2. Common Concepts in Marketing

Marketing

Marketing refers to all the necessary steps that must be carried out before sales happens or selling a product. Marketing includes the aspects of assessing needs, defining markets, storing, promotion and so on. Marketing looks at the business from the point of view of the customer, and his/ her needs and satisfaction. In general, marketing covers all the steps that are necessary for a business to engage itself in the market in a continuous and profitable manner. Sales and marketing should not be confused, marketing always takes place before the sales activity. Focused marketing will lead to better and faster sales activities for a business.

Customer

The person or entity that is willing to pay the price for services or products sold by the business gets qualified as a customer. A business should endeavour to create an irresistible value proposition to its products and services so that the customer is willing to repeatedly buy and pay the price for the services or products. The right customer for a business is the one who repeatedly pays for/ buys its the products and services. FPOs under collective marketing must satisfy two sets of customers - suppliers, and consumers of the produce. When the FPO sells produce directly to consumer, he/she is the customer. This has however changed and today producer and consumer do not see each other face to face. Farmers sell their goods to a trader, aggregator, processor and reach the consumer indirectly. FPOs should facilitate linkages with these customers.

Marketing Information – Campaigns

Marketing campaigns involve the generation, processing and dissemination of all facts regarding the marketing of different commodities. Campaigns include information on marketing channels, buyers, quality standards and so on. As part of the marketing activities, campaigns play a crucial role in reaching out to customers across different geographies, categories of markets, and groups in a professional and effective manner.

Market Research

Market research helps the farmer members to comprehend the needs of their customers and thereby work out the strategies relating to sales of the produce. This involves systematic gathering of data related to marketing, and analysis of this data for preparing reports to be submitted to FPOs. The management of FPOs should use the findings of these reports to arrive at informed decisions. The market research helps FPOs in understanding competition and putting a successful marketing strategy in place.

Strategic Marketing

In planning for marketing, the organisation must decide what it is going to sell, to which target market and what should be marketing mix. Markets differ in their needs and requirements. They are different in terms of geographic location, economic class, social-cultural aspects, etc. Differences between domestic and international markets can be large. It is therefore important for FPOs to know their standards.

Marketing Mix

Marketing is all about building lasting relationships that satisfy the needs of the supplier and the buyer. The key elements of marketing are “customer value”, “competitive advantage” and “focus”. This means that organisations involved in marketing must study the market, develop products or services that satisfy customer needs and wants, develop the “correct” marketing mix (product, place, promotion, price and people) and satisfy its own objectives as well as giving satisfaction to customers on a continuing basis.

It is important for Board of Directors and CEO of FPOs to be aware of these concepts and their applications to develop market strategy for FPOs

3. Input to Institutionalise the Output Business at the FPO Level

FPOs as institutions legally owned by the farmer members face challenges not only in terms of making such enterprises profitable, but also being considerate of the members’ needs and aspirations. This is because FPO members have legal ownership as shareholders, the right to control the enterprises through democratic mechanisms and most importantly they are users of the services provided by the organisation. Hence, it is important that every member of the FPO management, executive members and members themselves contribute to the development of business and make the institution resilient.

Role of Member Farmers

The member farmers are thus the backbone of the FPO and its business. The management body of the FPO should inform them about the advantages of collective marketing. Mentioned below are a few advantages of collective marketing.

• Collective marketing empowers farmers

• It helps farmers in negotiating better prices and services

• It helps farmers to access markets outside the local area

• It can make their own institution financially sustainable

• It can develop a niche not only for their products but also for their institution

Maintaining quality and time management are the other two features which are important for buyers to show confidence in procuring produce from the FPOs. To achieve this, FPOs must develop systems to collect information from farmers, ensure transparent and timely communication to farmers who, then supply the produce to FPO as per the requirement of market. In this way, order can be executed on time.

Role of CEO

The CEO is responsible for business operations. He is expected to prepare plan and execute it with the help of farmer leaders of the FPO. It is his/her responsibility to ensure that quality and quantity as demanded by the buyers is met without fail. He/she is responsible for keeping an account of complete execution of the orders received from the buyers.

Role of Board of Directors

 The Board of Directors represent the governing body of the FPOs. It is their mandate to develop a vision for the business at the FPO level. As FPO is a member-based organisation, this vision must be a shared vision so that every member contributes to its achievement. However, the major responsibility lies with the Board of Directors to support the organisation in achieving it. In this context, they need to develop a connect with the marketing world. They must have Unique Selling Points (USPs) and good business credentials to establish niche for their organisations in the market world.

In order to bring transparency and involvement of the FPO stakeholders, the following structure is suggested

4. FPO Output Marketing Committee

Statement of Purpose

The purpose of the output market committee is to play an active catalyst role in the areas of FPOs output business by establishing and increasing the institutional output transactions to provide maximum economic benefit to the member farmers of FPO. Committee shall always conduct financially prudent transactions between buyers and farmers of the FPO.

Membership & Composition

The members of the committee should be constituted / appointed in a democratic manner and meritoriously by the Chairperson, Board of Directors of FPO and CEO.

Composition

 The committee should comprise members of the Board, farmer leaders of FIGs, and non-members with expertise of marketing.

The number of committee members across various categories is suggested in Table 4.1:

Table 4.1 Composition of Committee Members

Each member farmer of the committee shall serve for a maximum of 9 months, whereas other committee members shall serve a maximum of 18 months. Board has a power to appoint and remove members of the committee. One of the Board members will be the Chairperson of the committee.

1. Tasks of Committee

Every year during the annual planning, FPO management and Board shall plan key tasks for the marketing committee to focus and execute. The Board will monitor the progress of the Committee against the tasks planned during the board meeting. A sample tasks of a typical marketing committee is shown below.

Example of Priorities

1. Build a credible supplier (member farmers) database for fulfilling buyers’ requirements.

2. Identify and sign short –term contracts and proceed to at least 2-3 long-term contracts with buyers for commodities easily available in the FPO region.

3. Train farmers on grading & sorting and create interest in the market business opportunities.

4. Output target as mentioned in the business plan should be treated as target for the FPO to be achieved in the given financial year.

Duties and Responsibilities

In the marketing committee, each member will have specific duties and responsibilities as indicated below.

BODs

• The board member who is part of the committee shall be the chair of the committee.

• Chair of the committee will call the meeting and set the agenda, share minutes after the meeting with the committee members, chairperson of the Board of Governors and CEO.

• Board members in the committee will be the point of contact for buyers.

• Finalization of offers by buyers in consultation with the other members and suppliers.

• Intimate and coordinate on payments and receipts of the transaction both from the sides of farmer and buyer (maintenance of enquiry tracker and buyer ledgers).

• Layout the strategies and execution plan for increasing buyers for the FPO.

• Working with CEO and accountant of the FPO on book keeping of the transactions.

• Coordinate with farmer representatives by sharing the exact quality and quantity requirement s of buyers.

• Lead monthly review meeting with committee members, farmers and buyer.

Farmer Leaders

• Collecting data on the output produced by FIG members.

• Aggregation of the output produce.

• Sharing information about buyers, orders and payments to farmer members in the FIGs.

• Coordinating with the Board of directors and CEO for collecting information on the orders.

• Sharing the feedback by farmer members to the BODs and CEOs of the FPOs.

Farmer Members

• Coordinate with the other farmer members in meeting the requirements of buyers.

• Discuss the issues with farmer leaders regarding the order requirement, production, etc.

Non-member Market Expert

• Provide technical inputs for facilitating output marketing of FPO.

 2. Operation of Committee

• All actions of the committee shall be taken by most of the members present in the committee meeting having a quorum or by unanimous written consent.

• The Committee Chair, selected by the board, is responsible for the leadership of the Committee, including preparation of meeting agendas.

• Management of the FPO will account and compensate the effort of the committee members’ in actual expenses on a pro forma basis which is aligned to the results and revenue of the FPO.

Meetings

• The Committee shall meet at least once in every 15 days to perform its tasks. If necessary, the Committee Chair may call special meetings.

• The Committee shall keep records of its meetings as it deems appropriate and the Committee Chair shall report regularly to the Board on its activities.

5.Know your Market: Decoding Market Segments

Market Channels                            

B2C and B2B are two forms of commercial transactions. B2C, which stands for business-to-Consumer, is a process for selling products directly to consumers. B2B, which stands for business-to-business, is a process for selling products or services to other businesses. The business systems that support B2B or B2C communications, transactions and sales administration differ in complexity, scope, scale and cost. Depending on location, product, seasonality and most importantly the scope of better margins, FPO can devise a strategy either to be part of both channels or one at a time. The Table 5.1 demonstrates various market segments and the customer transaction type they perform.

Table 5.1 Market Segments & Customer Transaction Type

Arbitrage Market is a distant market or an alternative market where demand is more, and price realization is high compared to the local market. A market where buyers are willing to pay more for the same products/services compared to local /APMC market is called as arbitrage market. In this market, the produce from one place/state moves to other states and fetches better prices to producers.

Retail Chain: Over the last few years, multinational companies as well as local Indian firms have made Fruits & Vegetables (F&Vs) as an important category in supermarkets and malls. This trend has given rise to retail chains selling F&V along with FMCGs.

HO- RE-CA (Hotel Restaurant Café)

These customers are medium sized food joints and hotels requiring fixed quantity of mixed vegetables 2 – 3 times in a week. These customers typically cater to anywhere between 250 and 500 plus customers every day on an average at their hotels/joints. Usually these customers would buy from APMC on a regular basis with transportation and logistics as overheads.

Large Retail Chain Outlets for Large Volumes

These customers cater to a large urban consumer base and would prefer to procure single commodities in large volumes to their ever-expanding consumer base. These companies prefer to procure from multiple suppliers with clear grading and quality specifications. The transactions are usually daily to their various outlets spread across various regions both within and outside the state.

Processing Companies

Processing companies act as suppliers or have their own labels in processed food manufacturing. These customers generally set standards and quality expectations from the beginning and provide the guidelines in seeds, variants of the produce to be grown along with the know-how. Growing and supplying the commodities by following the quality norms among the farmers group with proper crop planning is very much applicable for the FPO’s operational style by capitalizing on the FIG structures within the FPO members.

Export

The international market demands highest safety and quality norms as per international standards. Recently Government has taken various initiatives under the APEDA (Agricultural and Processed Food Products Export Development Authority) to facilitate the export level transaction especially for the welfare of farmers. F&Vs are in most demand in Gulf countries and also suits the travel time and shelf life of perishables for export from India. Choosing the destination of export depending on the shelf life of produce holds key to the success for export transaction. Agreement and contracts are done mostly through electronic mode. Hence, FPOs

are well suited for the facilitation of export through right education and training of farmers.

Comparison of different market segment

6. Operational Tools for Marketing

These tools will assist the FPO in making effective marketing strategies for establishing linkages with buyers. The FPO should have information about the crops grown by its farmer members, total area under production of these crops and the quality of production. Similarly, tools should be used to monitor the demand side activities.

Managing the Supply side Activities: Any conversation with large buyers is often dominated by the total production, the quality of production and post-harvest practices by the FPOs. The major challenge here is to estimate volume of produce that can be delivered to the buyers, as per agreed quality standards and time.

If an FPO has about 1000 members belonging to 50 odd Farmer Interest Groups (FIGs) spread across about half a dozen villages. Knowing the cropping pattern and the exact date of harvest of each of their produce is a challenge. In this case, sales team of FPO can play an important role understanding the production schedule and ensuring that the produce is sold to relevant bulk buyers.

7. Marketing Budget Plan

Marketing effort requires considerable amount of time and money to be invested. Hence it is important to account the marketing cost during the annual budgeting activity.

As a good marketing practice preparing annual marketing budget and tracking is recommended for FPOs. The budget will earmark funds for operational activities, personnel cost, administrative and statutory expenses relating to marketing effort. Marketing spend should be driven by the next year’s sales target. Let us consider XXX FPO had sales of 50,00,000 INR in 2018-2019 and they want to increase it to 1,00,00,000 INR for 2019-2020 as indicated in Table A typical recommended marketing budget allocation for an FPO to achieve the above goal is to set aside 15% of its overall budget as marketing budget.

For example, if increasing exports is a focus area then a significant marketing expenditure must flow in to trade shows and increasing the web presence. If online retailing is a focus area, then the customer analytics targeting online customers must be enhanced to ensure a better ROI for spending on marketing .

Calculating RoI (Return on Investment) on Marketing RoI on marketing is the (Sales Growth - Marketing Cost) / Marketing Cost. This is a metric to track year on year and keep on aligning the marketing cost and activities to get better sales.

Table 8.1 Marketing Budget Allocation

Marketing Indicators                     

How can one tell if an FPO has succeeded in marketing? Can performance be measured by simple metrics over a period? Listed below are a useful set of metrics to begin monitoring month on month (MoM), quarter on quarter (QoQ) and year on year.

The below table is suggestive for FPOs to track the performance progress of marketing division and its activities.

Table 8.2 Marketing Indicators

Some of the other broad indicators which are useful for strategic planning are presented below

 Distribution of sales across multiple market segments – Each FPO should have yearly target of the distribution of sales across market segments. While all customers are important, FPO should must keep a eye on less desirable customers i.e. those

serving with less profitability. Hence wedding out less profitable customers and bringing in better ones is a key measure. This approach will give the FPO ability to earn higher margin for the different grades and quantity of products they procure from farmers by focusing on meeting the customer target.

8. Role of Credit in Output Marketing

In APMC and other open marketplaces, farmers usually sell produce in cash and carry mode. Middlemen prefer cash and carry transactions when demand is high and supply is less. As the demand decreases and supply is high, middlemen tend to make partial or delayed payment to farmers. In such cases farmers tend to dispose of the produce rather than bearing extra cost for storage as an act of distress sale. Sudden spike in demand or shortage in supply or for various socio-economic reasons farmers are pushed to go for credit sales with intermediaries.

In the case of FPOs, the nature of the transactions for output marketing is through the market channels such as B2C and B2B. In B2C channels, consumer transactions are at Point of sale through cash.

In the B2B transactions buyers are institutional and payment is usually with net period of 10 to 15 days or may be more depending on the commodities. In B2B Transactions FPOs have to offer credit period to the buyer and it is usually a business norm in the market.

Buyer can request lesser credit period in case of perishables such as Fruits and Vegetables and expect more credit period of 15 to 30 days for other Non- perishables. The credit period requested and extended by the FPOs to buyers might need to consider various other parameters such as demand of the goods, season, billing cycle of the company, financial year endings or quarter endings. FPOs need to understand the role of credit in transactions and align the payment expectation with the suppliers who are farmers/member farmers of the FPO. Business transactions at FPOs are different from APMC model and taking the farmers into confidence for such transactions is very important.

However, FPOs to keep the interest of the farmers can avail various financial tools to make payment to the farmers rather than depending entirely on the buyer payment to make the payment to farmers. Ideally FPOs are suggested to keep a corpus or surplus fund for output transactions which can be used to pay the farmers if there is too much delay from the buyer to FPOs. Another formal option could be using financial services offered by various banks and other financial agencies. Two important such services that can be discussed here are overdraft (line of credit) and invoice discounting.

Overdraft (OD): is a straight forward line of credit extended by the bank based on the transactions done by the FPO in the bank. Interest rate are minimal and the credit option is suited for the business. FPOs can explore this option in carrying out the output business smoothly without delaying the payment to farmers. However FPOs have to adjust the billing or pricing in such way that the interest rate of OD should not erode the profitability of transaction for FPOs business.

Factoring or Invoice Discounting: This instrument is very flexible and considers invoice as collateral for extending credit to the business.  Invoice discounting can be done on behalf of the buyer or from the supplier.  In invoice discounting, the banker can make the advance payment to vendor /supplier by keeping commission and will recover the money from the buyer/payer after stipulated credit period agreed.  Again, FPO must adjust the billing or pricing in such a way that the interest rate of Factoring (if factoring is done from FPO side) should not erode the profitability of transaction for FPOs business.

Various such credit instruments are evolving in the financial markets and FPOs should look out and make use of these in a favourable manner.  Role of credit is to ensure that the business runs with high velocity and without shortage of working capital.

9. Limitations of Output Business at FPO Level

Collective marketing of produce has some particularities. Organisations involved in collective marketing must satisfy two customers: the suppliers/producers and the buyers of the produce. The suppliers are often the members of the FPOs. Hence their priority is business with members. This sometimes restricts the selection of markets and types of products. FPOs have less freedom because they are compelled to buy from members, expected to buy what members supply and pay a fair price for the produce. This situation can affect their ability to compete with, for example, traders, who have more freedom to choose the farmers and supply to markets. This poses several challenges to management teams involved in marketing, especially in a market where uniform product quality is required.

Suggested ways to provide benefits to member farmers are as follows:

Improved Production Standards: FPOs can support their member farmers by connecting them to institutions which provide extension services as this can help them to raise the production standards.

Product Upgrading: Product upgrading means improvement of the product marketed. Farmers can improve their product in many ways. They can plant a new variety that has more desirable characteristics; or receive support with post-harvesting activities, which increases the quality and the price of the product.

Process Upgrading: it implies producing the same product more efficiently, by applying new technologies or management methods. For example, farmers may grow more by applying fertilizer; they may reduce pest attacks and save costs through integrated pest management rather than spraying.

Diversification

This is another way of providing value addition to members. Often the focus is on “doing better” than on “doing different”. It can also be strategic for FPO to explore how higher returns can be obtained by doing different things. FPOs can recommend those crops which have better markets.

Functional Upgrading: Functional upgrading means taking on new activities or changing the mixof activities a FPO undertakes in order to add value to the produce marketed. Processing and branding are examples of functional upgrading for FPO. These kinds of activities are often not feasible for individual farmers. For farmers, collective marketing is an example of functional upgrading: FPO enables farmers to perform a function higher up in the value chain, namely marketing instead of production alone.

Annexures

Annexure 1(Annexures)

Annexure 2(Annexures)

List of annual events conducted by government and private agencies for agricultural products:

List of annual events conducted by the government and private agencies for agricultural products

Annexure 3(Annexure)

List of Magazines/Newsletter (Govt/private) for agriculture marketing

1. https://ruralmarketing.in/magazine/
2. https://krishijagran.com/magazines/

List of magazines and websites for agriculture marketing

1. https://agrimech.net/
2. http://www.businessofagriculture.com/
3. http://www.agriculturetoday.in/

https://icar.org.in/content/magazines