Dr. Chris Peterson Director, Product Center for Agriculture and Natural Resources Michigan State University Understanding the Entrepreneur: How to segment your client base Dr. Chris Peterson

Director, Product Center for Agriculture and Natural Resources Michigan State University Understanding the Entrepreneur: How to segment your client base © Dr. H. Christopher Peterson, Michigan State University, 2005

MSU Product Center for Agriculture and Natural Resources Segmenting Entrepreneurs Why? –Entrepreneurs come in many forms for many reasons New, mgmt. experience, serial, limited resource “Great” idea, inventor, no choices left, why not –How you assist them depends on understanding who your entrepreneurs are. –Your program’s success depends on reputation for quality assistance.

MSU Product Center for Agriculture and Natural Resources Possible Segments By producer type –Commodity through product producer- marketer By completeness of venture concept –The idea, the will, the market opportunity By willingness to plan –Think-it-through vs. act-it-through

MSU Product Center for Agriculture and Natural Resources By Producer Type Understand that value-added marketing is different with commodity marketing. Assess the readiness of your entrepreneurial client for value-added (differentiated product) marketing.

MSU Product Center for Agriculture and Natural Resources Marketing Strategy Differences Strategy Component Commodity Marketing Strategy Product Marketing Strategy Segmentatio n Not neededCRITICAL DECISION: Many possible segments PositioningBest price, acceptable quality—little to decide Meet the demands of the chosen segment ProductFixed—little to decideCRITICAL DECISION: Many possible attributes PlaceCRITICAL DECISION: Physical distribution CRITICAL DECISION: Many channels & “spaces” PromotionLimited—”shout out” price CRITICAL DECISION: Many promotion mixes PriceCRITICAL DECISION: Discovery & risk mgmt. Residual decision

MSU Product Center for Agriculture and Natural Resources Actual Producer Strategies TEPAP Alumni Survey –141 (41%) responses from 346 alumni –62 not doing vs. 79 doing value added 42 doing less than half of farm sales as VA 32 doing half or more of farm sales as VA How are the two types of producers alike? Different?

MSU Product Center for Agriculture and Natural Resources Management Emphasis: Efficiency vs. Special Customer Needs

MSU Product Center for Agriculture and Natural Resources Management Emphasis: Cost Reduction vs. Premium Price

MSU Product Center for Agriculture and Natural Resources In-depth Interviews Follow-up extensive telephone interviews with 60 producers. Insights into five producer strategies: –True Commodity Producer (15) –Reverting Commodity Producer (6) –Transitional Product Producer (11) –Product Production Specialist (4) –Product Producer-Marketer (24)

MSU Product Center for Agriculture and Natural Resources Types of Producer Strategies Differentiated Product? Differentiated Production? Differentiated Marketing? True Commodity No Reverting Commodity YesNo/LimitedNo Transitional YesNo/LimitedYes Product Production Specialist Yes No Product Producer- Marketer Yes Means Type

MSU Product Center for Agriculture and Natural Resources Strategy Characteristics True Commodity Producer –Focus on traditional commodity. –VA not viewed as more profitable. –Strong focus on cost control. –Extensive use of commodity marketing tools. Reverting Commodity Producer –Forays into specialty crops or livestock that have “premiums” but revert as premiums disappear.

MSU Product Center for Agriculture and Natural Resources Strategy Characteristics Transitional Producer –Committed to compete on product attributes/benefits, not on price. –Experimentation with production and marketing methods to find formula for success. Product Production Specialist –Significant alteration of farming operation. –Outsource the marketing. –Emphasis on reputation as specialist.

MSU Product Center for Agriculture and Natural Resources Strategy Characteristics Product Producer-Marketer –Focus on end-user demand and supply chain to produce VA crops or livestock. –Radical innovation in farm procedures. –Extensive direct customer contact and responsiveness to customer requests. –Non-farm networking and reputation. –Reject cost reduction=quality reduction.

MSU Product Center for Agriculture and Natural Resources How would you help each? Consider the amount of product differentiation in the new venture –Ethanol plant (commodity into commodity) Commodity producer: limited on-farm change, but market access needs to be “assured” –Gourmet organic pastured poultry Product producer/marketer: limited change; focus on the venture planning Commodity producer: huge change; focus first on education then venture planning

MSU Product Center for Agriculture and Natural Resources By Concept Completeness What are the building blocks of a successful new venture? –A “complete” venture concept –A means to test potential & feasibility Complete Venture Concept –The innovative idea –The entrepreneurial drive and skill –The market opportunity

MSU Product Center for Agriculture and Natural Resources Types by Concept Completeness Innovative Idea Entrepreneurial Drive & Skill Market Opportunity InventorYesNo Pure EntrepreneurNoYesNo/Yes Business AnalystNo Yes Classic Venture Client Yes No “Manager” ClientYesNoYes Complete Entrepreneur Yes Component Type

MSU Product Center for Agriculture and Natural Resources How would you help each? “Incomplete” types: inventor, analyst, pure entrepreneur, classic venture client, manager –Assess will/ability to add the missing component(s) as an individual –Assess will/ability to build a venture team –Fill in the missing components as appropriate Complete entrepreneur: full speed ahead

MSU Product Center for Agriculture and Natural Resources By Willingness to Plan What are the building blocks of a successful new venture? –A “compete” venture concept –A means to test potential & feasibility Testing potential & feasibility –Formal planning: Think-it-through –Experiment: Act-it-through

MSU Product Center for Agriculture and Natural Resources Why Plan? The client cannot supply all the resources alone! The client needs others! –Others must be convinced that innovative idea is unique, marketable, and profitable. –A plan is the sales brochure showing that the potential and feasibility have been tested. The plan also forces the client to know resources are needed and when!

MSU Product Center for Agriculture and Natural Resources Business & Product Development Process

MSU Product Center for Agriculture and Natural Resources Formal Planning Pros –Desire doesn’t overwhelm reason. –The logical flow is created. –Investment of time and resources is matched to the potential & feasibility of the idea. Cons –Its may be, at times, too logical –Its no fun; clients don’t want to do it

MSU Product Center for Agriculture and Natural Resources Is there an alternative? The process can be made simpler or more complex depending on: –How big is the venture relative to internal resources? –New business or expanding an existing one? –The ability to experiment? –How risky? Alternative: Experiment, rather than plan –Act-it-through rather than think-it-through

MSU Product Center for Agriculture and Natural Resources How would you help each? Client is “willing”: Formal Planning –Plan even if the client doesn’t want to –Assist by making process enabling, not an obstacle Client is not: Plan through Experiment –Assist client in taking action steps that test the concept, e.g., prototypes, direct tests. –Launch and help client evolve

MSU Product Center for Agriculture and Natural Resources Conclusions Segment your clients and match your assistance to the segment’s need. –By producer type –By completeness of concept –By willingness to plan As with any product delivery strategy, segmentation should enhance success.