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Developing a Cooperative Marketing Plan

Kentucky Center for Agriculture & Rural Development (KCARD)

What is a Cooperative?

Simple Definitions:

“An enterprise or organization owned by and operated for the benefit of those using its services” (Merriam-Webster Dictionary)

“A cooperative is a business owned and controlled by the people that it services.” (Larry Snell, former Ex. Director, KCARD)

Co-ops Today by the Numbers

More than 400,000 cooperatives in the US

Serve more than 130.5 million members

Nation's 100 largest co-ops, representing agriculture, finance, housing, energy, and hardware sectors reported over $226 billion in sales in 2012

(Source: National Cooperative Bank)

Kentucky Co-ops: Hopkinsville Elevator

Established in 1968 with 180 members

6 locations with over 2300 members from surrounding 34 counties

Agri-Chem, HEC Crop Insurance, and Commonwealth Agri-Energy

Kentucky Co-ops: Lexington Farmers Market

Established in 1975

75+ members

Members pay annual dues, booth space rental per marketing day, gate fees per marketing day

Multiple locations

Kentucky Co-ops: Kentucky Organic Farm & Feed

Established in 2009

Organic Feed Mill Located in Guthrie, KY

18 Members who are Organic Dairy Producers

Kentucky Co-ops: Central KY Growers Association

Established in 1998, Georgetown, KY

Vegetable marketing cooperative

Cabbage, cucumbers, fall décor, green peppers, pumpkins

Economic Principles of Cooperatives

User-Owned: The people who own and finance the co-op are those who use it

User-Controlled: The people who use the co-op control it via “One Member-One Vote” on major organization decisions and electing board of directors

User-Benefited: The sole purpose of the cooperative is to provide and distribute benefits to members on the basis of their use of the services of the cooperative. (Operation (Service) at Cost, Patronage Refunds, Improved Pricing, Market Access to Goods and Services otherwise not available)

Cooperative Principles

Voluntary and Open Membership

Democratic Member Control

Member Economic Participation

Autonomy and Independence

Education, Training, and Information

Cooperation among Cooperatives

Concern for Community

Cooperative Business Structure

Cooperative

Control - Members elect board.

Capital - Members provide equity.

Liability - Liability is limited to their investment.

Earnings - Profits are shared by members based on patronage; limited by law (8% in KY)

Taxes - Income taxed either as corporate income or as member income.

Life - Perpetual existence.

Cooperative Benefits

Cooperatives exist to meet their members needs. Focus is on service not investment.

Cooperatives are owned and controlled by their members. Increased local control keeps the co-op in the community.

Earnings return to members. Co-ops keep money in the community. Benefits reflected with: patronage refunds, better prices, services otherwise unavailable, access to markets, and assures sources of supplied

Benefits reflected with: patronage refunds, better prices, services otherwise unavailable, access to markets, and assures sources of supplied

Disadvantages of Cooperatives

Access to capital

Cost of member and public education

Investment in democratic process

Limit in scope of operations

Co-ops are only as good as their members ask them to be.

Elements of a Marketing Plan

Market Research & Analysis Development of Marketing Goals Identification of Target Market Marketing Mix (4 P's of Marketing) Product Price Promotion Place Evaluation Methods

Price

Market Research & Analysis

Identify Trends

What are the trends that are impacting your business? Examples could include local food movement; product differentiations; food safety

Understand the Market

Demographics

Recent Developments

Customer Feedback

Sources of Information

Market Research & Analysis

Competitor Analysis

Identify Key Competitors

Profile Competitors based upon Key Characteristics (Product Mix, Price, Location, Reputation, etc)

Analyze Yourself—SWOT Analysis

Strengths of your business

Weaknesses of your operations

Opportunities presented by the market

Threats presented to your business by the market

Marketing Goals

Set specific goals that can be measured

Goals may include measures for:

Sales

Number of Customers

Customer Retention

Sales per Transaction

Target Customers

Identify Target Customer Groups

Needs that your business can fulfill

Ability to purchase

Willingness to purchase

Retail and Wholesale Customers

Key Demographics

Psychographic Analysis

What do they value?

How do they make decisions?

Products & Services

Key Features of the Product/Service

Benefits Offered: How does the customer benefit from the product?

Market Positioning

Value Proposition: What are you offering to your customer?

Competitive Advantage: Why should customers buy from you instead of your competition?

Reputation in the Marketplace: How is your business viewed in the market?

Pricing

Critical Part of Marketing that is both an Art and a Science

Pricing Must Be Consistent with Marketing Efforts

Key Considerations in Pricing

Cost of Production

Customers' Values and Willingness/Ability to Pay

Competition

Pricing Strategies

Competitive Pricing

Cost-Based or Margin-Based Pricing

Premium or Willingness-to-Pay Pricing

Loss Leader Pricing

Penetration Pricing

Volume Pricing

Bundle Pricing

Distribution (Place)

Identify Marketing Channel and Distribution Requirements In-house or Third Party Transportation Wholesale Marketing Channels Grocery Restaurant Institutions Direct Marketing Channels Farmers Market On-Farm Store CSA Internet/Mail Order

Sales & Promotion Strategies

Develop Promotion Strategies based upon target customers, goals, and expected sales

Dedicated Sales Representative

Promotion tactics include:

Website/Social Media

Radio or Print Advertising

Signs

Events

Printed Materials

Evaluation Methods

“You Cannot Manage What You Do Not Measure”

“You Are Not Given the Opportunity to Grow If You Are Not Evaluated”

Dashboard for Business

Financial Benchmarks

Key Performance Measures

Sales Forecast 3-5 years Broken down by Product Line

Financial Benchmarks

Profitability Ratios

Profit Margin (Net Income/Sales)

Gross Margin (Gross Profit/Sales)

Return on Equity (Net Income/Total Equity)

Liquidity Ratios

Current Ratio (Current Assets/Current Liabilities)

Working Capital (Current Assets-Current Liabilities

Financial Benchmarks

Operating Efficiency Ratios

Labor to Sales Ratio (Total Personnel Expenses/Sales)

Operating Expenses to Sales (Operating Expenses/Sales)

Inventory Turnover (COGS/Inventory)

Debt and Risk Ratios

Debt to Asset Ratio (Total Liabilities/Total Assets)

Debt Service Coverage ((Net Income + Depreciation + Interest)/Loan Payments)

Performance Measures

Designed for Your Business and Beyond Sales and Expenses

Measure Performance for Specific Areas of Business

Examples include:

Sales per transaction

# of transactions

Labor cost per unit

# units produced per hour

Closing

Any Questions?

Thanks!