of all benefits
{Firm’s incentive to sell: (P‐COGS)>0
{Customer’s incentive to purchase: (PV‐P)>0 (economic utility)
$0
Marketing efforts
Prices of substitutes
Source: Note on Behavioral Pricing, Harvard Business School, 9‐599‐114.
?
RECAP: ItRECAP: It’’s all about value!s all about value!……and relevance!and relevance!
36
Relationship between price elasticity and
total revenue
Long-run Industry Pricing Equilibrium
Price SMCS1
S2
D2
D1
LS
MCAC
Output
(a) Typical Firm0
Price
Quantity
(b) Total MarketQ2
0 q1 q2 Q3Q1
P1
P2
37
Ellisonchair.blogspot.com
Questions?
Dr. Charlie HallDr. Charlie [email protected]@tamu.eduEllisonchair.tamu.eduEllisonchair.tamu.edu