Step 1: Information gathering and market research
Some small farmers already know exactly what it is they want to do, how they are going to do it, and why they want to do it. However, many farmers never take the time to consider what the customer wants, why the customer wants it or how the customer wants it. Many of these same farms never consider why their products or services would be sought after more than their competitors. The notion of creating and maintaining a “competitive advantage” is a key component of the strategy formulation. It is no surprise then that the first component of strategy building is information gathering and market research.
Market Research—Research your current and potential markets to identify trends, competitors, needs, and buyers. Be sure to take time to collect data. Obtaining good data serves as the foundation for the formulation of an effective strategy. The better the information, the better your strategic plan will be.
Never rely only on your opinion of what the market wants. There are a number of tools that you should consider using for your research:
- Networking: A one-on-one interview can also be helpful for generating ideas. Do not forget to interview other business owners or operators who may be able to provide good information on what has or has not worked for them. Be sure to talk with similar farms and producers. Attending tradeshows, conferences, and business functions may provide an opportunity to meet, talk, and network about market trends. Sales representatives are also good sources of information.
- Demographics: Information about the consumer in your area can be very helpful in marketing to them. The U.S. Census is a great place to find this information.
Hint: Trade journals, census information, government studies, traffic surveys, and professional data sources can be helpful.
- Observation: Simply taking time to observe can be a powerful tool. What are people buying? What are competitors offering?
- Surveys: Surveys can be written or oral. A written survey can be distributed to a wide range of the population. Consider using an incentive to increase survey response rate, such as free products or coupons.
- Focus Groups: A small group of potential consumers who are asked specific questions about the product/service.
Step 2: S.W.O.T. analysis
S.W.O.T. is an acronym for: Strengths Weaknesses Opportunities Threats
The S.W.O.T. analysis is an analytical tool used to collect information and guide the decision making process in order to obtain strategic advantages.
Strengths and Weaknesses: Evaluation of the Internal Environment
- The internal analysis identifies the strengths and weaknesses of your business. The strengths and weaknesses section is internal to the organization and provides insight into what components are available to provide for competitive advantages. When developing a strategic plan, the competitive advantages will be a key determinant of profitability.
- Identifying weaknesses allows the organization to develop methods for improvement, and set priorities based upon future organizational direction. Examples of weaknesses include: internal operating problems, inexperience, lack of infrastructure, low worker productivity, old or obsolete technology, worn equipment and facilities, poor financial situation, bad community reputation, or inadequate leadership capacity.
- The factors above may also be sources of strengths to the organization. For example: excellent operating efficiency, high worker productivity, leading edge technology, good financial standing, high industry reputation, excellent brand image, and effective leadership capacity.
- The internal strengths and weaknesses allow the organization to acknowledge the factors it may need to build upon or exploit to gain a competitive edge in the external environment. Be open and honest with yourself about your operation.
Opportunities and Threats—Evaluation of the External Environment
- This part of the S.W.O.T. analysis focuses upon the external opportunities and threats that exist. This section of the S.W.O.T. analysis allows the organization to identify strategies that take advantage of opportunities for growth while avoiding potential threats.
- Opportunities and threats are external to the organization and thus cannot be changed by the organization. Rather the organization must change with and react to the changing external factors.
- Examples of opportunities and threats include new markets, expanding markets, government regulations or incentives, new technology, increasing competition, lower or higher barriers to entry, or economic conditions.
- A major focus of the external analysis is an evaluation of the competition. Chronicle all businesses competing in a similar area (product area and geographic area) as yours. List - who their main customers are, market share, product offerings, pricing objectives, and their perceived marketing strategy.
Step 3: Creating plans of action and identifying areas of competitive advantage
At this point, you have collected information and identified external opportunities and internal strengths. Now is the time to bring these two together and develop alternate plans that will capitalize on your farm business’s strengths and opportunities, and mitigate weaknesses and threats.
As you think through the strategic planning process, do not try to come up with the ultimate best strategy for your operation right from the start. You will need to consider all of the possible strategies you could employ based on the findings from the information discovery and S.W.O.T. analysis. Compare and contrast the competitive advantages each strategy may offer and select the best after you review all of the areas of competitive advantage. This should be an ongoing, creative process. If you find this phase difficult, break apart the process and start with information discovery first, followed by focusing on the marketing strategy phase
Things to think about when developing a plan of action:
Businesses will create competitive strategies to set themselves apart from others in the market. Types of competitive strategies can include least-cost and differentiation.
Least-cost strategy focuses primarily on the price or cost of the product. Being the least expensive in the market gains the product competitive advantage. This strategy is known for cutting input costs and often the product is a “no frills” product. This type of strategy is normally focused on efficiency of operations. Most commodity-based industries such as the grain industry utilize a best or least-cost strategy.
Generally small farms lack economies of scale and will not want to compete in a commodity market based solely on price. Instead, you will want to compete based on some unique or differing attribute that offers the customer perceived value.
A differentiation strategy distinguishes the differences of a product to make it more desirable to a specific market. The strategy focuses on goods and services needed to satisfy the customer where the value outweighs the increased cost. A differentiation strategy also sets your product apart from the competition, creating a competitive advantage by offering a unique or different product or service that other companies either cannot or will not offer.
The questions below will provide some tips for outlining a differentiation strategy including your product, attributes, and pricing:
- What is unique or different about your farm business (products and/or services)? Unique attributes may include: production methods, packaging, location, availability etc. What is the competitive advantage garnered from your strategy?
- The product/service attributes should be unique enough that other competitors cannot easily copy it, but adequate enough to capture a sustainable market share.
Step 4: Selecting the best plan that fits your overall farm mission
It is now time to review the previous steps 1-3 and select the plan that best fits your overall farm business. Keep in mind your business’s strengths and weaknesses as well as external opportunities and threats. Once all of the possibilities have been laid out and the best strategy chosen, be sure it fits with your farm mission and objectives. Can you see yourself doing this in 5-10 years?
The overall strategy is derived from component strategies including marketing strategy, production/operational strategy, financial strategy, and management strategy. Be sure to include the main components of marketing, production, finances, management, and your key competitive advantage points.
Step 5: Implementing and evaluating the strategy
An Implementation Plan is very important. This is how you will “get it done.” The section following the Management Plan focuses on how to implement your strategy.