According to a Purdue study, retailers know their growers pretty well in most areas, but not all their assumptions are correct.
February 5, 2009
How well do you, the retailer, know your customer? Before answering this question, consider the findings of a recent study of retailer perceptions regarding growers conducted by Purdue University.
"You can really get into trouble in a hurry if you make the wrong assumptions about your customers," said Dr. Dave Downey, executive director, Center for Food and Agriculture Business at Purdue. Downey was speaking at the National Conference for Agribusiness, held in November on the university campus in West Lafayette, IN. Much of this conference featured the findings of Purdue's 2008 Large Commercial Producer Survey.
In his presentation, Downey focused on closing the gap in knowledge within the retail channel on what retailers believe grower-customers want/think and what grower-customers actually want/think. To conduct this study, Purdue researchers selected one element of the distribution system and asked many of the same questions about buying behavior that the university originally asked of growers. These answers were then compared to one another to see if assumptions by retailers jibed with the way growers actually thought. For the study, growers were divided into three groups — extra large, commercial, and mid-sized.
"For many of you, this could be something of a reality check," he said. "We sought to find out a few things — how well we understand what motivates growers, how accurate are our assumptions about their buying behavior, if our strategies make sense, and what adjustments might be appropriate."
According to the study results, retailers have a good understanding of grower buying behavior and attitudes, said Downey. "But there are several important differences in the relative importance of many key factors that could significantly impact marketing strategies," he added.
Buying behavior is one example. When asked if there was a significant difference in the quality of information from one local supplier to another, 74.4% of retailers agreed that this was the case. However, when growers were asked this same question, less than 45% believed the quality of information between suppliers was different. More telling, when asked if growers think they know more about many input products than their local suppliers, only 14.5% thought this was true. But among growers, more than 30% of respondents agreed with this statement.
"Retailers strongly believe there are larger differences in the quality of information among suppliers and their own product knowledge compared to what growers believe," said Downey.
The same disconnect in assumptions occurred regarding loyalty to crop protection products. When retailers were asked if growers would consider themselves loyal to the brands they buy, 12.8% agreed that this was true. But when growers were asked this, almost 40% considered themselves brand loyal. Likewise, when asked if growers would consider themselves loyal to their primary local supplier of crop protection products, 45% of retailers believed this was true. But for growers, this same question had an agreed percentage ranging from 53.8% to 58.6%.
"Growers consider themselves far more loyal to brands than retailers believe them to be," said Downey. "There appears to be more loyalty to the retailer, but that loyalty is perceived stronger by the grower."
The Price Is Right?
Among specific crop inputs, the Purdue study found very little difference between how retailers and growers view their seed and fertilizer purchasing behaviors. Crop protection products, however, are another matter. When retailers were asked if growers think most brands of crop protection products are more or less the same, 48.3% agreed with this assessment. But when growers were asked this question, only 31% to 34% agreed that this was the case. More telling, when retailers were asked if growers usually purchase their crop protection products based upon the lowest price, 34.1% agreed that this was true. Among growers, however, 31.4% of extra-large growers agreed with this statement, but less than 24% of commercial and mid-sized growers thought this was the case.
"Retailers are more likely to believe that growers think all brands are about the same than do growers," said Downey. "Retailers are more likely to believe that growers buy on price than growers say they do."
This belief also probably explains the study's finding regarding generics. When retailers were asked if growers will increase their use of generic products during the next five years, 54.1% agreed. For growers, however, the percentage that agreed with this statement ranged from 38.3% for large growers to 43.8% for commercial ones. Furthermore, when asked if generics offered a good trade-off between price and performance from branded products, 34.1% of retailers agreed this was the case. Among growers, however, the percentage that agreed with this question was approximately 43% across all three groups.
"Retailers expect generic crop protection products to grow considerably faster than growers expect them to grow," said Downey. "Retailers feel more strongly than growers that branded crop protection products are not better."
In conclusion, retailers should reevaluate their assumptions about grower-customers, particularly in certain key areas, Downey said. "Faulty assumptions create major problems for retailers because they leave money on the table, spend money on the wrong services, and prioritize the wrong projects," he said. "Our research may not be directly applicable to any given product or market area, but it does give us an indication that our assumptions about our customers need to examined and adjusted from time to time."