Organic Business Guide/Marketing

Marketing

Throughout this guide a number of characteristics of organic markets have been given, especially in chapter "Starting from the market". This chapter is about marketing: how to get your products to the market, and how to get somebody to buy your products. Some entrepreneurs have a natural gift for marketing, others find it difficult. A lot has been written elsewhere about the marketing of agricultural products in general and in some cases about organic marketing in particular. This chapter provides you with the basic know-how needed for successful marketing of organic products.

Marketing strategy

Until the end of the 1990s, there was a shortage of supply of most organic products. Any supplier could find a place in the international market. Nowadays it is a buyer’s market, there is a lot on offer, products are coming in from many different countries, and buyers can pick and choose. Newcomers try to find their place by being cheaper. While that is usually the way to start the business, cheap organic production usually comes with quality and integrity problems. You may start at the bottom of the market but as soon as possible you move up by building a track record of accomplished deals, learning and improving along the way.

Spot market versus fixed buyers
Some organic businesses sell to one buyer. The majority however sells to a number of buyers, into quite different markets. When you supply to a fixed buyer every year, you are part of an integrated supply chain. You may still sell part of your goods on the spot market: this last one is more for speculators. Often organic businesses start on the ‘spot’ market, and over time find some fixed buyers. How you do your marketing obviously differs depending on the market that you are addressing.

Quick deal or long-term trade relationship?
The Tigray Agricultural Marketing Promotion Agency (TAMPA) supported onion producers in Northern Ethiopia establish links with a wholesaler from a major town in the district. A contract between the wholesaler and the farmers group was signed while the production was at planting stage. The agreed price was 2.20 birr (0.22 dollar) per kilogram. At the time of harvesting, another trader from the region promised the farmers he would buy their onions at 2.40 birr (0.24 dollar) per kg, and they terminated the previous contract. However, he did not respect the agreement, and finally the farmers had to sell their onions at the local market at 1.20 birr (0.12 dollar) per kg. The farmers therefore lost a lot compared to the price offered by the wholesaler who had wanted to establish a long-term trade relationship.

Ghidey Gebremedhin Debessu, TAMPA, Ethiopia

Developing a marketing plan
It is not necessary to write out a big plan but it is important to think through a number of areas where you must make some choices, and then that becomes your marketing plan or strategy. The marketing plan is part of your business plan (see chapter "Developing the business step by step"). When you review it a few years later you will appreciate it and will realise how much has changed. Typically, a marketing plan includes the following steps:

• Market overview – trends, market segments, target markets
• Competitive review
• Strengths, weaknesses, opportunities and threats
• Sales goals & marketing objectives
• Strategies
• Marketing budget
• Timing

There is a lot of general information about making marketing plans on the internet. Some of it is not so relevant to the context of an organic agriculture business. In some cases information is promised for free, but very soon you are triggered into buying something. Nevertheless it is a good idea to surf on the internet to get inspiration for developing the content of a marketing plan.

The 4 Ps

Figure 21: Example of the 4Ps for marketing of organic-Fair Trade cotton from Africa.

A helpful exercise in order to develop your marketing strategy is to think in the 4 Ps. These are Product, Price, Place and Promotion. An example is given below.

Product
Do you know your product details: the variety, the specification, what exactly you are selling and how it compares with that of your competitors? How are you doing your shipping, what are the payment terms that you are proposing? Is there a story behind the product (e.g. the impact on the farmers' livelihoods)? Also, have you asked the various buyers precisely what they are looking for? Can you supply that? If you are a coffee exporter, it may be fairly easy to determine whether there is a market for your coffee, organic and/or Fair Trade, as most origins are well known to most traders. For many products however, the market depends very much on what your product exactly is. Many buyers will insist on seeing and testing a sample before they can say whether it is a product they might be interested in. Send them a representative sample and always ask them for the results of their analyses; there is much to learn from these.

Price
The way you price your product gives it a certain position in the market. Prices of organic products are subject to supply and demand. For many commodities the conventional world market price is taken as a reference, with a certain fixed or percentage premium added, for example 15%. That is still just an idea of the price; throughout the year prices will vary to some extent. In times of temporary shortage especially, prices can shoot up. If there is an oversupply or glut, prices can even fall to conventional levels.

There are 4 types of pricing strategies (Figure 22):

Figure 22: Pricing strategies matrix (Source: www.marketingteacher.com).

• Penetration Pricing: The price is set artificially low in order to gain market share. Once this is achieved, the price is increased.
• Economy Pricing: This is a no frills low price. The cost of marketing is kept at a minimum. You use the cheapest certification body. You offer a product and that’s it, no questions asked.
• Price Skimming: You can charge a high price because you have a substantial competitive advantage, or because there is a shortage in the market. However, the high price is not sustainable, it actually attracts new competitors into the market, and the price inevitably falls due to increased supply.
• Premium Pricing: You use a high price because there is uniqueness about the product or service you offer. This approach is used where a substantial competitive advantage exists. Such high prices are charged for example for specialty coffees.

You will normally agree on a price in US $, sometimes in EUR. At the time when you set the price the calculation may be correct. However, payment date may be 2 or 3 months away. If you agree on a price before you buy from the farmers you have to be particularly aware of the risks you run with the exchange rate and the farm gate price. An example of how the profitability of the business can completely change is given in chapter "Financial planning and management" (sensitivity analyses). To reduce these risks the two parties can agree on a price setting mechanism, which possibly also involves the farmers (associations). You reduce the risk but at the same time you increase the opportunity to get the best possible price.

Place
Most businesses like to sell themselves. In some sectors you have the choice to supply to an agent, a distributor. Examples are weekly consignments of fresh fruit sent to Europe by sea freight. Nobody really knows what the market situation is in two to three weeks time when the fruits arrive at the market. As it is a perishable product you are at the buyer’s mercy. In such a case it might be advantageous to work with a commission agent, who knows the market inside out and is always able to sell the fruit for the best possible price. You cannot deal with that from say Ghana, Cameroon or Costa Rica.

Another example is with shea oil or butter. If you want to supply the cosmetics market you have to deliver relatively small volumes, perhaps 1500 kgs. When supplying from West Africa, you have to ship such a small volume by air freight. The alternative is to ship a sea container and have stock somewhere in Europe from where the product is distributed from. Such distributors often become partners in your business. The same happens with spices.

There are some efforts going on to promote internet based trading platforms. In organic businesses where quality and integrity is of more importance than in the regular trade, this interest is limited. For business in developing countries where it is already difficult to do normal business, selling products over the internet adds yet another dimension. However, it is an interesting platform to see what is around. You can always place your product on such a website and see what serious and not so serious offers come in. If it becomes serious there will be personal contacts made.

Promotion
The most important way of promoting your product, your company, is through communication with your clients. This is the Achilles heel or weak point for many start-up businesses that often feel somewhat insecure; you have to be able to present yourself, you have to communicate well.

You can start with compiling information for a company brochure, with the history and location of the project, the production base, what has been achieved by the project over time, what the plans are for the future, and ending with product information like product specification, volumes, harvest season, and packaging options. The next step is to formulate your unique selling proposition, USP. You come up with the reason why your products stand out: are they better, cheaper, or targeted to a specific market niche? The particular mix of core benefits of your products is the basis for the promotion of your products; that is what you are selling. If your product does not stand out, then your service needs to make the difference. Stress that element. Are you better at delivery times, payment terms, and answering the phone than your competitors? For further information, see "Your Image Builder".

You could print this information as a nice brochure but you first should think through where you would distribute this brochure. If you don’t intend to go to trade shows there is little use in having such a brochure. Another option is to prepare product description sheets for each product you have on offer, which still can include information on the initiative on its back (see the example in Annex "Marketing tools"). You need this kind of information at hand whenever someone contacts you or somebody else from your company. Your people need to all tell the same story.

The same type of information is often placed on a company web site. While a lot of people take pride in having a website, its usefulness in terms of promotion is often limited, if the website is not easily found by an internet search, or the content is not updated. However, a well maintained and well linked website can be a useful tool to promote your products. In some countries, the national movement or association has an internet platform where all members can present their products. Whatever medium you chose, you have to refresh the information at least once a year.

Building and maintaining client relations

Personal contact is of primary importance in organic marketing, more so than in general trade. For a business relationship to become more than a one-off deal you need to build a personal rapport with your buyers. Whereas in conventional trade your product usually goes into an anonymous supply, this is not the case in organics. Buyers, retailers and even consumers want to know where the product comes from.

When you are new in the organic business you may be at a loss to know how to get your first contacts. The GreenTrade website may put you in contact with potential buyers. The catalogues of past trade shows are also good sources of information. Ask a friend who visits a show to bring a spare copy of the catalogue. In some cases like the Biofach, these catalogues are on-line. The Chamber of Commerce, Export Board or foreign embassies often have databases with requests. You may want to talk with someone about your ideas. Another entry point could be local organic conferences where the organisers have invited some international speakers. They may not be in your line of business but they may still give you some advice and contacts. However, there is no better place to meet potential buyers than at an international trade fair.

Participating in trade fairs
To keep your commercial relationships up to date, it is best to meet your main buyers every year. Unless you have the funds to visit them one by one, or for inviting them one by one to visit your place, there is no better way for doing this than at a trade fair. There are a number of specifically organic trade fairs, there are international and regional organic trade fairs, and increasingly you will find organic suppliers also exhibiting at general trade fairs.

Trade fairs are a good place to let buyers know that you are in the market: to show yourself, to see what others are offering, to compare yourself with the competition. It is a good place to meet your (prospective) buyers, and to understand their requirements. It is an excellent place to see and discuss how the market moves so that you can adapt yourself in time. Very often important orders are agreed on. Some of your buyers may invite you to visit their premises before or after a trade show. It can be a very worthwhile investment. A few weeks after the trade fair you should use all this information to evaluate your business and - if necessary - to adapt your marketing strategy.

The main organic trade fairs

• The oldest and biggest organic trade show is Biofach in Nuremberg, Germany, in February each year. Biofach is so successful that it has spread to other countries like the US, Japan, China, India and Brazil.
• The All Things Organic show in Chicago is the main event for the US and Canada. It is organised by the Organic Trade Association, the organic business association in North America.
• In the UK, the main show is the Natural and Organic Food Expo. As the name indicates it is both for certified organic products and for natural products. That includes food supplements.
• In Dubai there is the Middle East Natural and Organic Products Expo (MENOPE), which would give you a glimpse of the Middle East market.
• The European Fair Trade Fair is a new exhibition specifically for Fair Trade products, so far held in France. This is interesting if your organic products are also certified Fair Trade.

There are many more national shows where local producers and buyers meet, but also buyers come from abroad looking for goods to import. These are not usually as interesting for exporters from developing countries to visit or exhibit at. For the local or regional market you should look for local or national trade shows. Quite often the organic associations will have a booth there. This may help you in developing your national or regional business. Do not forget: you can export your product as certified organic but it may be a lot easier to sell volumes of good quality product as conventional in the local market.

How to get to international trade fairs
You can choose to go as a visitor, or you can have your own stall. There is quite a difference. The first is sufficient if you just want to look around, or you already know your buyers. If you are not yet known you may have to make the investment of exhibiting. That is, for many, fairly expensive but it is also a hassle to organise. There are a number of agencies that have programmes to support you going there. Sometimes this is part of a wider activity to assist you improving your business. Examples are CBI, SIPPO and CDE. In some countries, the Export Promotion Board has such schemes, too.

For established companies it is a regular activity to visit trade shows, but it is quite a step for a start up company. For African exporters there is an Africa Pavilion at the Biofach. It is organised centrally but each country or region has a local coordinator who supports exporters and visitors to organise a country stand. Exporters from other continents depend on their export board to organise a country stand. These agencies help you to prepare for such a trade show, and advise on the flyer or poster to make, and on what samples to take. They can give you a list of potential buyers who also exhibit. This is always done by cost-sharing: inevitably you’ll have to pay part of the costs yourself, even if it is only the flight.

If you go to a trade fair the SIPPO manual ‘From contacts to contracts’ is a very good guide to help you get the most out of your participation. Do not forget that it is one thing to make a good presentation during the trade show but that the ‘proof of the pudding’ comes after it. You should plan to follow-up on what was discussed during the meetings, send reminder letters, etc. Only then it is an investment that will pay off.

Maintaining client relations

File:Farmer-cooperative-bolivia.jpg

A farmer cooperative in Bolivia meets a client for fairtrade organic cocoa (Source: Claro).

Communication is key in maintaining client relations. In international trade, this primarily happens through email. Be very serious about how you handle your e-mailing. Respond to e-mails within a week at the latest. Otherwise you will create the impression that you are not in business. Telephoning may be the main communication at home, but international calls are often still prohibitively expensive. Skype (Voice Over Internet) offers some cheap or free opportunities and is increasingly used. If you are in the field or abroad, and so not available to buyers, delegate communication tasks to someone else. You can still keep in touch by phone with your staff if there are queries over how they should reply. With some businesses it is only the director that is allowed to communicate with clients. This does not give a good impression as no one wants to work with a company that hinges on one person only (see also chapter 6.7, management capacity).

You have to respond to enquiries from potential buyers. Some of these will not be serious interests; they are just to find out what your offer is. There is no harm though in checking back with them a few months later. It is more important that you follow up clients with whom you have done business before. Get their feedback - are they satisfied with your product and service, what could be improved the next time? In case of an unhappy customer, do not hide. Do not think up excuses but try to come up with solutions.

It is most important that you are reliable. It is a big mistake to promise to deliver if you can’t. Do not forget that your buyers all communicate with each other, tell stories but also buy from each other. How do you want to be remembered when they talk about you? Do you want them to say ‘Ah, that is a good one’, or do you want them to say ‘Oh no, not that one’? Some exporters don’t want to tell anyone with whom they have done business and for how long and what their experiences were. There are exporters who have supplied about every buyer, but every time it was a one-off. If you can show that you fulfilled your contracts for three years with a certain buyer, and that you never failed on a contract, then you are in a good position for finding a better market.

Why do buyers stick to you?
Having a couple of loyal buyers is one of the most important success factors for your business. Below you can find a list of reasons why buyers may stick to you:

• You deliver the desired products and volumes; you have consistent quality, year after year.
• You follow up professionally on complaints about quality. You ask for evidence, you investigate, you explain, you learn from it.
• You can be easily reached. You respond seriously, even to difficult issues. When you are not there, there is somebody else in your organisation who can respond.
• You have clear information on how far you can go with your prices, and you explain why you cannot reduce further. You know your numbers and you know the alternatives.
• You are willing to listen to your buyer’s problems. You don’t tell stories or have excuses all the time.
• You inform them about problems at your end if they do the same with you. You act like a partner.
• You can keep a secret or two (so that they tell you more…).
• When you promise something, you keep to it. You are reliable and trustworthy.
• You can deal with their competitors, but are open about it instead of denying it, or giving them a feeling that you are cheating them.
• You are willing and capable to adjust, improve, and expand.

What assistance and support can I get in marketing?

In most countries there is an Export Promotion Board. They may have information; they may have a programme where you can get support, like visiting international trade fairs. There may be donor-financed Private Sector Development programmes that have a market development component. See for example what USAid is doing in your country.

The Dutch Centre for Promotion of Imports, CBI has an Export Coaching programme in the field of natural ingredients for food, pharmaceuticals and cosmetics. Organic fits under that, and exporters from 30 countries can apply. Upon pre-selection, you are visited by an expert who makes an audit to see how ready you are. This leads to an action plan, and you can get assistance from experts who visit but also correspond with you. You can participate in the EXPRO seminar, which includes a familiarisation study of the supply chain on the importer’s side. At the end of the seminar you write up an export marketing plan. You then start preparing for participation in a major trade show, such as Biofach. Participation in the show is for three years. It is subsidised but you are expected to take over the costs increasingly.

SIPPO is the Swiss Import Promotion Programme. It has the facility to support producers in participating in selected trade fairs: again Biofach is one of them. The SIPPO homepage has a range of publications on export-import related topics. If you are also Fair Trade certified you may benefit from support provided by local coordinators of the Fair Trade movement. Various organisations support their producers’ organisations. The international Fair Trade Labelling Organisation (FLO) has regional coordinators on the ground that support new and existing producers to improve their business. Also Twin Trade in the UK has a partnership programme.

Summary of recommendations

• Think through the main points relevant for successful marketing of your products (target markets, competitiveness, marketing strategies and budget etc.).
• Decide how to position your product in the market (product specification, price, distribution channels, and promotion).
• Find out the exact specifications of your product; if necessary get it tested for quality parameters. Be clear on how your product compares with that of your competitors.
• When agreeing a price with a client, be aware of possible fluctuations in local market prices (farmers may sell in the open market) and in exchange rates.
• Check out options for selling to agents or wholesalers who know the market and might be able to keep stocks at central locations.
• Prepare yourself for interaction with clients in a professional way. Present your business and offer in a suitable way (e.g. brochure, web site), and make sure that the provided information is up to date.
• In order to get in touch with potential buyers and to get to know the market, participate in international trade fairs specialising in organic products - either as a visitor or an exhibitor. Good preparation and follow-up are crucial for making a successful trade fair visit.
• Ensure prompt and reliable communication with your clients. Get their feedback, and try to find solutions in case they have complaints.