Between growers and suppliers, loyalty is a two-way street. Growers trust their suppliers; suppliers stand by their products. A key part of trust is service. Even more so than price, service is often cited by producers as a key difference between suppliers, a factor that keeps many customers loyal.
But as input prices climb, will loyalty become a casualty in purchasing decisions? Will producers increasingly make choices mainly on price?
That could be the case for some crop inputs, according to new research from Dr. Luciano Thome é Castro, international adjunct professor at the Purdue University Center for Food and Agricultural Business.
The center conducts a large commercial producer survey every four years, collecting data from about 2,000 farmers across the U.S. regarding their purchasing behaviours.
Researchers explore the different levels of importance farmers place on supplier relationships, product performance and price when making decisions around fertilizer, crop protection and seed.
Survey results may be seen as a barometer of farmer sentiment and of the farm economy. For example, the latest poll was taken as farmers were grappling with huge increases in production expenses, such as fertilizer and seed costs.
The results reflect that reality, at least in part.
For example, price has become a huge buying factor for fertilizer. Of all the inputs, just a third of respondents said they were loyal to a particular brand. In fact, a whopping 60 per cent said they would switch brands for a 10 per cent price discount. More than half of farmers surveyed ranked price as most important when evaluating fertilizer. Product performance was a distant second, at about 30 per cent. Only 16 per cent said supplier relationships influenced their fertilizer purchasing decisions.
Priorities shifted though for crop protection. With weed pressure and resistance on the upswing, nearly 60 per cent of producers said product performance was their most important factor. Price was the main consideration for 30 per cent, and supplier relationships finished last at just 13 per cent.
But researcher Castro found loyalty to seed was a different story. He says 60 per cent of farmers consider themselves loyal to a seed brand. Only 10 per cent said they would switch from their main brand if offered a five per cent discount.
By far, product performance was ranked as the most important consideration for seed purchases, compared to crop protection and fertilizer – 80 per cent of respondents said performance was their seed brand’s most important. Price was a distant second at 13 per cent. And supplier relationships, at seven per cent, were almost irrelevant.
Castro says producers’ perceived level of product differentiation may account for the high score for seed.
“If farmers see variability in seed performance, this may impact the profitability of their crops, making it important for them to place a heavy emphasis on product performance,” he said.
Castro urges suppliers to heed these findings when designing go-to-market strategies. “Because betting on low prices and best quality products are almost always contradictory, companies must make their choice between which option they want to harness,” he says.
For example, most fertilizer companies may offer competitive prices, knowing that’s a key for most producers. Only a select few would be likely to harness the power of differentiation when it comes to fertilizer, even if they don’t usually consider themselves “joiners.”
But seed is a different story. Seed companies would do well to dedicate efforts to underline the attributes that make their products different from competitors. Some may differentiate according to price…but that’s not what make producers tick.
Castro notes that input manufacturers have increasingly presented integrated offers to farmers that combine crop protection and seeds. Both ag retailers and input manufacturers favour these more complete solutions for farmers and like to sell bundles that are frequently positioned as a “package of benefits.”
But he warns against them, given these research findings.
“These bundle offers should be used with caution when thinking about how different products are perceived by farmers,” he says. “Taking advantage of a farmer’s loyalty to a seed product to push sales of crop protection or fertilizer in one package may be perceived by farmers as opportunistic and detrimental to trust building.”
Castro saves his final words for seed suppliers. He says they have the greatest challenge displacing well-positioned competitors and must work closely with farmers to show evidence that changing brands will indeed impact success. That may mean offering “try before you buy” initiatives to catalyze change. After all, it’s performance, not price or loyalty, that drives seed purchases.
Says Castro: “There are certainly opportunities to be sharper in the design of marketing strategies if we can effectively define our target segment and truly understand farmer loyalty to brands, as well as what criteria farmers use to decide on one brand over another.”