Determining marketing costs and returns in alternative marketing channels

Abstract

Direct marketing is a popular marketing practice among smaller producers in the United States. We conducted detailed case studies of three organic farming operations of different sizes and compared their marketing costs and profitability in alternative marketing channels. We classified marketing-related activities into three categories: packing and storage, transportation, and selling and administration. By measuring the costs for labor, purchased goods and services, and capital assets associated with these marketing activities, we determined that there are significant variations in marketing costs across marketing channels. For each of our three case-study farms, marketing costs per dollar of revenue were lowest in the wholesale channel and highest in the farmers' market channel. Significant labor costs for the selling activity and transportation expenses offset the higher prices and minimal packaging costs associated with farmers' markets. Profitability can also be significantly affected by marketing factors, such as packing and grading standards, and product that is used for sampling and consumer premiums. Our research demonstrates that the higher prices that producers earn from direct marketing rather than wholesaling are not pure profit; the price premiums are compensation for the costs they incur when direct marketing their produce. Direct marketing channels, such as farmers' markets and Community Supported Agriculture (CSAs), can enable smaller farmers to build financially viable operations, by gaining access to markets, growing their farming operations and reducing their marketing risk. However, to achieve this success, farmers must manage their marketing costs as well as their production costs.

Economic Factors Affecting Diversified Farming Systems

“…Even in markets where some consumers are demanding food that is produced more locally, sustainably, organically, and diversely, the high costs of certification and marketing (Hardesty and Leff 2010) and risks associated with pests commonly controlled by synthetic pesticides, in the case of organics or pesticide-free varieties, can make these varieties more expensive than conventional varieties, and make consumer demand (and therefore farmer revenues) unpredictable (Lohr andSalomonsson 2000, Regmi andGehlhar 2005). Farmers marketing locally-grown food also face the challenges of transporting small volumes of goods to local markets (Pretty et al 2005).…”

Farmers' motivation and perceived effects of participating in short food supply chains: evidence from a North Italian survey

“…It does not matter whether farmers in the SFSCs demonstrate collaboration strategies. Furthermore, even though doi: 10.17221/323/2015-AGRICECON direct sales guarantee that producers can command higher prices than the conventional retail channels, there is some evidence that such a premium price can be absorbed by the increased marketing costs (Hardesty and Leff 2010). Th ese indirect costs are the most dangerous in terms of economic sustainability, because farmers sometimes do not even realize they are losing money (Ahearn and Stern 2013).…”

The effect of marketing expenses on car sales – an empirical analysis

“…Another classification of marketing related activities is offered by S. Hardesty and P. Leff [12] who studied the direct marketing approach and developed three main categories of marketing activities: packing and storage, transportation, and selling and administration.…”