Category Archives: Food Processing/Manufacturing

The Unintended Consequences: Enhancing Resiliency in the Egg Supply Chain, Part 1

While other protein production sectors may be making headlines during COVID-19, those along the egg supply chain are not immune to disruption. Members throughout egg’s supply chain are working through challenges presented to their triple bottom lines during this unprecedented time.

Eggs, you see, are not just produced for supermarket shelves. No. They serve a purpose for those in the foodservice and hospitality industry, often in their liquid form.  A role left in the void as demand from those food sectors all but dried up, while consumers shifted their attention to in-home dining.

The unintended consequences of a shortage of shell eggs and a surplus of liquid eggs have led many in the egg sector wondering if there is an opportunity for changes in risk mitigation strategies moving into the future. This situation also shines a light on several lessons to be learned by the agriculture industry at-large.

At The Context Network, we wanted to dive a little deeper into this industry, exploring the known and the unknown in various sectors along this chain and areas that need to be explored further. This article is part of a 4-part series that takes a big-picture look into the impacts of COVID-19 on the industry and identifies a growing need for something more.

For those not intimately familiar with the egg industry: shell eggs and eggs produced for egg products serve distinct purposes. Due to modern production efficiencies and streamlined on-site market preparations, those systems do not overlap. While a surplus of shell eggs could end up in liquid egg or dried egg form, the inverse is not easily attained. Eggs used in liquid products are not required to follow the same FDA standards and thus, when a colossal shift happens in demand, the industry is not as flexible as many would hope.

It’s important to examine each shift in the egg sector through the lens of various players to have a more robust dialogue moving forward. When you examine the biggest impacts in the sector over the last several months, several key themes rise to the top. One area that remained flat and therefore was not discussed here is the dry egg market. Unfortunately, the others have not been this lucky.

Increased Demand for Shell Eggs

As consumers shifted from eating in foodservice and hospitality settings to eating at home, grocery stores saw an increased demand for shell eggs. This sudden increase in demand was followed by a short-term shortage on the back end. As a result of these supply and demand shifts, egg prices rose sharply causing push back from many states with price manipulation accusations.

Decreased Demand for Liquid Eggs

While shell eggs saw sky-rocketing growth, liquid eggs plummeted in demand and price. In fact, between March 25 and April 22 prices fell from 55 cents to 8 cents, a price that has rebounded somewhat over the last month.

Liquid eggs depend primarily on the foodservice, hospitality and baking industries for demand. The unfamiliarity of cooking with liquid eggs combined with the standard packaging sizes made liquid eggs’ transition to the retail market difficult.  While some operations were able to meet standards for shell eggs or donate products to local food pantries, others were left dumping valuable nutrition and euthanizing animals prematurely.

Euthanasia, Waste

As demand dwindled, egg producers serving the liquid egg market were met with a flurry of economic, social and environmental implications. Price was the first shoe to fall, adding even more stress to an already financially challenged industry. But, finances weren’t the only trade-off here. As excess liquid egg was on the market, producers were left with the responsibility of its removal, with a significant volume of product ending up in landfills. With no timetable on the demand’s turnaround, many farmers made the difficult decision to begin euthanizing flocks, a decision that has long-term implications for their operations and the supply chain as a whole.

Throughout this series Context will continue to dive deeper into perspectives found on these issues throughout the supply chain. As we build the story, we continue to identify additional needs from the industry[1] as a whole. If you’re interested in working with Context to work through those issues, please contact me at matt.sv@contextnet.com


[1]United Egg Producers, Egg Industry Center and Oskaloosa Foods contributed to the development of this series.

 

Photo credit:
(Top Left) AndreaGantz, WATT AG

 

A Holistic Approach to Strategy Implementation

Many food and agribusiness companies across the value chain are reassessing their strategies in light of significant ongoing industry shifts. Among these shifts, changing consumer preferences now require the food distribution chain to deliver healthier and more environmentally friendly products; advances in technology provide stakeholders with access to unprecedented volumes of information; consolidation at multiple levels is changing the competitive landscape as well as supplier-customer relationships; production innovations allow food to be grown in new ways; and capital from new investors is enabling a startup scene in the industry. However, simply adjusting a strategy to address the evolving environment will not be enough to succeed. Success also requires effectively implementing that new strategy.

Most leaders realize that good results call for both a good strategy AND good strategy implementation. Unfortunately, all too often implementation planning is too narrow in focus, targeted at just one or two of a large set of decisions that must be made. Without proper attention paid to a holistic set of organizational elements, a good strategy may still fail.

Peter Johnson, executive in residence at the Fuqua School of Business at Duke University, describes successful strategy implementation as involving both effective coordination and cooperation.

Coordination is the process of aligning activities across an organization. Leaders must decide what degree of coordination between individuals, teams, and businesses will be optimal for the company and its strategy. They must decide how work will flow, what will be shared between businesses, how sharing will occur, who is responsible for resources, where will decision rights reside, etc. The following elements are the levers that can be used to manipulate coordination:

Structure – The way in which the work done by the company is arranged. Will activity be organized by function, by product line, or by geography? Will work be centralized or decentralized? What does the reporting hierarchy look like? How is the senior team composed? An aligned structure ensures the proper teams will be in place to adequately execute the strategy. For example, Airbnb organizes into small geographic teams with high levels of collaboration with global functions to enable local responsiveness while maintaining efficiency.

Processes – The way in which activities are integrated. This element includes how decisions are made, what interfaces are in place between business units or functions, how information flows, how resources are shared, and how work progresses from one stage to another. Without well thought-out processes, strategic objectives may stall. For example, UPS manages all its businesses (air, ground, domestic, international, commercial, residential) through a single pickup and delivery network. The single network process allows UPS to maximize network efficiency and asset utilization.

Cooperation is the process of aligning individuals to behave in the organization’s best interest. In other words, this is how companies influence team members to work according to the new strategy. The following elements are the levers that can be used to increase cooperation:

Controls – Metrics that appropriately measure performance and enable leaders to ascertain how effectively the strategy is being applied and, if necessary, what changes need to be made. Choosing the correct metrics requires clearly understanding the objectives. Metrics can be highly varied, based on individual vs. group achievement, outcomes vs. behaviors, numbers vs. ratings vs. observations. Effective controls allow leaders to determine how to support, reinforce, or improve the strategy. For example, the Oakland Athletics (of Moneyball fame) discarded the common practice of measuring baseball players’ abilities to run, throw, field, and hit and instead used on-base percentage metrics to recruit winning players more economically.

Incentives – Tools used to motivate cooperative behavior, including both extrinsic motivators (pay and bonuses) and intrinsic motivators (recognition, autonomy, purpose).  With proper incentives, team members can effectively help drive a strategy forward. For example, employees at Southwest Airlines can give gratitude points to each other. This practice supports a community culture among employees, which encourages them to contribute to the strategy of making flying a fun, positive experience for customers.

Finally, one critical organizational element impacts both coordination and cooperation:

People – The talent in an organization’s workforce. Leaders must decide what knowledge, skills, and experiences are needed in which positions to successfully integrate the strategy. This may involve hiring new people, moving people to new jobs, ensuring the right mix of attributes on a team, and creating a plan for people development. Having the right people in place can make or break a strategy. For example, in order to meet the economic imperatives it faced in 2014, TheNew York Times took the unusual step of appointing a business executive, rather than someone in its news organization, to an assistant managing editor role.

Kristina Rose, a consultant with The Context Network, notes that the appropriate approach to strategy implementation will depend on a company’s current organization, resources, and portfolio. “But in all cases,” she says, “it is critical to consider the holistic set of elements that will impact the results of the strategy.” Too many leaders focus most of their attention exclusively on structural or incentive levers, when the reality is that successful implementation involves a complex, interwoven web of decisions. The complete architecture created from those decisions must be “clear (understandable across the organization), coherent (all elements fit together in a supportive and reinforcing manner), and relevant (aligned with the strategic objective)” (Johnson). If the levers are aligned correctly, an organization will get the performance desired from its strategy.

Successfully launching a strategy depends on an array of interwoven elements and decisions, just as launching a plane depends on a whole system of maintenance engineers, fuel availability, national and sometimes international airspace regulations, a customer reservation system, a maintained airstrip, and many more factors.

Of course, any shift in strategy requires a simultaneous updating of this system of levers to ensure it services the new strategy appropriately. This holds true during times of planned strategy revamps, growth of the firm over time, expansion of strategy to new geographies, expansion of business portfolio, strategic transformation, etc.


The Context Network, with its broad array of consulting, business, and subject-matter experts, has deep experience with helping clients plan their strategy implementation in a systematic, impactful way. For more information about Context’s implementation support, contact Principal Tray Thomas at tray.thomas@contextnet.com.

 

Sources:
Engineering Culture at Airbnb, nerds.airbnb.com
UPS vs. FedEx: Comparing Business Models and Strategies, Investopedia
The True Measures of Success, Harvard Business Review    
Southwestaircommunity.com
An Unusual Hire, for Uncommon Times, nytimes.com

 

The Context Network Invests in Women in Agribusiness

The Context Network made a strong commitment as a diamond sponsor of the Women in Agribusiness Summit on September 24-26, 2018 in Denver, Colorado.


Sometimes three minutes is all you need.

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Priyamvadha “Priya” Sivakumar made the most of her three minutes when she met Context Principal Asha Lundal in passing at the Women in Agribusiness (WIA) Summit two years ago. Sivakumar was working toward her master’s degree in agribusiness when she was invited to work as a student volunteer at the summit, where she met a number of female agribusiness professionals.

While brief, her conversation with Lundal stood out. “I hadn’t realized an organization like Context existed. It seemed too good to be true, a place where I could merge my consulting experience with my passion for food and agriculture,” Sivakumar says.

Returning to the WIA Summit the following year on a coveted student scholarship, Sivakumar had already done her homework. Throughout the year, she had reached out to others at Context; at the summit, she reconnected with Lundal. That led to interviews with Context executives and an offer to join the firm as a senior business analyst. “It worked out perfectly,” Sivakumar says. “Before I even finished my graduate work, I had the perfect job.”


Sivakumar’s passion for food and agriculture has deep roots. As a child in India, she would sneak into her mother’s “forbidden” kitchen to concoct snacks, experimenting with spices. While studying food process engineering as an undergraduate, she developed a commercial product (now under patent) that shaved hours off the preparation of a traditional gravy, while preserving its taste and nutritional value.


But it wasn’t until she worked for several years as a project management analyst in telecommunications for one of the world’s largest consulting firms that she realized she wouldn’t be satisfied until she merged her professional expertise with her interest in food and agriculture. This led her to move to the United States and enroll in Texas A&M University’s graduate program in agribusiness.

Sivakumar credits the WIA Summit with providing a collegial forum where women in the industry can connect and learn from one another. “Walking into a room filled with 500 executives could feel intimidating, but it doesn’t. Everyone is friendly and wants to see you advance in the industry,” she says.

She was thrilled to learn that Context, a WIA sponsor for three years, stepped up to diamond-level sponsorship of this year’s event, which was held September 24-26, 2018 in Denver, Colorado.

Lundal also cheered Context’s increased investment. She notes that the firm has long recognized the power of assembling project teams with diverse perspectives to solve clients’ toughest problems — whether that diversity stems from gender, ethnicity, age, education, or geography. “What WIA stands for is consistent with Context’s values,” Lundal says. “It is meaningful to me personally – and it also makes good business sense.”

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The sponsorship is a natural fit, says Lauren Chupp, Associate Principal at The Context Network. The WIA Summit highlights networking, the foundation of Context’s business model. “It’s something we’re really good at – relationships and focusing on people,” she says. “I have seen, and experienced myself, that core strength we have as a company.”

Chupp says she has benefitted from strong mentors within Context, including a principal who has provided professional help and advice for more than a decade. She calls that generosity of spirit a “critical piece” of Context’s business success.

Photo: Gloria Basse, Lauren Chupp and Jessica Langley of The Context Network

Strength in numbers

The need for women in agribusiness is widely acknowledged but hard to quantify accurately, notes Joy O’Shaughnessy, managing director of HighQuest Partners, which initiated WIA. While nearly equal numbers of men and women in the United States earn agribusiness-related college degrees, [1] they do not equally share employment in agribusiness companies.

Recognition of this gap, however, can help close it. O’Shaughnessy says the WIA was born after her colleagues noticed “a distinct lack of women” at a major industry conference in 2011. She says women were being overlooked when companies chose someone to send to industry conferences – leaving them a step behind their male colleagues in continuing professional education.

“We want women to be informed and educated… If you were to take the word women out of our title, WIA would be a fantastic industry conference,” O’Shaughnessy says. “But putting women in the title helps companies recognize that they can’t just send the same person to this conference they send to all the others.”

In 2012, 212 people attended the WIA Summit. That number grew to 450 in 2013. Now in its seventh year, the conference sold out in August; more than 765 women were registered to attend.

Leadership training

In addition to providing professional development opportunities, the WIA Summit helps attendees build leadership skills and increase their presence in the business community. This year Marianne Smith Edge, Context senior associate, helped provide training in a session titled “Landing a Board Position.” A former senior vice president for the International Food Information Council and former president of the Academy of Nutrition and Dietetics, Smith Edge draws on her many years of board engagement, including her current role on the Board of Editors for Nutrition Today and previous terms on the USDA National Research, Extension, Education, & Economics Advisory Board, among other boards.

Gloria Basse, Context senior associate and WIA board member, calls such training critical. “We need to develop and grow women leaders,” she says.

Basse stepped into WIA leadership after attending one of the early conferences. She noticed that no presentations dealt specifically with livestock, her specialty. “The question for me was, how do I find, in a sea of people, the people with whom I really want to network?”

Her answer was to initiate a dinner the next year for women in protein, an event that has become increasingly popular each year, drawing together women with similar professional interests. She also joined the WIA board four years ago. “It has given me a terrific opportunity to meet other senior women leaders,” she says. “If I would have had exposure to WIA early in my career, I would have had a much different experience.”

It’s important, Basse says, for every professional woman to build a strategic network of women and men, inside and outside her company, who can help her advance her career. The connections a woman can make through WIA enhance that network, she says.

Networking toward an evolving future

As agribusiness has evolved, Lundal and Chupp note, Context has grown from its origins into a global strategy and management consulting firm working for clients across the entire food system and across geographies. “We’re playing in a much broader space,” Lundal says. “It’s business-critical for us to have and leverage a variety of perspectives in unique and valued ways for our clients. There are legitimate drivers for thinking about the makeup of our team.”

Chupp notes that the changing nature of Context’s work has attracted increasingly diverse individuals, with more women and people of varied backgrounds making important contributions. “We’re in an evolution, right alongside our clients who are experiencing parallel changes to their workforces and their customers. Ultimately, we’re taking steps to ensure our teams reflect the world we live in and do business in,” she says.

Among those steps, Lundal says, are progressive approaches to employment that attract today’s agribusiness and food industry professionals, including millennials and Generation Zs. For instance, Context was an early adopter of virtual teams. Such teams enable the company to leverage key talent around the globe regardless of physical location and encourage its team members to live where they wish and to engage in projects about which they are passionate. She admits such flexibility is key to her own relationship with Context.

She also notes that, in the changing environment, some of the strongest contributors are women.

“I personally want everyone to understand Context’s commitment to diversity and the value we see in it,” she says, calling the WIA venue “very aligned … to what we think it takes for us and our clients to be successful.”

Sivakumar spread the word early about the upcoming conference. “I am interested in making sure other women get the benefit of this,” she says.

Lundal sees a payoff in the future. “Today I am the only female principal among 12 at Context,” she says. “But with the talented women in our organization, it’s clear I won’t be alone for long.”


The Women in Agribusiness Summit brings together women who are passionate about agribusiness and the need to recruit, retain, and advance women in the industry. It provides an opportunity to network, learn about industry outlooks and trends, and develop valuable professional skills.

 

[1]https://nces.ed.gov/fastfacts/display.asp?id=37

Rare Plants Partnership Unlocks Nutritional Value of Forgotten Plants: First field trials underway in Morocco

In the clay soil of a creek bed in the arid foothills of Morocco’s Atlas Mountain range, a little-known wild species of oats is thriving, as it has for centuries. While some of the region’s native mammalian species have long since gone extinct, Avena magna, a native, protein-rich ancestor of oats has survived. And now, with the help of a partnership between Context Global Development (CGD) and General Mills, this and other nutritious plants will soon find their way into the fields and onto the plates of people in the world’s poorest and hungriest countries.

CGD partnered with General Mills in November 2016 to introduce the Rare Plants Partnership (RPP), a public-private enterprise aimed at discovering, domesticating and reintroducing forgotten, high-nutrient plants to address malnutrition in the poorest 80 countries of the world. “For centuries, agriculture has focused heavily on selecting and breeding crops for yield and performance related attributes—and with good reason. We have, perhaps, for no other reason than the limitations of the tools we’ve had available, overlooked or left behind varieties that held the potential for enhanced nutrition and meaningful human diet,” says Ray Shady, CGD Senior Program Manager. RPP seeks to intervene in the malnourishment/poverty cycle by implementing a system to rediscover and reintroduce unique and ancient plants, and by leveraging a unique combination of tools, team and mission, unlock the nutritional value of foods already cultivated and prepared in the developing world.

Rare Made Real

Inspired by the seminal work of Dr. Gideon Ladizinsky, a plant pioneer in the 1960s, and his own personal experiences working in Kenya, General Mills’ geneticist and systems biologist Eric Jackson made it his personal mission to apply his expertise and experience to making a difference in the lives of smallholder farmers in the developing world. Through years of personal effort, and later, with support from General Mills’ chief counsel of intellectual property, William Miller, Jackson successfully domesticated a Moroccan oat, Avena magna, retaining the plant’s original nutrient profile, with double the protein, iron and other vitamins compared to common oats, preparing the groundwork for what would become RPP.

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With the nutrient-rich Moroccan oat lines and toolset to improve more crops in hand, the question remained of how best to deploy this highly nutritious oat to the people who need it. Recognizing CGD’s ongoing public- and private-sector work in the developing world, Jackson and Miller approached Context principal Mark Holland and CGD’s managing director Mark Nelson to envision what would become the foundation for RPP. “It was immediately clear that General Mills’ collection of rare plants could be very impactful in the developing world, and that CGD could provide the missing link. Our know-how and expertise in seed systems and specialty grain origination, starting at the small farmer level all the way through to the end user, will be the catalyst to the sustainable success of introducing and deploying these unique varieties,” says Nelson.

The goals of RPP are fourfold. First, the partnership will identify regions where people are already using specific crops (initially oats) in their everyday foods. Second, the partnership will facilitate field trials and interventions. Third, RPP will study local food systems and consumer preferences because eating behaviors are key to product adoption, and crops are a vital tool for delivering better food. Fourth, the partnership will help create localized economies for the crop. In time, the partnership intends to expand, drawing in other contributors of germplasm to enhance the breadth of species and broaden RPP’s geographic reach to smallholder farmers.

This April, RPP launched its initial efforts to deploy Moroccan oats in four countries, Morocco, Ethiopia, Nigeria and Malawi. To date, growers outside of Rabat, Morocco, have planted four trial plots of 48 elite lines to see how these nutrient-rich oats perform in varied growing conditions. “To bring the domesticated Moroccan oat back to its country of origin and work with small farmers and families to build local economies and opportunities for the world is incredibly fulfilling from a cultural, scientific and personal perspective,” says GM’s Jackson.

To learn more about the Rare Plants Partnership initiative and partnership opportunities in Africa, please contact Mark Nelson, Managing Director at mark.nelson@contextnet.com or Ray Shady, Senior Program Manager at raymond.shady@contextnet.com.

Context Global Development (CGD) is a non-profit organization that leads agricultural and social impact programs worldwide. CGD teams with development organizations and government agencies to maximize the value of agricultural resources in developing countries as they partner to accelerate innovations that result in meaningful and lasting change.

Changing Buying Patterns in Ag Equipment

With net farm income expected to fall 8.7% in 2017[i] marking the fourth straight year of decline, producers have significantly changed their equipment buying habits. In the past, it was common for large tractors and combines to be traded in after one or two years old, which worked well in an up market because first buyers enjoyed the latest equipment and there was strong demand for used equipment, ensuring high trade-in and resale values. However, following the decline in commodity prices starting in 2013, demand for used equipment has dampened and pricing has moved in tandem.

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This pattern is compounded by the trends of farm consolidation and increasingly advanced technology. With larger farms and tighter margins, producers are putting more emphasis on controlling costs and improving efficiencies of operations through scale and technology. The result is fewer and larger farms using bigger, more expensive and more technologically advanced equipment, which in turn limits the pool of viable secondary buyers, as small to medium-sized farms simply can’t justify the size or cost. Furthermore, with emission regulations varying significantly from country to country, it’s difficult to move equipment around the world. Therefore, initial buyers of large, high-tech equipment in North America are forced by simple economics to keep and maintain equipment for a longer period stretching up to five or six years. Luke Smith, who grows corn and soybean in northern Indiana, describes the dilemma. “We want to stay in the latest technologies, but when the used market dried up, it stopped making sense to trade in every tractor each year.”

Not surprisingly, lease activity has ramped up during the last three to four years, as producers have eyed ways to keep their balance sheets healthy and free up capital needed for things such as land. As a result, original equipment manufacturers (OEM) and dealers are finding themselves left with more used equipment when leases expire. An April poll by “Farm Equipment” found 9 of 10 dealers concerned about the impact of the high number of lease returns on inventories and prices.[ii] Last year, Deere restructured its leases to reflect the lower residual value of used equipment.[iii] An executive in the equipment industry says, “There’s no doubt, the whole environment has changed, and it’s probably the new normal. Residuals on used equipment reached unsustainable levels during the boom.”

editorial-for-summer-17-shutterstock_338203847Beyond Leasing

Beyond leasing solutions, forward-looking OEMs and dealers are beginning to explore other ways to meet the needs of customers keeping their equipment for longer. Servicing these customers and their older equipment will require a different mindset and different packages, such as extended service contracts or a guaranteed total cost of ownership agreements. Our industry might be wise to look to other sectors for ideas on making long-term ownership a viable alternative to leasing. Interestingly, some manufacturers in the construction equipment industry have already adapted their model to satisfy buyers who are keeping their equipment for longer periods and want assurance around cost management. Caterpillar’s Total Maintenance and Repair agreements, for example, allow equipment owners to pay a flat fee to cover all service, maintenance and repair costs during a period of time. The similar complexity and high-tech nature of large agricultural equipment lends itself to this model as well. Luke Smith of Smith Family Farms says, “Knowing your costs is such a big factor in farming because there are so many variables. A three-year service deal on equipment—where we can predict the exact cost—would make a huge difference.” Equipment industry executives confirm producers’ growing interest in extended warranties, maintenance contracts, and complete refurbishment to extend the life of their equipment assets. Some manufacturers are moving toward common architecture in their equipment to make it easier to offer seamless technology upgrades.

Another potential solution could include product-as-a-service or pay-as-you-go models. Avionics engine manufacturer Rolls-Royce first dubbed its performance-based contract as “power by the hour,” reflecting that compensation was tethered to actual product usage.[iv] Under this scenario in the ag equipment industry, producers would only pay for the time they used a tractor, combine or sprayer. In other words, could there be a role for an Uber of farm equipment? It’s already a reality in India, where Mahindra and Mahindra’s agricultural equipment division launched Trringo in 2016, a tractor-by-the-hour service, complete with surge pricing for peak periods, such as harvest time.[v] The construction equipment industry again offers a parallel. Recently, Caterpillar announced the acquisition of Yard Club, a service platform that allows contractors to easily rent machinery to one another for weeks at a time. The rentals in turn allow businesses to boost revenue in between jobs. An executive in the ag equipment industry notes that he’s watching this development closely. “Machinery Link has been trying to do same as Yard Club,” he says, “but farmers are resistant so far. Planting and harvest windows are so narrow, and farmers are tradition bound.”

Much of today’s ag equipment is large, expensive, and burdensome to transport, which has limited the success of equipment-sharing business models in the ag industry. However, as autonomous and semi-autonomous technology becomes market-ready, we are likely to see equipment size shrink, with smaller pieces of equipment working in tandem. An equipment industry executive says, “Instead of one large tractor, you might see ‘swarms’ of small planters that could be easily deployed in different combinations and different regions, depending on the planting window.” This scenario would improve the economics of equipment sharing over larger geographies with different non-overlapping working windows. Smaller equipment will be easier, cheaper, and faster to move from location to location.

Right-Fitting a Solution

Given the current business environment, manufacturers and dealers alike are wise get in front of the impacts by asking critical questions, such as:

  • How are we adapting our selling or leasing process to meet this new and changing market, where customers will keep their equipment longer and will want assurances to lock in owning and operating costs?
  • How will the change in types of ownership (i.e., more leases and rentals) impact our capital requirements?
  • How is our technology replacement cycle synched up with customers’ lengthening equipment replacement cycle?
  • How will our business model change as the used market shrinks and the new market demands larger and more technologically advanced equipment?
  • Are we thinking out of the box to find unique solutions to customers’ needs? Are we ready to lead the way or are we at risk of being Ubered?

The Context Network has many years of experience in helping organizations in the equipment industry identify and execute go-to-market strategies that address customer needs in changing economic environments. Through our deep business knowledge and broad network of growers, dealers, and experts, we can glean current market information to gain an understanding of what expectations exist in the particular market cycle. For more information, contact Doug Griffin at doug.griffin@contextnet.com.


USDA Economic Research Service https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast

[ii] Farm Equipment www.farm-equipment.com/blogs/6/post/13910-to-the-point-whos-going-to-own-the-lease-problem

[iii] Farm Equipment www.farm-equipment.com/articles/12888-john-deere-to-tighten-its-leasing-terms

[iv] Knowledge@Wharton http://knowledge.wharton.upenn.edu/article/power-by-the-hour-can-paying-only-for-performance-redefine-how-products-are-sold-and-serviced

[v] The Telegraph http://www.telegraph.co.uk/technology/2016/10/18/uber-for-farmers-trringo-tractor-hailing-app-launched-in-india/

 

Defining Price: A Critical Component in the Market Mix

Market researchers have several different techniques for helping manufacturers set prices. Some lead to valuable insights, while others provide only confusion.

Carefully designed and professionally implemented quantitative research and data analysis together provide details that have a significant impact on outcomes.

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Pricing is one of the most critical elements of a product in the marketing mix. Companies have to pay money to design a product, to develop/build a product, and to promote a product. However, a product’s price is the only element in the marketing mix which generates an income for an organization. Pricing strategies based on sound pricing research provide companies with a price that reflects the supply and the demand integrated into the relationship.

The Role of Quantitative Research and Data Analysis in Price

There are many types of research tools that help companies identify and discover various pricing models. A few key techniques, presented below, have their advantages and disadvantages.

For the sake of discussion, let’s consider several pricing strategies and then revisit our example question posed in the sidebar: “How does Apple price their phones so successfully?”

  • Gabor Granger Price Laddering:  If a market researcher comes offering price laddering, politely show him or her the door. This technique asks respondents whether they would buy a product at price x, then whether they’d buy at price y, then at price z and so on. Research shows that once respondents have accepted a given price, they’ll feel cheated by any higher price, while lower prices won’t increase their intent to buy. So after that first price is shown, laddering doesn’t yield any useful information.
  • Van Westendorp Analysis: This is a more sophisticated analysis, but it is built atop a shaky foundation. Respondents are asked four questions about price:
    • At what price does the product become too expensive to consider?
    • At what price is it getting expensive but still within consideration?
    • At what price is it a good value?
    • At what price is it so inexpensive that doubts arise about its quality?

The responses are combined into a pricing curve that provides a range of customer-acceptable values. Two problems become apparent: 1) respondents quickly figure out the approach and give lowball prices, and 2) the range is often so wide as to be useless. For example, a manager might be considering a range of $15-$20/unit. Van Westendorp will often tell them to price it between $5 and $25.

  • Monadic Testing: This is the primary technique used by big volume forecasters like Nielsen, and if the normative database is robust enough it can be useful. Respondents are shown a description of the product at a set price and then asked their likelihood to purchase the product. By testing other prices with other respondents, managers can get a sense of the pricing that will be the most profitable. The trouble with monadic testing is its lack of granularity. It can tell only about the prices actually tested. Sure, managers can test a range of several price points, but each additional price can require hundreds more respondents, which gets really expensive really quickly.

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  • Discrete Choice: This is the best approach to survey-based pricing research. It simulates customers’ real-life purchase decisions by giving them a series of choices between sets of competitive products, each with price, brand, volume, level of service and other important product characteristics. The design can test several individual price points and the analysis can extrapolate the customer appeal for prices between them. Beyond that, though, it can then show the relative importance of each product characteristic and identify the optimal level within each – helping product managers optimize product development and focus resources. Its inclusion of competitive products also makes it a tool many manufacturers and marketers rely on for scenario planning. But discrete choice can be more expensive than other options, and without careful design it can lead respondents to be more rational than they would be in real life. When done well it provides clear insight on a range of issues, pricing included.

So which pricing approach does Apple use? None of the above – not even discrete choice. Apple doesn’t ask consumers for direction; if it did, it would probably hear that prices need to be lower…and yet people still line up to buy the latest iPhone. Apple designs products and systems, calculates the value that they will hold to the customers who will get the most out of them and prices them accordingly. Pricing lower would certainly increase share, but Apple’s focus is on a more important measure: profits.

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Context sees the value of quantitative customer research as an input that, when combined with deep industry understanding, can inform value-based pricing. This approach empowers clients to price strategically for their specific objectives.

Contact us to discuss your market research needs. Context provides a wealth of expertise in quantitative and qualitative market research design and data analysis, R&D, volume forecast modeling, insight generation and deployment, new product development and business plan creation, and competitive intelligence and market intelligence.

Context Senior Associate, John Ritzman has more than 15 years invested in helping Fortune 500 agribusiness and consumer products companies identify, scope, and develop business opportunities. John.ritzman@contextnet.com

Leading Strategic Change – A Key to Change: Deep Organizational Engagement & Involvement

We have the most educated workforce in human history. Younger generations of workers desire an opportunity to use their intellect to create and innovate. Many from the younger generations have grown up in more inclusive and team oriented environments, hence top down decision making and “marching orders” are less warmly received today than in the past. Our workforces are looking for greater degrees of leadership transparency and engagement. We are in a global transformation from command and control to self-organizing networked organizations. 1

Coupled with a changing workforce are our organizations’ cultures. What are cultures? The 1992 classic definition of culture is from Edgar Schein 2 “a pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think and feel in relations to those problems.”

We are experiencing three noteworthy and converging forces simultaneously:

  • A significant generational change between the Boomers exiting and a highly-educated work force
  • Cultures that recycle proven steps, methods and processes which have solved problems of the past
  • Highly-dynamic marketplaces that are in constant flux with new products and services needed to maintain the competitive edge.

How does senior leadership implement new strategies and not have their culture eat it for breakfast?  Our first tenet in Leading Strategic Change is “Involvement.” Younger members of today’s workforce wish to be engaged and involved. They want to be connected to:

  • the DECISIONS that affect their customers
  • the TEAMS with whom they work
  • the SUPPLIERS they resource
  • the IMPLICATIONS to their own work habits, preferences and lives.

Ultimately, these highly capable workers wish to contribute their knowledge, experiences and skills to new policies and procedures. They seek full investment in new ideas, concepts and strategies.  

So when does leadership decide and announce versus deeply engage, gather, decide and announce?  It depends. If a rapid competitive situation, supply chain or regulatory issue exists, then senior leadership many need to take the traditional top down approach. If the strategy has deep, long term implications, will create significant change and will result in culture change, we recommend taking a deeper approach of employee engagement. The Context Network has resources to help plan and facilitate employee engagement creating involvement that will make Leading Strategic Change more sustainable and successful.

If you have other “change topics” or questions, please send an email to Senior Associates, Raquel Lacey Nelson at raquel.laceynelson@contextnet.com and Monty Miller at monty.miller@contextnet.com and we will address in future articles.

References

1 The Economist, November 23, 2013, pg. 68

Schein, E. H. (1992). Organizational culture and leadership (2nd ed.). San Francisco: Jossey- Bass