How is Rural Marketing different from urban markets

how rural marketing strategies to be evolved for success and rural marketing case studies and rural marketing characteristics and how is rural marketing done
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Published Date:28-07-2017
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Identifying Market Opportunities for Rural Smallholder Producers Carlos Ostertag, Mark Lundy, María Verónica Gottret, Rupert Best, and Shaun FerrisIntroduction and Background to the Guide Introduction and Background to the Guide his guide is the third in a series designed The main output of the work from this guide is a to support agencies implementing a “short list” of prioritized demand-based market T participatory approach to rural opportunities. This list of products will be agroenterprise development. These guides are reviewed by farmer groups to select a product (or designed for use by service providers in products) for immediate investment in the case of assisting farmer groups and local entrepreneurs existing products, or for more detailed market within a community or “area” to develop skills analysis leading towards the development of new in agroenterprise development. agroenterprise opportunities. The aim of this guide is to provide a simple and For those actors who are following the full CIAT systematic participatory method for gathering process, this guide is the second step in the market information to identify products and process. At this point you will have completed the services for agroenterprise development. This following tasks: approach enables local producers to undertake market studies and identify investment options From the work in Good Practice Guide 2 you based on their local knowledge and on market will have: demand, rather than relying on pre-selected 1. Selected an area. products that have been decided by external 2. Undertaken a biophysical and experts. socioeconomic analysis of your area. 3. Developed a vision for your community and The starting point for this guide is an analysis defined the rules of engagement. of the client group and the establishment of a 4. Identified partners who will constitute the research team to identify new market agroenterprise working group. opportunities. This process enables service 5. Identified farmer organizations interested in providers and farmers to take a fresh look at adopting an agroenterprise approach. their existing production portfolio and also to explore options for diversification based on the Purpose agronomic, marketing and financial merits of This guide aims to promote a greater market selected products. orientation when working with rural smallholders. The specific purpose of this 1Identifying Market Opportunities for Rural Smallholder Producers approach is to enable service providers and reference to collective marketing within a farmer groups to evaluate their marketing group. opportunities based on market DEMAND. This (ii) Evaluate market options for new products method aims to promote diversification and find to encourage diversification, with an ways to add value to agricultural products. emphasis on higher value goods. (iii) Evaluate the market options for value This method will also help in the identification added products, so that service providers of better market opportunities for existing can assist farmers in shifting from raw to products but with emphasis on finding ways of processed goods. increasing income through collective or group marketing, and by evaluating current practice In each case, critical marketing information is and finding ways to upgrade methods for gathered on products and buyers to gain a production, marketing and business relations better understanding of product supply and in order to be more competitive in the demand characteristics. It is important to marketplace. clarify from the beginning that the purpose of this market opportunity identification method The guide proposes a participatory procedure is not to replace existing smallholder crops, that involves smallholder rural producer from products or production systems, especially the beginning of the research process to the those that are critical for food security, but final selection of products for enterprise rather to offer options for increasing farmer development. Service providers are also income through increasing market encouraged to use this approach to support the competitiveness, diversifying products or needs of more vulnerable groups within their identifying more lucrative markets. This is target communities such as women’s groups, important given the relatively small risk- the youth and elderly, who may require special taking capacity of most smallholder rural consideration in making suitable product producers. selections. The Guide’s General Structure Within the context of rural agroenterprise The guide is divided into a series of stepwise development, the aim of a market opportunity sections which can be used by the service identification process is to: provider to facilitate market linkage for smallholder producers. (i) Evaluate market demand and buying conditions for existing products with Understand marketing concepts First market option Designing and conducting a Design process for filtering rapid market survey portfolio (long list) products Assessing and selecting Discard obviously unsuitable Defining selection criteria market options products Prioritize 3-5 market option Characterizing market portfolio (short list) options Final market option Evaluation of market options portfolio with the rural community 2Introduction and Background to the Guide strategy” may require a focus on specific product Section 1. Marketing Concepts and group(s), such as livestock, non timber forest Forming a Market Research Team products, agroindustrial products, or handicraft The guide starts by explaining key concepts that products. are useful when designing a market opportunity identification (MOI) process for smallholder rural The rapid market survey will generate a “long list” producers in a given area. These concepts of potential products with market prospects. include the marketing function, market research, However, this list is likely to be too long for more the social and economic context of smallholder detailed studies. Therefore a first level of discard 3 rural producers, basics of the production chain is applied to this first product portfolio. concept, basics of rural agroindustry, Ansoff´s product-market growth matrix, and key macro Filter 1. Obvious discards food consumption trends. The guide also The first level of discard removes products that explains how research teams can be organized to are not suitable for further consideration. In this support the participation of smallholder rural case, the research team will review the list of producers. products that have been included in the product portfolio, prior to any further systemization or Section 2. Designing and Executing a collection of information, to eliminate products Rapid Market Survey that clearly cannot be grown in the area for Survey objectives and strategies are initially agronomic or environmental reasons. This will defined to evaluate preferred scales of market include products that are unsuitable for analysis including local, national, and even smallholder producers, that require too high a regional/international markets. The guide level of investment, sophisticated production explains how to design research instruments and methods, or are culturally or socially how to develop a questionnaire or checklist. unacceptable. Potential market options are discovered through gathering secondary and primary data from a Section 3. Assessing and Selecting range of market sources. This work will develop a Market Options “long list” of market options. This section deals with establishing a series of evaluation criteria by which the “long list” of The options in this list will be based on market market options identified in the previous phase, 4 demand and the type of “research strategy” that can be distilled down to an objectively verified was selected by the market research team in “short list” that will be reviewed by the farmer consultation with farmer group(s) prior to group. The discard process is based on feasibility, undertaking the rapid market study. Depending business attractiveness, viability on small farms, on the suggestions of the local community and risk and contribution to production sustainability. previous resource assessment, a “research The three levels of product filtering are listed below and schematically represented in Figure 1. 3. The terms production chain, market chain, supply chain are used synonymously, to refer to the Filter 2. Market Option Characterization business links that allow the flow of goods, services The second level of discard is based on an and finances between producers, intermediaries and consumers. The market chain is differentiated objective analysis of agronomic, agroindustrial, from the value chain in the sense that business livestock, commercial and economic transactions and investments in production chains characterization. Summary tables/matrixes are are mainly conducted on an informal basis, used to systematize information based on whereas value chain approaches focus on economic characteristics, marketing requirements strengthening business relationships and product quality standards between market actors. and profitability. 4. “Research Strategy” is a term used in this text to define a product or group of products, such as Filter 3. Final Evaluation of Market Options with the cereals, pulses, temperate fruits, livestock, that are Rural Community identified by farmers as products which they would The final selection of products is based on like to learn more about in terms of their market potential. Generally a “product group” is based on producer preferences. This process can be done what farmers are already producing or are interested for mixed groups or through a series of meetings to invest in due to a local comparative or competitive with producers being associated according to their advantage in the selected project area. The “product wealth ranking so that investment options can be group” is used so that market studies ensure data made according to the levels of risk that on specific products is collected as part of the market survey. producers want to take on. 3Identifying Market Opportunities for Rural Smallholder Producers Filter 1: Obvious discard Filter 2: Selection matrices Filter 3: Farmer decisions Criterion: Can be grown Criterion: Production, Criterion: Farmers have in area, investment limit marketing, financial/ casting vote on profitability final selection Final selection of Initial long market list of opportunities products by farmers Filter 3: Final selection Filter 2: Selection matrices Selection Filter 1: Obvious discard 3–5 down to 1–2 for 10–15 down to 3–5 rates Many options: 10–15 investment and/or market chain analysis Figure 1. Selection of market options based on three levels of selection/discard. SOURCE: Adapted from Abele et al. (2004). How to Use this Guide while the third section provides a two-stage screening procedure to select an appropriate This guide is for rural development practitioners market product for smallholder producers. The (professionals and technicians) in the public and execution of the complete methodology will result private sectors, who are dedicated to research, in a solid data that can be used for sound development or training. The guide can be used business decision making that will reduce risk. to facilitate field work or as a training material. The guide contains exercises, practices and a glossary to facilitate training processes. This The full process can take several weeks to guide could also be used by high school, college implement, analyze and formulate a report. In the and university professors teaching subjects case of timing or funding constraints, the process related to agricultural sciences, rural can be reduced and some parts such as the development, agroindustry, and participatory Rapid Market Survey, can be executed with a research. lesser degree of participation and include fewer market visits. Although a higher degree of Use of content and level of participation by farmers will either increase costs participation or take more time, we believe that this is warranted as the local actors will gain new This guide is designed for use in its entirety, marketing skills through a “learning by doing” because it describes a logical process. The first interaction. The service provider should discuss section provides important concepts that can and negotiate this practical element with the enrich the subsequent research and analytical client groups so that information is gathered process. The second section, the Rapid Market within an agreed resource allocation. Survey, generates the first product portfolio, 4Marketing Concepts and Forming a Market Research Team SECTION 1 Marketing Concepts and Forming a Market Research Team General Objective Orienting Questions To gain a better understanding of the key 1. Why are most smallholders in developing background concepts to marketing and how to countries finding it difficult to compete in apply this knowledge in planning a market the marketplace? opportunity identification study. 2. Describe a possible route travelled by a banana from a small farm to the final Specific Objectives consumer. 3. Make a list of five products that can be After completing this section of the guide, the derived from potatoes, and for each product reader or trainee will be able to: describe the type of processing that would be required. Understand marketing basics and the · 4. What modifications can you think of, related marketing mix. to your personal or family’s food Recognize the social and economic context of · consumption trends in the last 10 years? smallholder rural producers. 5. Describe possible growth strategies for a Be aware of the major trends in food · project area in terms of products offered and consumption. markets targeted. Grasp the basics of a market chain. · 6. Why do you think it is important to include Understand how to assess risk, related to · representatives of smallholder rural products and market growth strategies. producers in the team that will plan and Establish a research team to plan and · execute a market opportunity identification execute the market study. process for them? 5Identifying Market Opportunities for Rural Smallholder Producers 1.1. Marketing Basics—What is Marketing? This section of the guide presents theory and interaction. As markets have become a vital concepts useful for members of a research element of our lives, attitudes towards team, when planning and executing a market marketing have changed and business opportunity identification study. The management has become a more central part of information is especially pertinent for service the supply of goods and services. The emphasis providers who lack a solid business and of marketing has also changed dramatically marketing background. The following theory over the past 50 years taking on new priorities and concepts aim to enrich the research to meet changing consumer needs. Whereas process. If you already have a good business’s in the 1950-60’s focused on understanding of marketing, skip this production, changes in consumer attitudes and section and go to Section 2. purchasing patterns, meant that greater emphasis was required in the area of product In today’s ever more commercial world, success quality to retain customers. Sales teams during in the marketplace is based upon the ability of the 1970s-80’s adapted from the “hard sell” and individual producers and companies to offer reaching new customers, to placing more new and improved products at ever more attention on understand how buyers needs, competitive prices. They should also develop attitudes and trends affect buying patterns, and maintain an expanding base of long term with new products being developed to suit customers. Within this environment the consumer trends. Most recently greater marketing function is a powerful business tool. attention has been placed on social marketing It is used to identify, quantify and meet the in order to retain customers, based on their needs, wants and desires of people, people like desire for products that are environmentally you. sustainable, have greater food safety and are not based on exploitative working conditions. Marketing is often described as the “delivery of customer satisfaction at a profit”, however, This rapid evolution in marketing has been there are many elements to the marketing driven by the need to remain competitive in the function. As consumers have become more marketplace, to attract new customers with the discerning, marketing has also become a more promise of better value and retain existing sophisticated area of research and social customers, by delivering long term satisfaction. 6Marketing Concepts and Forming a Market Research Team The role of marketing is therefore not only to some consumers will seek a simple pair of capture “our hearts and minds” today, but also unbranded shoes that will provide the to identify what we will be needed tomorrow. necessary protection for playing a sport at low cost. Whereas at the other end of the spectrum, Due to the increasing exposure to marketing, other consumers will select the latest “Nike” and its concerted effort to sell things to people, sports shoes, endorsed by a world renowned there are differing views of marketing ranging sports hero; these shoes apparently offer more from “an essential component of sound than the regular shoe, they will provide ultimate business practice” to “a fraudulent activity used levels of protection, comfort, luxury and equally to persuade people to buy goods they don’t need important they offer the less tangible but highly at inflated prices”. Like it or not, marketing is valued added aspects of style, glamor and peer an ever more pervasive element of our daily status. Therefore marketing is also based on the lives. According to Kotler and Armstrong (2001), idea of matching a range of products at different marketing is defined as “a social and price-value levels with consumer needs, desires managerial process by which individuals and and their ability to pay. groups obtain what they need and want through creating and exchanging products and value Given this somewhat globalized, view of with others”. The process providing goods and marketing, how does this relate to smallholder services that are essential to function or simply farmers located in remote rural settings? improve people’s well-being. Perhaps at first glance, not much, however, when we analyze the situation of smallholder There are two distinct categories of need that farmers, we recognize that they have all the marketing aims to service. The first area same elements of a commercial company. includes basic physical requirements, such as Farmers have valuable assets in their land and food, clothing, shelter and safety; social needs, location, they have knowledge about what is related to belonging and affection; and grown or produced in their locality and they individual needs for knowledge and self have access to labor and natural resources. As expression. The second area includes wants or with any other business, they produce a range desires, which go beyond immediate of goods and services for others in the requirements for basic human operations and community and they know what the community social interactions. Desires are a seemingly likes to buy, in general, and have an idea of unlimited set of ideas, products, services that what they can afford. Therefore farmers make people seek in order to satisfy perceived need. decisions on what they produce to meet local The main limitations to satisfying perceived conditions, using the resources that are needs are the resources to pay for them. available to them. Whichever category, the consequences are similar in the marketplace, in that, when wants Although farmers may face difficulties in regard are supported by the ability to pay, these wants to infrastructure, social organization, market can be translated into demands. access and income levels, all farmers sell a proportion of their goods and services. Therefore If we consider products and services as benefits, all farmers have a sales and marketing consumers will choose products and services challenge and could benefit from increasing that provide them with the best value for their knowledge about marketing functions and money. As value is based on an individual’s how to engage in the marketplace. estimation of satisfaction, there are many degrees of fulfilment when making a purchase, This guide aims to assist service providers to and decisions are based on a multitude of gain a better understanding of the marketing cultural, ethical, moral, climatic and wealth options and relationships that a selected related dimensions. To address the value farmer/client group can develop in order to sell principle in an exchange, producers and their goods and service more profitably and on a marketing agents have developed a mesmerizing more sustainable basis. Given this introduction, range of quality, price and emotionally loaded the first rule of marketing for smallholder options. Even in the case of buying what may farmers is to: seem to be an innocuous pair of sports shoes; consumers face an incredible range of options. Produce what you can sell, rather than trying Given the choice, at one end of the spectrum to sell what you have produced. 7Identifying Market Opportunities for Rural Smallholder Producers Whilst, this appears to be obvious advice, to The marketing function is one of the main achieve this goal in the agricultural context business activities of an enterprise, it can be means that farmers and service providers need defined as “a business activity that focuses on to know what consumers are demanding in the identifying and satisfying market needs, through a marketplace and how the laws of demand and profitable and socially responsible production and supply affect prices, price trends, volumes being supply of products in the form of goods and/or sold, and what is required to meet these market services” (Kotler and Armstrong, 2001). This opportunities. broad definition encompasses market research, new product development and the planning and The marketplace generally operates on the laws execution of marketing strategies. of demand and supply with the basic principle that as supply increases, prices fall and vice- Marketing plans or strategies often refer to the versa. To make informed decisions, clients marketing variables or the marketing mix (farmers, processors and traders) need to know (Table 1). In many marketing reference books, the how their production fits within this law in the marketing plan is based on what is commonly marketplace. known as the four, or more recently the five, Ps: product, price, place, promotion, policy. We must clarify our terminology with the following definitions: Marketing variables are aspects that are under the control of the enterprise and managed to obtain Supply: the quantity of products that the desired response from the marketplace. The · producers can offer for sale. marketing plan is used by the enterprise team to Demand: the quantity of products that the design and implement a marketing strategy, and · consumers can buy. this aspect is generally the key component to any business plan. Although the law of supply and demand appears to be simple, in reality the dynamics of The methodology in this guide includes the marketplace are extremely complicated. components of market research, business and This section aims to provide some insight into market analysis, and financial profitability models. the many factors that affect conditions within The rapid market survey is an example of market the market. However, before we consider these research. Readers who are interested in more factors, let us further define what marketing detailed information with regard to the marketing encompasses. topic should consult marketing textbooks; those by Kotler and Armstrong are highly recommended. Table 1. Marketing variables or the marketing mix. Marketing Definition Aspects of this variable include variables Product Everything that we sell. That which can satisfy a Variety, quality, design, characteristics, brand, need or a want; includes material objects, services, packaging, sizes, services, guarantees persons, places, organizations and ideas Price The monetary value that a seller seeks from a Price lists, discounts, price margins, credit buyer conditions Place Distribution and marketing channels A series of Market sales points, spatial coverage of market independent organizations involved in the process of sales points, locations within markets, allowing the consumer or industrial user to use or inventories of products, transportation consume the product or service channels Promotion The aspect of the mix that consists of convincing or Promotion includes advertising, personal sales, persuading the audience of the quality or features of trade and consumer promotions and public the products or services offered by the organization relations) Policy Developing an enabling political and administrative Local policy, national policy and international environment, such that smallholder rural policies related to business development, businesses can develop in a sustainable manner entrepreneurship and trade 8Marketing Concepts and Forming a Market Research Team 1.2. Understanding the Context of the Smallholder Rural Producer Traditionally, smallholder rural producers in In many cases, current socioeconomic trends developing countries of Latin America, Africa will continue to marginalize increasing numbers and Asia have focused their efforts on of smallholder rural producers with particularly producing sufficient amounts of food to support negative effects on those that are least organized their families and thereafter to sell small and distant from markets. To address these amounts of surplus. This subsistence approach changes, rural communities are adopting is risk adverse and whilst it can assist a various strategies, including agricultural community to avoid famine, it is not a rapid extensification, intensification, diversification ladder out of poverty. It was hoped that with and using a combination of on and off-farm time, the farming community would progress activities to achieve a living wage. When these from a focus on food security into more options fail, communities fall into chronic commercial farming systems; however, for many poverty situation and increasingly under or farmers in the developing world this has not unemployed youth are migrating from poor rural happened. The majority of farmers in developing areas into poor urban areas. countries perpetuate system of low input, low output, low income. Some of the key trends that are affecting the marketing environment for smallholders include: Despite their production potential, smallholders confront serious constraints in profiting from Population growth their resources due to lack of investment in One of the more positive trends for agricultural basic infrastructure, limited access to new produce in developing countries is due to rapidly technologies and services and unfavorable rising numbers of people, who create increasing government and global policies. Major global demand for volumes of agricultural products trends are also rapidly changing the rural and agricultural support services. economic environment and communities need to devise ever more innovative ways of using Globalization their labor, resources and skills to take The effects of market liberalization across the advantage of new business opportunities. world coupled with innovations in finance, 9Identifying Market Opportunities for Rural Smallholder Producers communications and transport, has led to collapse of the commodity agreements in the opportunities for global trade of products and 1980’s and the effects of globalization. services. This new global market is having Commodities from the mid 1990s have been profound effects on how business is done, with trading at all time low levels. The effect of these players from across the world now competing low prices has had a seriously negative impact within local, regional and international on economic growth in many developing markets. To remain competitive in this countries, particularly those most dependent on environment requires strategies that increase the trade of a narrow range of primary efficiency and this is generally achieved through commodities, such as coffee, tea, rubber, rice increasing economies of scale. One of the major and milk. effects of globalization has been a shift in market power away from the producer end of Market formalization and the rise of the market towards the wholesalers and this the supermarket has placed great pressure on the market At the same time that global markets have prospects for smallholders. become more liberalized, the food markets in the industrialized countries of Europe, North World trade negotiations America and Asia have maintained a steady shift The World Trade Organization (WTO) was from informal to formalized market channels. The designed to support greater equity of trade formal markets are characterized by standardized across nations. However in the agricultural branded products and the use of integrated sector, there has been limited success in marketing, logistics and financing processes. The opening new markets in the industrialized “rules of the game”, in terms of product types, countries for rural producers in the developing methods for production, processing, procurement world. Attempts in the 1980’s, to develop and payment are typically set by international international commodity agreements failed supermarkets, such as Carrefour, Tescos and when importing countries opted out of these Walmart. The goods and services offered by these protocols. Alternative channels such as Fair modern market chains are closely tied to the 5 Trade show promise but have been slow to lifestyles of urban consumers who want year have widespread impact. New trade initiatives round access to high quality, trustworthy goods, 6 7 such as, EBA and AGOA , which offer zero or at consistent prices. Similar principles apply to 8 reduced tariffs from LDCs have not been other modernized food outlets, such as fast food exploited effectively as most developing restaurants, hotels, institutional buyers, tourism countries lack the finances and infrastructure and travel companies, essentially all markets, to access these new market options. The latest where international food standards are in failure of the WTO Doha round has led to an demand. impasse between developing countries who want more access to markets and industrial Food safety regulations countries who are maintaining their subsidy Consumers and processors are increasingly system to support their farming community. demanding agricultural products with greater quality, safety and traceability. Demands for Longterm decline in commodity prices health foods, particularly fruits and vegetables, Real prices of commodities have steadily are increasing and the market for organic declined over the past 100 years. This products continues to show growth, above 20% downward trend has also accelerated with the per annum. However, trends even in these markets indicate that mainstream producers are increasing their production size to supply larger 5. Fair Trade = A small segment of the global market in retail markets. Traceability issues offer some which socially-sensitive traders and consumers offer producers an opportunity to protect particular higher prices and better conditions to poor genetic, location- or process-based products, smallholders and other marginalized actors in the chain. through appellation schemes, but there can be 6. EBA–EU = Everything But Arms initiative, waives considerable cost implications to such tariffs for virtually all products for least developed identification systems. countries. 7. AGOA–African Growth and Opportunities Agreement, offers tax exemption for fibre products Food consumption trends into US markets. In addition to the global trends there are specific 8. LDCs least developed countries, DCs developing trends to food consumption that researchers countries. 10Marketing Concepts and Forming a Market Research Team should be aware of when seeking new options Exotic/novelty foods for farmers. This knowledge can help identify Consumers in developed countries are showing market opportunities for both traditional and great interest in exotic tropical products, such new potential products. as fresh and dried fruits, vegetables, nuts, herbs and spices. Convenience products As a result of urbanization and increased Off-season purchasing female employment, consumers are increasingly Consumers in developing countries and attracted to foods that are practical and quick increasingly in urban areas of developing to prepare. New cooking technologies such as countries want to buy the full range of the microwave cooker have stimulated this agricultural products out of season. This has area. Convenience products are generally developed huge demand for food, fiber and processed, or transformed, and are packaged flower products, particularly the higher value and labelled. Some examples of convenience goods on a continual year round basis. products are: packaged, dried, refrigerated, pre- cut vegetables for home-made salads, bottled Ethnic market fruit juices, dairy products; beverage, soup and The so-called “ethnic market” is expanding cake mixes; pre-cooked, frozen foods, pre- rapidly, stimulated by domestic and cooked, frozen meals; packaged snacks; canned international migrations, which means larger food; bottled fruit and vegetables; processed numbers of people living in developed countries meats, etc. want to buy their traditional products locally. Consumer demands for healthy foods New applications Consumers are increasingly aware of the Research into new applications and benefits of eating healthy, balanced and transformed plant and animal products have nutritious diets, including natural and organic opened the possibility of new markets including products. The following consumer trends are biofuels, biomedicines, i.e., harvesting showing rapid growth: chemicals and drugs and bioplastics. In addition, the agricultural industry has shown Health foods, including fresh produce, · interest in renewable raw materials, including dietary fiber, fruits and vegetables. starch-based products and fuel options, which In industrialized countries the organic · may have significant effects on the production market is growing at 20% per year. of traditional commodities. There is increasing interest in eating low- · calorie (light) foods. All of these trends and options offer There is renewed interest in natural · opportunities for sales of agricultural products medicines, based on the use of natural and market research teams should be alert to medicinal plants. the prospects of smallholder farmers producing for these emerging markets. 11Identifying Market Opportunities for Rural Smallholder Producers 1.3. Meeting the Marketing Challenge Given these changes, it is clear that new (a) Promote participatory methods that directly approaches need to be used to support involve local chain actors in decision making communities to take on the opportunities and and develop local capacity for business challenges that result. Strategies to meet the development and more competitive supply of challenges of these changing marketing goods. conditions include initiatives that seek to build (b) Stimulate collective action and organization the marketing capacity of producer groups and of rural economic organizations with a solid the effectiveness of rural service providers business and market orientation. through a bottom-up approach and alternative (c) Promote intensification, diversification and strategies that seek to build marketing links value adding in rural areas. from corporate buyers with smallholder (d) Strengthen the market for rural business producers in an equitable manner. development services and its coordination. Whichever approach is adopted, the review of The emphasis of this guide is to find ways of macro-trends in the agrofood sectors suggests identifying market opportunities that are linked that rural business development needs to with growing high volume and high value address two major challenges which: markets. The methods will enable service providers and farmers to evaluate market 1. Develop competitive rural enterprises at the options for existing products and to identify micro level. new products. It should, however, be recognized 2. Create an enabling policy environment at the that any change in a marketing system and macro, meso and micro levels. investment in new market chain options tends to increase risk and therefore it is important to To address these rural business challenges, the understand the relationship between the following strategies are recommended: potential gains by investing in an identified market, against the potential risks. 12Marketing Concepts and Forming a Market Research Team 1.4. The Market Chain Having a market chain perspective assists in The market chain refers to the actors and understanding the types of constraints and organizations that enable the transfer of goods opportunities that can be addressed at various and services from the producer to the final points in the system and where investments consumer. A production chain is made up of may have greatest effect, which means thinking inter-related links, which are generally based beyond the farm level. The market chain on pre-production, production, post harvest, generally includes three components. trading processing, marketing and consumption (Figure 2). Market chain actors Traditionally, rural development practitioners These are the people directly involved in the have placed emphasis on the first link in the exchange of goods; they include input chain, i.e., the production phase, because it suppliers, producers, rural traders or deals directly with smallholders. Focusing on assemblers, processors, urban wholesalers, production has enabled communities to gain retailers and consumers. food security. Less attention has been given to marketing and this has led to problems with Business development services over or under supply of products and lack of These services support business development project sustainability. and enable the marketing process to proceed in an efficient manner. These services include Taking a more systemic approach to the market technical inputs from research, such as new chain can assist in developing strategies that production technologies and varieties, finance enable producers to understand their market both formal and informal, information on options more effectively and for interventions to market conditions, marketing rules and be designed that match product supply with regulations, basic infrastructure such as market demand and take into account the roles roads, communication systems and market of the various actors and services that make up structures. a functional market chain. Consumption Retailing Research Trading Transportation Government policy regulation Processing Communications Trading Technical & business training & assistance Post harvest handling Market information and intelligence Financial services Production Production input supply Figure 2. The market chain. 13Identifying Market Opportunities for Rural Smallholder Producers retail outlets such as supermarkets, corner Business organization stores and wholesale markets. A third aspect is the level of organization that integrates market actors and business support This extended chain concept is useful because services. Business organization throughout the integrating interventions that strengthen chain refers to the social links between the market chain actors and local support services different actors including informal farmer is key to improving both competitiveness and groups, farmer cooperatives and associations, business organization, which makes for a more traders or intermediaries, technical services, sustainable development. processing enterprises, financial services and 1.5. Value Addition This aspect of marketing deals with practices providers. Whilst, some of these functions can be that change or transform a primary product into done on-farm, there is often a high investment goods that have additional value. At the simplest required to achieve this level of value added. level, adding value includes operations such as washing, cleaning, grading, bulking and storage. The promotion of rural agroindustry is important These processes are generally within the control in rural development for the following reasons: of farmers groups and attention to these processes can have considerable effects on Agroindustrial products, in contrast to basic · improving income. commodities, do not exhibit a long-term real- price decline so they are more effective in More complicated processing may include increasing local income (Figure 2). ginning, roasting, refrigerating, milling, cutting, Adding value in rural areas increases local · mixing, dehydration, cooking and packaging. employment and income and has a positive Higher level value adding involves operations impact on the local economy due to forward such as extraction, distillation, freezing, and backward linkages. fermentation, extrusion and enzymatic processes. Product differentiation is easier for goods · These activities are generally undertaken by that have been processed, transformed, specialist market chain actors or service packaged and labelled. 14Marketing Concepts and Forming a Market Research Team Consequently, agroindustrial products incomes of rural producers. Market research · tend to enjoy a higher profit margin than teams should be sure therefore to investigate basic commodities. both fresh and processed markets. Value added products can be traditional and already exist in As markets become more competitive, it is the area or can be new products, which can be important to seek ways that taking advantage of processed using new, low cost technologies. value adding opportunities to increase the 1.6. Marketing Strategies Based on “Risk Assessment” without changing the product offered. This Given the range of market opportunities, can be achieved by reducing prices, making decisions on the most appropriate maintaining price but improving quality, products and market types that a farmer group improving distribution and increasing or entrepreneur should target is clearly an promotion. important decision. One of the tools to assist in 2. Market development means identifying and the process of assessing market risk strategies developing new market segments for current is the Product-Market Growth Matrix, developed products. These new market segments can by Ansoff (Table 2). be represented by institutional markets, 9 other geographical areas including export The marketing strategy is the method that a markets or buyers using the product in new business or enterprise will use to increase ways. profitability and competitiveness within a 3. Product development refers to the offer of marketplace. Selecting the appropriate innovative products, new products for the marketing strategy is important, as the type of region, or modified products to current product and selection of marketplace will have market segments. Products do not a considerable bearing on the level of necessarily have to represent an innovation, investment, profit and risk. An important role of but can be existing products that are the service provider/NGO or market facilitator, improved or packaged and labelleddifferently. working with rural producers or entrepreneurs, 4. Diversification is the production of new is to gather sufficient information to be able to products for new markets. match a suitable level of risk with the assets, skills and business opportunities of the client. Each of these growth strategies represents a different risk level. Risk is an essential aspect to Based on two variables, product and market, consider when working with smallholder rural the matrix proposes four main product-market producers, because they tend to be risk-averse growth strategies, as explained below. due to their weak economic context. Risk increases in direct proportion to the level of 1. Market penetration means increased sales of change. For example, the market penetration products to current market segments, strategy implies the lowest risk level because it demands the least change, the diversification 9. Marketing strategy based on the Ansoff matrix is a strategy signifies the greatest risk because it plan for engaging with a specific type of product and requires most change. According to the Ansoff market type. There are four types of marketing matrix, risk increases from strategies 1 to 4 as strategies in this context, which offer increasing indicated in Table 2. However, it should be noted levels of profits that are associated with increasing levels of financial risk. that risk is always present in business and Table 2. Product-Market Growth Matrix (Ansoff, 1957). Existing products New products Existing markets 1. Market penetration 3. Product development New markets 2. Market development 4. Diversification 15Identifying Market Opportunities for Rural Smallholder Producers marketing activities and therefore marketing regarding both traditional and new, potential interventions should seek to gather information products. The Ansoff matrix is a simple tool so as to manage risk effectively. to enable the research team to be in a position to prioritize products based on their The Rapid Market Survey is a process that will level of risk. identify many new products for a given region, 1.7. Forming the Market Research Team The research team conducting the market discarding market options, because they are opportunity identification study can be small, the investors and may have a different from three to five persons, and should combine rationale or “way of thinking” compared with one to two technical personnel with two to three a technical person. representatives of smallholder rural producers The research team will gain more credibility · from the area under consideration. from the rural community if the final research results are presented by equals or The facilitator or coordinator of this team friends, and not by technical people. should be a professional with a business and Commitment from the rural community will · financial background, or a rural development be enhanced if they are aware that two or practitioner with basic training in business three of their equals are participating in the topics. This background is essential given the research team. In this manner, the objectives and content of the market probability of implementing research results opportunity identification procedure. will increase. Smallholders should be in the team for several The members of the research team should be able reasons. to speak, read and write fluently, as this will be required during the research procedure. Personal It is important to have the point of view of business or sales experience will be an asset. The · the rural producers as they are the clients of rural community should be aware of these the research. They should participate in requisites ahead of time, if they decide to select decision making when selecting and their representatives in the research team. 16Marketing Concepts and Forming a Market Research Team Exercise 1.1 Mapping an Extended Product Chain Objective The trainee will be able to identify key links, actors and organizations, functions, price formation · and local support services along a selected production chain. Instructions for the Facilitator and Trainees 1. Form groups of four participants, by area if possible, and select a coordinator. 2. Choose a product or product chain from the area with which at least one member of the group is well acquainted. 3. The group can use the Worksheet for this exercise. The Worksheet has two parts: the upper section (A) can be used to map the production chain and the matrix appears in the lower part (B). 4. Information for this exercise is found in Section 1.3. 5. In Worksheet A, the group will draw (using symbols, figures and arrows) the production-to- consumption route of a selected product. The map or route should include the different chain links, plus the actors and main functions in each chain link. If the group has sufficient information, price formation along the chain can also be mapped. 6. In Worksheet B, the group will complete the matrix with information on the chain links, functions, actors and organizations, and local support services (informal and formal). 7. When finished, the group will copy the map and matrix onto large sheets of papers or onto a PowerPoint presentation, so that their work can be seen by all the participants in a plenary session. 8. The group coordinator will present the results in a plenary session. Resources needed 1. Section 1.3 of the guide. 2. Worksheets A and B for Exercise 1.1. 3. Paper and pencils. 4. Flip chart or overhead projector and transparencies. 5. Magic markers or markers for transparencies. Time required: 1.5 hours. 17Identifying Market Opportunities for Rural Smallholder Producers Exercise 1.1 Mapping an Extended Product Chain – Worksheets A and B Production Chain Matrix Production Chain: Area: Chain link Functions Actors and Local support services organizations 18Marketing Concepts and Forming a Market Research Team Exercise 1.2 Visioning a Value-Added or Processed Product Objective If a trainee does not have information on a value added/agroindustrial product s/he will be able to · use “visioning” to provide an outline of a possible agroindustrial products derived from a basic commodity and then think of its corresponding use, markets and the type of processing required. As an example, sausages from pigs. Instructions for the Facilitator and Trainees 1. Form groups of four participants, by area if possible, and select a coordinator. 2. Choose a basic commodity or staple food product from the area with which at least one member of the group is well acquainted. 3. The group can use the matrix in the Worksheet for this exercise. 4. Information for this exercise is found in Section 1.4. 5. The group will complete the matrix in the Worksheet with a list of potential agroindustrial products (real or imagined) derived from the chosen commodity, together with its corresponding use, target market and required processing or transformation. 6. When finished, the group will copy the matrix in a large paper or transparency, so that their work can be seen by all of the participants in a plenary session. 7. The group coordinator will present the results in a plenary session. Resources needed 1. Section 1.4 of the guide. 2. Worksheet for Exercise 1.2. 3. Paper and pencils. 4. Flip chart or overhead projector and transparencies. 5. Magic markers or markers for transparencies. Time required: 1 hour. Exercise 1.2 Visioning a Value-Added or Processed Product – Worksheet Agroindustrial Product Matrix Basic commodity: Area: Derived agroindustrial Use Target market Processing required product 19

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