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Agricultural Extension ServiceThe University of Tennessee

PB1711

for

and

Producers ofFruits,

Vegetables

OtherSpecialty Products

2

Table of ContentsIntroduction 4

Overview of Direct Marketing Methods 5 Pick-your-own (PYO) 5 Roadside stands and markets 6 Farmers’ markets 6 House-to-house delivery 7 Peddling 7 Rent-a-tree 7 Self-serve selling 7 Gift baskets and mail order 7

Considerations in Establishing a Direct Farm-to-Consumer Market 7 Personal and family considerations 8 Enterprise feasibility 8

Market factors 8 Production considerations 9 Profitability considerations 9 Risk considerations 9 Miscellaneous considerations 9

Developing a Business Plan 9Mission statement and long-term goals 10

Marketing plans 10 Production and operation plans 11 Financial plans 12 Staffing and organization plans 13 Management controls and contingency plans 13

Doing Your Own Market Research 14Market research techniques 14

Evaluating the competition 16 Planning market research 16

A Closer Look at Pick-Your-Own Marketing (PYO) 17 Popular crops for pick-your-own operations 17

Crop diversification 17 Crowd management 18 Check-in 18 Transporting customers 19 Field supervision 19 What attracts customers? 19 Children on pick-your-own farms 20 Methods of handling produce 20 Checking out 21 Communications 21

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3

Labor 22 Liability 22 Characteristics of successful pick-your-own operations 23

A Closer Look at Roadside Stands 23 Sales potential 24 Hours of operation 24

Location 24 Facilities, buildings and equipment 25 Source of produce 25 Displays 25 Labor and personnel management 26 Legal considerations 26

A Closer Look at Farmers’ Markets 26Quality 27

Displays at farmers’ markets 27 Laws and regulations 27

Advertising and Promotion Strategies 28Should you advertise? 28

Promotion plan 28 Customer characteristics 29 Advertising and promotion goals 29 Establishing a budget 29 Allocating the budget 31 A flexible budget 31

Types of media 32

Pricing Strategies 35

Summary 38

For Further Reading 38

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Direct Marketing Guide forProducers of Fruits, Vegetablesand Other Specialty Products

byCharles R. HallProfessorDepartment of Agricultural EconomicsUniversity of TennesseeAgricultural Extension Service

IntroductionMarketing is one of the most important

factors determining the success of any fruit orvegetable farming enterprise, encompassing allof the operations and decisions made by pro-ducers. These decisions range from identifyingthe most profitable crops for production todeciding how produce should be delivered tobuyers efficiently and economically whilemaintaining product quality. Contrary topopular belief, marketing does not begin aftera crop is produced. Instead, marketing alterna-tives need to be considered well before pro-duction takes place.

Direct farmer-to-consumer marketingincludes any method by which farmers selltheir products directly to consumers. Justifica-tion for establishing a direct farmer-to-con-sumer marketing outlet is based primarily onthe producer’s desire to increase the financialreturns from farm production. This opportu-nity for increased returns stems from (1) oppor-tunities to reduce marketing costs (and captureprofits) attributed to intermediaries (middle-men) in the supply chain, and (2) consumerdesire to buy (and willingness to perhaps pay apremium for) riper, fresher, higher-qualityfruits and vegetables. These two factors com-bined have often generated substantially highernet returns for producers.

When producers become the “retailers,”they have the opportunity to sell at or slightlyabove retail supermarket prices and avoidpaying for the services of wholesalers andretailers. Bypassing intermediaries allowsproducers to receive a higher percentage of theconsumer’s food dollar and thus enjoy a higherreturn per unit sold. However, if growersexpect to receive prices similar to those atretail outlets, they must provide the same valueof services consumers have come to expectfrom other retailers and wholesalers. At a retailstore, the price consumers pay for producegenerally covers the costs of producing, grad-ing, packing, transporting, wholesaling, andretail merchandising. To receive higher netreturns, producers must either provide themarketing services at a lower cost, provideservices not available through other markets,and/or eliminate certain unnecessary services.

Direct marketing may provide outlets forproducts that do not quite meet the specifica-tions of large commercial buyers. Sometimesdirect marketing consumers actually desireproducts that vary from commercial standardsin terms of size, maturity, appearance, volumeor grade. For example, a tomato that is “fullyripe” might not be appealing to supermarketbuyers who are concerned with shelf life, but

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may be just the one the direct marketingconsumer wants for canning purposes. Thus,direct marketing might turn product thatotherwise might have been lost or culledproduce into additional income by emphasizing“freshness” and “ripeness” attributes.

Operators of small farms may find thatdirect marketing translates into additionalincome when there is insufficient volume orproduct selection to attract large processorsand/or commercial retail buyers. Thus, directmarketing may be the only viable marketingalternative for small farmers. A substantialnumber of producers use direct marketingchannels to augment sales to wholesalers,retailers, and processors to reduce the risk ofrelying on a single market channel.

Although additional income is the primarymotivation for direct marketing, several otherfactors may influence the producer’s decision.Flexibility and the ease of market entry associ-ated with direct marketing operations enablealmost anyone with the desire and a few acresto become involved. Many producers favordirect marketing, especially consumer harvest-ing or pick-your-own operations, because of thereduced labor requirements associated with nothaving to harvest, grade, sort and pack pro-duce. However, the most attractive aspect ofdirect marketing to some farmers is the oppor-tunity to own their own business, be their ownboss and do their own thing. This flexibilityallows them to determine their own productmix and to balance this production betweenconsumer demand and individual talents forselling and market management. Producerswith abilities in raising specialty crops (e.g.,flowers, herbs, organic vegetables, etc.) havesuccessfully used direct farm-to-consumermarketing to provide products during specialseasons or to non-traditional consumers (e.g.,special ethnic groups). Direct farm-to-consumermarketing allows many producers to capitalizeon individual comparative advantages (e.g.,good locations for roadside stands or availablehelp from retired persons) to achieve increasedincome or to supplement retirement incomes.

The other side of direct marketing relatesto consumer demand. The primary attraction ofdirect marketing outlets to consumers is theopportunity to purchase fresh, wholesome,flavorful products at their source. Surveys

indicate that consumers like being able to buyin larger volumes and in a relaxed, friendlyatmosphere. Recent consumer interest inpurchasing produce directly from farmers alsoseems to be coupled with increasing concernsregarding food safety. Another appealing aspectabout buying direct from farmers, especiallypick-your-own operations, is that it offers anopportunity for consumers to enjoy outdoorfamily recreation and to learn about wheretheir food supply originates.

Overview of DirectMarketing Methods

Farmers sell their products directly toconsumers by several means. The commonlyused methods are sales from the farmhouse (orother farm building); pick-your-own operations;roadside stands and markets; public farmers’markets located in or near urban areas; house-to-house delivery; and sales from a truck orother vehicle parked along roadsides, parkinglots, or similar places with potential consumertraffic (sometimes referred to as “tailgating”).

Pick-your-own (PYO)While pick-your-own marketing (referred

to as PYO) offers the greatest potential savingsto both farmers and consumers, there are somedisadvantages to PYO marketing. Since mostconsumers are not experienced with harvestingagricultural produce, they often can requireclose supervision for their own protection (andthe protection of the farmer’s surroundingcrops and property) and to ensure that they payfor everything they harvest. Most farmers tendto establish relatively rigid rules regardingminimum volumes, parking, inspection ofcontainers and minimum age for childrenaccompanying adults into the fields or or-chards. Some farmers may even facilitatesupervision and crowd control through check-in stations, designated parking areas, checkoutareas between fields and vehicles, supervisedplay areas for children, and transportationfrom check-in or parking areas to fields. Whilesuch measures may mitigate logistical head-aches, they add to farmers’ costs of operationand these added costs must be recoveredthrough higher product prices.

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Even so, consumer prices for pick-your-own produce are usually the lowest among alldirect marketing methods. Consumers alsobenefit in being able to select produce that is,in their judgment, the “freshest” and “bestquality” in the fields. However, since consum-ers harvest the produce, they bear much of theharvesting and marketing cost. Economically,they should consider their added “costs” interms of time and transportation, as well as theinconvenience involved in this method. Realis-tically though, they tend to overlook these“costs” in the name of entertainment.

A few products do not lend themselves tothe pick-your-own method because someexperience, skill or strength is required todetermine optimum maturity and harvest theproduce. Picking out ripe watermelon ormature sweet corn, for example, requires a fairamount of expertise; harvesting apples andpeaches from fully mature, non-dwarf treesrequires both strength and skill to move andclimb ladders.

Roadside stands and marketsRoadside stands are on-farm retail outlets

for farm produce that contain facilities todisplay and protect farm produce. Some road-side markets have very elaborate facilities,including refrigerated coolers for storing pro-duce as well as refrigerated display cases.Others are simpler and are more often referredto as “stands.” Roadside markets generally stayopen longer seasons than stands and offer awider array of products, including non-fooditems, for consumer convenience. These fea-tures help spread the facility’s overhead costs.To ensure a consistent supply of produce,operators of such markets frequently purchasesome of their products from other farmers(local or regional), as well as from conventionalwholesale outlets.

Roadside stands are generally located nextto a public road to maximize the exposure fromdrive-by traffic. Signage on the roadside fre-quently emphasizes favorable prices or spe-cials. Farmer-operators can charge less toconsumers while enhancing their own incomebecause they often eliminate or reduce conven-tional marketing costs of intermediary firms.These costs may include transportation from

the farm to shipping points, shipping contain-ers, and assembler and wholesaler handlingcharges. They may also save by using familylabor, even if they also use hired labor.

Operators of retail farm outlets do haveadditional operating costs not incurred byfarmers selling to conventional wholesalebuyers. Such costs include the fixed and vari-able costs of their physical facilities (such asinterest, taxes, depreciation, repairs, parkinglots, utilities and insurance), labor for operatingthe stand, consumer-friendly packaging materi-als, advertising and promotion expenses, andother items that may be required to satisfyconsumer demand. The extent of such addi-tional costs is closely related to how large andelaborate the facilities are, the amount ofcustomer traffic generated and the sales vol-ume. However, larger, higher-volume marketsmay gain economies of scale that lead to lowerper-unit costs for labor and other items.

Farmers’ marketsFarmers’ markets are designated locations

where farmers can sell their products directly toconsumers. These markets are usually locatedwithin or near urban centers and may be ownedand maintained by farmers’ cooperative associa-tions or by local or state governments. Facilitiesmay range from an open lot (where farmerspark their vehicles and display products) toenclosed buildings with display counters, lightsand refrigeration. Regardless of the ownershipstructure, farmers usually pay a fee for thespace occupied to cover maintenance andadvertising costs. Some markets are open daily,but most are open only on specified days.

Prices for products at farmers’ marketstend to be lower than prices for similar itemsin grocery stores. Consumers also have accessto a wide selection, since they can look atproduce from a number of growers. Thisconcentration of farmer-marketers in proxim-ity to urban areas can attract large numbers ofcustomers. Some large, specialized farmoperators who sell most of their productionthrough conventional outlets use this methodof direct marketing to dispose of produce thatdoes not meet the requirements of conven-tional wholesale outlets. Such products in-clude undersized or oversized fruit, and fruit

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too ripe to withstand the rigors of the conven-tional marketing system.

House-to-house deliveryThis is the most expensive (and least used)

method of direct marketing for farmers. Farm-ers using this method perform all the market-ing services of the conventional marketingsystem plus delivering items to the consumer’sdoor. This method was relatively important inyears past, especially for products such asmilk, butter and eggs, which were purchasedregularly and could be delivered on a consis-tent schedule. Today, this method should beattempted with caution and probably only inhigh-income areas.

PeddlingThis is a direct marketing option in which

producers sell and deliver to retail stores, insti-tutions, restaurants, etc. Operators might alsosell from the backs of their trucks, take orders,and deliver or sell door-to-door where permis-sible. Advantages of peddling include lowoverhead cost, easy entry into the peddlingbusiness when a product surplus exists and easyexit from the business when product supply isshort. Disadvantages might include legal restric-tions and required licensing, as well as thepossible conveyance of a “fly-by-night” image.

Rent-a-treeAlso called plot arrangements, this option

allows the consumer to make a contract with agrower for the yield of a certain tree or row inthe field. Generally, the growers do all thecultural operations to produce the product andsupply the equipment for harvesting. Therenters have the use of the tree or plot for theduration of the contract and do the harvesting.This is relatively new in the United States, buthas been successful for many years in someEuropean countries. The primary advantage ofthe rent-a-tree arrangement is reduced harvestlabor expense. However, increased effort inidentifying individual trees or areas and inmodifying cultural practices to satisfy custom-ers may prove to be the disadvantages.

Self-serve sellingThis method has proved successful for

some small operators when sales volume doesnot warrant full-time sales personnel. Withself-serve selling, operators stock the salesoutlets with available products and consumersserve themselves and leave payment in a cashbox. Self-serve selling results in reduced laborrequirements but increases the risk of pilferageand theft.

Gift baskets and mail orderGift baskets and mail order are popular

options for products that can be packagedattractively and have limited perishability. Suchproducts might include citrus fruits, herbs,holly and flowers. Gift baskets and mail orderproducts offer opportunities to increase sales,but success is limited to specialty products andis usually seasonal.

Considerations inEstablishing a Direct

Farm-to-Consumer MarketWith the recent upswing in direct market-

ing activity, more and more farmers are asking,“Is direct farm-to-consumer marketing right formy operation?” This question can best beanswered following an assessment of abilities,level of desire to sell directly to consumers, andthe compatibility of the farming operation withdirect marketing procedures. Part of the assess-ment should also include a review of directmarketing alternatives and their advantagesand disadvantages. With a knowledge of thesealternatives, producers can evaluate theirmarketing needs and assess the likelihood thatdirect marketing will satisfy those needs.

The marketing needs of individual produc-ers will vary depending on the variety ofproducts grown, the volume of produce to beoffered for direct sale and the marketing chan-nels available. While some producers may lookfor a produce outlet not intended for commer-cial buyers, others may need marketing outletsfor their entire crop as their fields or orchardsmature. Producers seeking outlets for smallvolumes of excess produce will require a

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substantially different marketing arrangementfrom producers who have a large volume ofproduce that must be removed rapidly. Byassessing individual needs, producers can thencompare these needs with direct farm-to-consumer marketing alternatives.

If direct farm-to-consumer marketingalternatives do not appear feasible, or if pro-ducers have no interest in these methods, nofurther consideration is necessary. If directmarketing options seem promising, however,producers should begin an evaluation of thecompatibility of direct marketing with theiroperations. With this in mind, the followingoverview lists factors to consider in evaluatingany new direct marketing enterprise. Becauseof the wide range of possibilities, it is impos-sible to develop a tool that could be used inevaluating all potential enterprises. Therefore,the points included on the checklist are in-tended only to help a producer organize ananalysis of various enterprises. The producerwill still need to develop budgets, financialstatements and other documents in order todecide whether or not the venture is feasible.

Personal and family considerations• Have you identified goals and objectives for

your business and personal life?• Have you conducted a full inventory of your

resources (human, physical and financial)which can contribute to accomplishing thesegoals and objectives?

• Are you willing to make any sacrificesrequired to make this enterprise profitable(time commitment, changes in lifestyle,privacy, personality changes (dealing directlywith consumers can be challenging, etc.)?

• What do you wish your business to look like5 years from now, and what are some inter-mediate steps or objectives required to getthere?

Enterprise feasibility• Is this enterprise technically feasible for

your location given the following productionfactors: climate, soils, water, potential variet-ies, insects, diseases, growing season?

Market factors• Have you clearly defined what your product/

service is (features such as size, quality,varieties, etc. and benefits to buyer or user)?

• Is there demand for the product and if so,what is/are your target (niche) market(s)?❖ geographic location of potential consumers❖ demographic characteristics of potential consumers (age, income, etc.)❖ behavioral characteristics of potential consumers (lifestyle, etc.)

• How large is the existing market demand?❖ number of potential buyers❖ average annual per capita consumption❖ average purchases per buyer

• Can the market be created or expanded toabsorb an increased local supply of thecommodity (e.g., through advertising andpromotion efforts)?

• What are favorable market windows for theproduct? (Compare historical prices againstprojected costs per unit.)

• Does the market demand specific grade/quality/size standards?

• What is the cost of transportation to thetargeted markets?

• Will the services of brokers or wholesaledistributors be required initially? If so, dothey have any specific requirements (deliv-ery, volume, etc.)?

• How many competitors are located in yourgeographic region? What do you have tooffer that is better than your competition?

• What price does the market offer and howvolatile is the price? What is the highestprice and the lowest price you are likely toreceive, and what conditions create theseprice situations?

• What is your expected sales volume? What isthe minimum and maximum volume ofproduct you believe you could sell in one year?

If your market research shows thatsupply already exceeds demand for the prod-uct or market being evaluated or that thetrend is one of declining consumption and/orprices, do not pursue the enterprise anyfurther. On the other hand, if your marketresearch is favorable to this point, continuewith the following considerations.

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Production considerations• Given that the enterprise is technically

feasible, what are building, machinery,equipment, management and labor require-ments for producing the product? Do youhave the necessary resources to produce theproduct?

• Once you are in full production, what arethe expected costs and returns (as outlined inenterprise budgets developed on a pro formabasis)?

• What is the minimum and maximum pro-duction (yield) potential? What will be theimpact of varying yield/production levels onprofitability?

• Are you able to produce at the level ofquality that the market demands?

• What are the costs of production givenvarying climatological and pest problems?

• Are you able to acquire the necessary start-up capital to establish the enterprise? Whatabout the annual operating funds necessaryto continue the enterprise?

Profitability considerations• What will be the impact of the new enterprise

on the profitability of existing enterprises?• Is the proposed enterprise complementary or

supplementary to existing enterprises, ordoes it compete with them?

• Will the new enterprise compete with exist-ing enterprises for land, labor, money ormachinery? If so, what will be the impact onthe profitability of the other enterprises?

• How will the additional costs and returns ofthe new enterprise affect the cash flow forthe business?

Risk considerations• What will be the impact of the new enter-

prise on the farm’s overall risk?• How will investment of additional resources

and the diversion of existing resources frompresent uses affect the financial risk positionof the farm?

Miscellaneous considerations• Do you have the management skills and time

required for the new enterprise? If not, whatis the cost (in dollars and time) of acquiringnecessary management skills?

• Are there any legal restrictions, regulationsor liability factors associated with the newenterprise?

• Does the enterprise require any specialrecord keeping to provide information forboth management decisions and/or govern-ment reports?

• Does the enterprise require an abundant orcontinuous supply of special productioninputs (e.g., seed, fertilizers, pest controlproducts)? What is the structure and marketpower of those input suppliers?

• Will the proposed enterprise limit off-farmemployment opportunities?

If you have adequately answered all of thequestions from this checklist, you probably haveenough information to make a decision about thenew venture. If you decide to go ahead with thedirect marketing enterprise, you should nowdevelop a business plan that specifies a timetable,production schedules, finance and marketingstrategies, and management structure. If youhave decided not to diversify into the new enter-prise, then you are still to be congratulated forthe time and effort you put into your research(and the money you potentially saved as well).

Developing aBusiness Plan

A business plan allows direct marketers toidentify potential business and productionproblems and plan solutions before problemsoccur. Business plans include long-term pro-duction plans that help producers focus ongoals they hope to achieve. An importantbenefit of a business plan is the pre-productionknowledge gained from the homework in-volved in putting the plan together. If theventure does not seem feasible on paper, thenit would not likely benefit the current opera-tion. Generally, the survival rate for newenterprises is greater if some pre-productionbusiness planning has been done.

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In addition to assisting with day-to-daymanagerial planning, business plans are usedto support the procurement of capital fromoutside sources. Financial institutions can get a“feel” for what the producer is attempting toachieve from changes in the farm’s mix ofenterprises. A business plan can show financialinstitutions that a producer is serious and hasdevoted considerable time and effort to makingthe decision to grow fruit, vegetable, or spe-cialty crops. The basic business plan is com-posed of six parts:• mission statement and long-term goals• marketing plans• production and operation plans• financial plans• staffing and organization plans• management and contingency plans.

These components of the business planare discussed below. However, for a moredetailed discussion of business planning, referto the University of Tennessee (UT) Agricul-tural Extension Service publication (PB 1630)entitled Exploring Entrepreneurship, byBarefield, Smith, and Westbrook.

Mission statement andlong-term goals

A mission statement is a brief statementof the role of a business relative to the owner’slife. The statement sets the business apart fromother businesses of the same type. Missionstatements help direct the operation and can bevaluable to its survival and prosperity. Missionstatements are usually about one to two sen-tences long and very general. Some examplesof mission statements for fruit and vegetableproducers are:• Our mission is to provide vegetables for the

county area and to increase the financialsecurity for the family.

• Our mission is to bring additional net in-come into the family by providing high-quality fruits and vegetables.

• Our mission is to provide a comfortableliving for our family and a base for otherbusiness endeavors in the local agriculturaleconomy.

Goals (or objectives) are activities thatmust be completed in order to achieve themission statement. Goals are planning state-ments written in specific, concrete termsagainst which actual events can be measured.Some example goals for fruit and vegetableproducers are:• Increase overall return on investment by

__% for the next fiscal year.• Increase sales of a specific product by __%

for the next fiscal year.• Increase market share by __% in “X” market

by December 31, 20__.• Increase sales volume by __% in selected

regions or territories by a specific date.• Prices should yield a minimum contribution

margin per unit of __%.• Increase manpower training by __% by a

specific date.• Achieve advertising/promotion goals (reach,

awareness) in a specific market for the year.

Some questions to ask when evaluatinggoals are:• Are the goals stated clearly and concisely?

Are they measurable? Do they have dead-lines?

• Are the goals consistent with the missionstatement?

• Are the goals specific enough to developobjectives and strategies?The mission statement and goals are the basefor the other sections of the business plan.Therefore, these must be carefully consid-ered so that the other areas of the businessplan can provide the needed directionalinformation.

Marketing plansMarketing plans describe strategies

needed for the operation to achieve the speci-fied mission and objectives. The marketingplan is influenced by the producer’s under-standing of industry and economic conditions,current market competition, target markets,and marketing mix (product packaging, adver-tising, promotion and pricing).

For fruit, vegetable, and specialty cropproducers, industry and economic condi-tions usually are best described by preparing ageneral overview of current production, market

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levels and financial situations. A description ofindustry and economic conditions can help aproducer determine if there is enough demandto support increased production created bynew producers. When evaluating marketconditions, producers might consider (1) addi-tional market competition, (2) the length oftime required to become established in amarket, and (3) the vulnerability of otherproducers. For direct markets, such an effortcould focus on a certain town, county or areaof the state and the current levels of productionand consumer demand.

When developing a marketing plan,producers should consider the competition.Producers should identify the competition’sstrengths and weaknesses and use that infor-mation to develop market strategies. Themarketing strategies should take advantage ofthe competition’s weaknesses and differentiatethe producer’s operation from thecompetition’s. Some producers have found itadvantageous to develop strategies that bandproducers together and use each other’sstrengths to attract customers to their markets.Some things producers should consider whendeveloping marketing strategies include currentlevels of production, barriers to entering themarket, establishment time and services thatmight prove valuable.

A target market is the group of consum-ers or wholesaler buyers to which the productbeing considered will be marketed. A targetmarket may be a certain type of consumer or ageographic area. The fruit and vegetable pro-ducer might consider targeting the typical ormost common types of consumers in a geo-graphic area, a specific consumption group, orthe customers of a particular roadside stand orfarmers’ market through which the producerintends to market. Direct marketers must bearin mind that today’s consumer generally doesless canning and freezing. The societal shifttowards two-income families means that timeis a critical factor for most consumers. So thedirect marketer must ensure that consumersview the “experience” as worthy of their limitedtime by providing the appropriate levels of quality,value, service, convenience, and selection.

The marketing mix is a key part of themarketing plan. Marketing mix deals withproduct selection, price, promotion and packag-

ing. Some fruit and vegetable producers maynot need to be overly concerned about promo-tion, packaging or pricing if selling throughnon-direct markets (packing houses, grocerystores, cooperatives or terminal markets). How-ever, if producers want to differentiate theirproduce or use direct markets (pick-your-own,farmers’ markets, roadside stands) to sell theirproduce, marketing becomes very importantsince producers will deal directly with consum-ers. Local newspapers and radio stations can bean inexpensive source of promotion and adver-tising that can provide profitable results.

Product packaging and display are criticalfor producers who sell their products at farm-ers’ markets or roadside stands. The eye appealand neatness of a produce display or packageof the product can often increase consumersales and product preference. Quality andcurrent market conditions help producersdetermine the price levels for their produce.

The information contained in a marketingplan can be used to prepare sales projections.Contingency plans (which anticipate possiblemarketing problems) also should be preparedwith this information. Some possible problemsthat fruit, vegetable, or specialty crop produc-ers should consider are quality problems, lossof contractual agreements, distance to marketsor reduction in pick-your-own customers. It isrecommended that marketing plans be madefor at least 3 years. The first year’s plan shouldbe prepared on a monthly basis and the re-maining years’ plans on a quarterly or annualbasis depending upon the producer’s needs.For some crops where the season is relativelyshort, weekly production and marketing plansshould be developed. Contingency plans for theanticipated volume fluctuations that can occurunder varying weather conditions should alsobe developed.

Production and operation plansA production and operations plan de-

scribes in detail the entire production processfor an operation, including input quantities andprices, labor, facilities, and equipment require-ments. Production and operations plans alsoshould identify potential production problems(insects, weeds and constraints caused by soil,water or crop variety) and management solu-

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tions. Production and operations plans shouldbe consistent with the timing, cropping andspecial market considerations described by themarketing plan.

To complete a production and operationsplan, producers should collect informationabout input levels, crop yields and correspond-ing prices. The amounts of inputs required, thecosts of inputs and information on expectedyield can be obtained from UT AgriculturalExtension Service enterprise budgets. Produc-ers also should check with local sources aboutneeded inputs, including labor and equipment.The prices charged and the services providedby input suppliers should be compared. Yieldinformation can be obtained from varioussources including other farmers, local Exten-sion personnel, and trade publications.

Commercial horticultural crop productionin Tennessee generally requires some degree ofirrigation. Even in areas where annual rainfallexceeds 40 to 50 inches, necessary quantities ofrain may not fall at just the right times to allowtimely production of appropriate quantities andqualities of horticultural crops to fit marketwindows. Carefully managed crop irrigationcan facilitate timely production and qualitycontrol as well as high yields.

Irrigation can be accomplished with eithersurface or ground water systems, depending onavailable sources of water. Many applicationtechniques can be used (flood, furrow, highpressure sprinklers, low pressure sprinklers,drip). The technique most appropriate for eachproduction situation depends on many factors,including crop, soil, slope, available labor andavailable capital. Producers can contact theTennessee Agricultural Extension Service formore information and assistance in planningirrigation systems.

Labor in fruit, vegetable, and specialtycrop operations can be costly, depending on thelocal sources and types of labor. Although thequantities of labor needed vary for every fruitor vegetable enterprise, most crops requirelarge amounts of harvest labor. The crop andthe acreage devoted to it determine the totalquantity of labor required. Small fruit orvegetable plots may require a minimal amountof hired labor. Willing family members may beable to supply the total labor force for smalloperations. If the plot is larger or the crop

requires more labor at certain points of produc-tion (planting or harvest), temporary labor mayneed to be hired. If the crop is to be a perma-nent part of production and returns are high orlarge acreage is involved, migrant labor can bean appropriate alternative and a justifiableexpense. Migrant labor may involve manygovernment requirements and regulations,depending on the nature of the labor contract,the number of people employed, the area of thecountry and the length of employment. Infor-mation on various production practices andpotential problems can be obtained fromvarious produce industry publications. The UTAgricultural Extension Service can also providepublications and enterprise budgets for se-lected crops.

With operations, labor and equipmentusage information, producers can form weeklytimelines. A timeline is a schedule that showswhen certain production and marketing activi-ties will take place. Timelines provide a visualaide to producers for allocating productiontime and resources. Enterprise budgets providebasic timing information needed to constructfarm enterprise timelines.

Financial plansFinancial plans are used to estimate

capital needs, to project future financial cir-cumstances and to make decisions aboutfinancial actions needed to carry out a businessplan. Financial plans are comprised of threeparts — projected balance sheets, projectedincome statements and projected cash flowstatements. A balance sheet shows theoperation’s assets and liabilities at a point intime. An income statement is used to evaluatean operation’s profit level for a given timeperiod. A cash flow statement is a summary ofcash inflows and outflows for a given timeperiod and is used to project amounts andtimings of borrowing and loan payments. Bydeveloping projected versions of these threefinancial statements, a business manager canevaluate production and marketing plans anddetermine whether outside sources will beneeded to finance a new horticultural crop.

Projected (pro forma) financial statementscan be developed by starting with currentfinancial statements and adjusting them for

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future plans based on conservative interpreta-tion of marketing plans and production andoperations plans. A reasonable first step in thisprocess is to estimate short and long termborrowing needs and develop a projectedbalance sheet as of the start-up of the newenterprise(s). Then new operations can beconservatively projected and projected balancesheets, income statements and cash flowstatements can be developed for sequentialtime periods in the future.

Preparing projected financial statementsfor short time intervals into the future (calledpro forma statements) can provide very goodplanning information. Cash flow statementsshould probably be projected for monthlyintervals for the first year of an operationembarking on new horticultural enterprises. Itis useful to develop projected income state-ments and balance sheets for at least three to12 months into the future.

Projected financial statements can be usedas an integral part of contingency plans toaddress possible problems. Examples of prob-lems that can be evaluated are discontinuedfinancing, cash flow concerns, effects of differ-ent depreciation methods, or rapidly increasingcosts for a certain input. Having contingencyfinancial plans makes it easier to evaluate thepossible solutions to problems. Your localcounty Extension agent and/or Farm Manage-ment Area Specialist (see http://economics.ag.utk.edu/fmas.html for a specialistnear you) can help you prepare a financialstatement and develop a financial plan.

Staffing and organization plansA staffing and organization plan describes

the personnel and organizational structureneeded to support a projected operation.Personnel duties and responsibilities, account-ability, recruitment, and training are consid-ered in such a plan. The staffing and organiza-tion sections of development plans will berelatively brief for horticultural producers whowill employ mostly family labor. However, iflarge numbers of seasonal employees (possiblymigrant workers) will be needed in an opera-tion, plans for procuring, supervising andsupporting such labor should be developed aspart of a staff and organization plan. It is

important for a producer to know when andwhere seasonal labor can be found; how toarrange for such labor; expected labor costs;and what room, board, medical and otherservices must be provided to such laborersaccording to Tennessee labor regulations (seeAE & RD 75, Tennessee Farm Labor Regula-tions and Legal Issues).

Management controls andcontingency plans

Management control is the process ofassuring that the organization’s mission andobjectives are accomplished effectively andefficiently. Management plans are used forplanning, organizing, directing, coordinatingand controlling the operation in order toachieve the mission and objectives. Controllinginvolves monitoring the business plan toensure that it is carried out properly. Themanagement plan should be developed withthe idea that it is the driving force to see thatthe other areas of the business developmentplan are completed. The management systemshould provide information useful in monitor-ing the marketing, production and financeareas.

Contingency plans have been discussed inthe individual sections of the business develop-ment plan. It is recommended that contingencyplans be developed to deal with economic orindustry condition changes that affect theoperation of the business as a whole. Generalbusiness contingency plans help make theoperation flexible, since they are used to dealwith situations that are not completely unfore-seen but are not very likely to occur. Examplesof problems are government intervention,death of a business partner, supply and de-mand changes, price changes, changes inconsumers’ preferences, changes in producegrading and quality standards, development ofa new variety of produce, new technology,changes in length of growing season, orchanges in marketing practices.

To summarize, a business plan allowsproducers to examine many facets of addingnew enterprises to their current operations. Aproperly developed plan helps producersanalyze all the effects of such a change. Such aplan will not only provide information about

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the potential profitability of a new enterprisebut also can identify questions that producersmight not otherwise consider. A sound busi-ness plan is usually essential when financingmust be sought.

Doing Your Own MarketResearch

Perhaps the most challenging problem indeveloping new enterprises is assessing themarket. It is especially challenging for farmerswho have not had an active role in marketingtheir products before. The first step is to under-stand that there it is not a crystal ball that canpredict future markets with certainty. However,market research can provide information thatwill make projections about the future far moreaccurate, and it can help immeasurably indeveloping a successful marketing strategy.

It is also important to know that you don’tneed any specialized knowledge or advancedtechnical training to do useful market research.Like any other information gathering process, itis a matter of asking the right questions andlooking in the right places for the answers. Thegoal of market research is twofold: (1) toproject the volume of sales and the prices youmight reasonably expect to achieve with a newenterprise (information you will need to ana-lyze profitability and cash flow potential); and(2) to gather information about potential buyersand competitors that will help in developing amarketing strategy. Some important questionsthat can be answered through market researchinclude:• What is the total current size of the market

for this product (or service) within a givenmarket area?

• How many competitors are there for thismarket? What are their strengths and weak-nesses?

• What type of buyer is being targeted?• What prices can you expect to receive for a

given size and/or quality?• What trends do you see in consumption,

competition and pricing?• What are the characteristics of consumers in

the target market (in terms of age, income,lifestyle, gender, etc)?

• What are they looking for and where are

they looking for it? How can you do a betterjob than your competitors in meeting theirneeds?

• What proportion or share of the total marketmight you expect to capture?

Market research techniquesThere are two general types of market

research: primary and secondary. Primaryresearch is anything that involves going outinto the real world and gathering informationfor yourself — by observing people, by count-ing cars or pedestrians, or by surveys, inter-views or other direct means. Secondary re-search involves studying data that has alreadybeen collected and published by somebodyelse. Chances are you will need to use bothprimary and secondary research to understandthe market for your particular direct marketingenterprise.

Secondary Research. Despite the name“secondary,” this type of research is describedfirst because it is often the easiest and leastexpensive way to obtain market information.There are several important types of informa-tion you can obtain through secondary re-search:• Population and demographic data provide

information about the number of peoplewithin a given geographic area and theirdemographic characteristics, such as incomelevel, age distribution, level of education,household size, etc. This is important inestimating the total size of the market and inknowing how many of what type of custom-ers you have access to. Demographic trendswithin your area also can be analyzed fromCensus data.

• Information about your local and regionaleconomy is usually available from localeconomic development agencies or localchambers of commerce and can tell you thenumbers of various types of business estab-lishments, the availability of support servicesand credit sources, and the zoning and otherregulations which may affect your marketingstrategy.

• Production data can sometimes be found foryour region as well. It will show the existinglevel of production of the product or service

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you are considering, as well as productiontrends. However, if your idea is new or thatproduct is simply not a major commodity foryour region, there may be little informationavailable.

• Consumption data shows the per capita levelof purchases by consumers for a givenproduct or service. Again, this informationmay not be available for your particularenterprise.

There are numerous sources of secondarydata including the Internet, the UT AgriculturalExtension Service, public libraries, the CensusBureau, local Chambers of Commerce, localtransportation departments, planning boards,economic development agencies, and the Ten-nessee Department of Agriculture. Extremelyuseful information often can be found in themost unlikely places. In fact, the most difficultaspect of secondary research is figuring outwhere to find the information you need.

Primary Research. Because you areunlikely to find all the answers to your market-ing questions using secondary data, plan onrolling up your sleeves for some real do-it-yourself research. Primary research is espe-cially important when you are considering aninnovative enterprise, a new market, or a verysmall or localized market for which there isn’tmuch published data.

Good primary research can be extremelyelaborate, sophisticated and expensive, but itcan also be very simple and inexpensive.Having a small budget is no excuse for notconducting marketing research. It just meansyou will need to be creative in developing themost cost-effective method of collecting theinformation you need. Some common methodsfor conducting primary research include thefollowing:• Observation. Observation involves counting

the number of things or events that may berelevant to your marketing situation (e.g., thenumber of roadside stands within a 30-mileradius of your farm, as well as their specificlocations, product lines, number of custom-ers per hour, rate of traffic flow past thestands, rate of traffic flow past your ownfarm at various times of the week, etc.).

• Written surveys. Surveys can be used to

solicit information from potential buyersabout buying patterns, preferences, unful-filled needs and wants, and other questionsthat may have an impact on marketingsuccess. For example, growers would do wellto survey their existing customers to find outhow often and in what quantity they wouldlike to purchase fresh produce next year.Growers might also use the survey to findways to improve their service to customers.A survey must be very carefully designed toyield useful information, and the distributionof the survey must be well planned to avoidbiasing your results. Some tips for goodsurvey design include:❖ Keep it short. A single sheet of paper printed on two sides is usually plenty.❖ Phrase your questions so that you receive clear-cut and meaningful answers. For example, instead of asking, “Would you buy more products from us next year if they were available?” growers might ask, “How many pounds of tomatoes would you expect to purchase from us each month between June and October?”❖ Use multiple choice questions rather than open-ended questions whenever possible. This makes it easier both to fill out the survey and to analyze the results.❖ Don’t be afraid to request personal demographic information. For example, information about your respondents’ ages, income levels and areas of residence can be very valuable. You may even want to ask for an address for your mailing list. However, most people are sensitive to the way in which this information is solic- ited. Be sure to ask for, not demand, the information and explain how it will be used (e.g., “to serve you better”). Provide multiple-choice categories or ranges of ages and income rather than asking people to reveal their exact age and salary.❖ The procedure used to distribute the survey is critical to determining how to interpret the results. For example, if producers want to find out about con- sumer interest in purchasing organic produce, they are likely to get very different responses depending on whether shoppers are surveyed at the local health food store or at the supermar-

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ket. Either approach would be valid; just be careful about interpreting your results and making projections based on a particular sample.❖ Test your survey on a small number of people first. You will be surprised how often your questions are misunderstood. Pre-testing the survey with a small sample of the target market usually points out improvements that can be made in the survey’s usefulness.

• Telephone surveys are increasing in popu-larity. A well-administered phone survey canyield much information quickly, but can berelatively expensive. A grower might use atelephone survey, for example, to reach fiveroadside market operators within a 50-mileradius and inquire about their interest infresh, flavorful produce, their deliveryschedules, packaging requirements, and soon. In designing a telephone survey, followthe same principles described for writtensurveys but include only the most criticalquestions and keep them short. Work from awritten script so that you are sure to askquestions consistently. Before calling, pre-pare a form for recording responses effi-ciently and always pre-test your survey on asmall sample and make adjustments ifneeded. If this sounds like a lot of work, it is!Conducting telephone surveys has developedinto an art itself, so working with a thirdparty entity to conduct the survey may beadvisable (but more costly).

• Personal interviews can be extremelyinformative and are the method of choicewhen dealing with a limited number ofpotential buyers. Personal interviews alsocan be used to sample potential consumersin a variety of situations. For example, adirect marketer could conduct personalinterviews with their farmers’ market cus-tomers rather than having them fill out awritten survey. Again, the method used inselecting people to interview may affect(bias) the results.

• Test marketing involves offering yourproduct or service on a limited basis in orderto evaluate potential sales. Test marketing isespecially important when your product isnew and unfamiliar to most of your customers.A grower might conduct a market test as

simple as offering tastes of organic produceto customers at a local fair or as elaborate asa three-month sales campaign in conjunctionwith a local roadside market. Test marketingwill obviously be impossible until you areproducing a product or service in somequantity. The best use of test marketing is tocheck the validity of your results frompreviously discussed market research tech-niques, to fine tune your marketing strategyor to gather better information on costs andreturns. It is also a useful strategy whenevaluating minor changes in your enterpriseor when attempting to tap into a new marketwith a product or service you are alreadyproviding.

Evaluating the competitionA necessary component of any market

research is a thorough assessment of the com-petition. Studying your competition will helpyou determine the volume of similar productsand services already in the marketplace, thestrengths and weaknesses of your competitors,and the various “segments” of the market—that is, the specific types of buyers beingserved by each competitor. This informationmay help you identify a “niche” in the market-place where you can gain a foothold by outdo-ing your competition in serving a particularmarket demand.

There are a number of ways to learn aboutyour competition. Visit your competitors’businesses, use their products or services,survey their customers or interview themdirectly if possible. Some competitors mayrefuse to share any information with you, butyou may be surprised to find some who arequite helpful. They may have suggestions thatcan decrease direct competition or even be ofmutual benefit.

Planning market researchMarket research can be as complex and

expensive as needs and budget allow. Thefollowing guidelines will help you keep yourresearch targeted and cost effective. First,allocate a reasonable amount of your time andmoney to this effort and plan to work withinthat allocation. What is “reasonable” dependsof course on your judgment of the risks and

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rewards involved. Second, develop a list ofspecific questions about your market that youfeel you must answer before proceeding todevelop the new enterprise. Third, define thespecific type of data you need to collect inorder to answer those questions. Fourth, deter-mine which of that data is already availablefrom secondary sources. Fifth, determine whatprimary research technique(s) you will use tocollect data which isn’t already available.

If your plan appears to fit within yourresearch budget, you are ready to implement itexcept for one important step: seek assistance!You can save a tremendous amount of time andenergy by enlisting the aid of competent pro-fessionals, and you need not spend a dime todo so. You should be able to find a smallbusiness development program in your areawhose staff can review your market researchplans, suggest tactics, and even help in develop-ing and analyzing surveys. You should be ableto find a librarian who can help track down thesecondary data you need. Your Chamber ofCommerce or county Extension agent can helpidentify local resources available to help you indesigning and carrying out your market research.

Unless you are able to hire a consultant,you will have to do most of your own market-ing homework yourself. But with some plan-ning, some assistance and some hard work, do-it-yourself market research will pay off inimproving the odds of success for your newenterprise. Also, you will use the skills youhave learned over and over as your directmarketing business grows into the future.

A Closer Look atPick-Your-Own

Marketing (PYO)On-the-farm retailing (where customers

harvest their own fruit and/or vegetables) iscalled “pick-your-own,” “U-pick,” or “pick-yourself.” Pick-your-own, as we know it today,had it’s beginning in the 1930’s and 1940’s as aresult of several factors. One grower wasforced to try customer harvest when poorprices in city markets resulted in losses on hissales. He didn’t even get back the cost ofcontainers and commissions when taking hisvegetables to the produce market. Some pick-

your-own operations were advertised out ofdesperation when migrant pickers failed toarrive on schedule. One grower started pick-your-own as a novel idea because peoplecoming to his market stand asked to pick theirown berries. He let them do it and discoveredthat the method had some advantages. Fewearly direct marketers actually planned aheadwith pick-your-own in mind.

Popular crops for pick-your-ownoperations

Some of the most popular crops for pick-your-own operations include small fruits (e.g.strawberries, blueberries, blackberries), treefruits (e.g. apples, peaches, pears), and veg-etables (e.g. beans, tomatoes, sweet corn,greens, and peas). Other crops sold in this wayinclude asparagus, beets, cabbage, carrots,cucumbers, grapes, gourds, okra, peppers,plums, pumpkins and squash.

Crop diversificationAs in any type of direct market, the char-

acteristics of potential customers must beanalyzed including their buying habits, tastesand preferences, their distance from the mar-ket, and their income levels. The level ofcompetition in the area also can dictate thecrops and services producers are able to pro-vide. Producers should identify the number ofsimilar farmers in the area, the type of cropsthey produce and the services offered. Produc-ers often can reduce competition by plantingcrops at different times. Long-season and early-season crops can be ideal for PYO operations,especially if there are a large number of opera-tions in the area. Producers can provide severalvarieties of a particular crop to diversify theiroperations and increase customer satisfaction.This helps prolong the harvest season andprovides a longer period of cash flow. Also,special events, services or products can beadded to an operation to increase exposure andpossibly gain market share. Some examples areworkshops, fairs, recipes, plants, flowers, seeds,herbs and home-made crafts.

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Crowd managementA basic decision you must make is

whether to move people or to move the carsthey drive to your farm. At Walt Disney World,an average of about 45,000 people visit thepark every day. If they allowed cars to drivedirectly into the Magic Kingdom and park infront of the attractions, it would be prettycrowded and hectic. Instead, they move people.Attendants help you park in spacious lots andfill every space. Next you board motorizedtrams that quickly whisk you off to the maingates to buy tickets. On the tram, an attendantdescribes the main attractions, tells how muchtickets cost, and explains other conditions ofthe entertainment area. After buying tickets,you can take either the monorail or the ferryboat to the Magic Kingdom. Then you are onfoot. However, for an extra charge you cantravel about the grounds in “antique” cars,“antique” trains or “antique” trolleys.

Customers may line up early in the morn-ing waiting for your farm gate to open. You canlet them enter and park their cars anywherealong the road, in the fields or among the treesin your orchard. It can be pretty hectic andconfusing (traffic jams, cars stuck, cars lost,people lost). A second possibility is to locateparking areas near the fields to be picked andlet customers walk into the field or to a central-ized check-in point. The third choice is to parkcars in one large, convenient parking area,direct the customers to a loading area, and thencarry them on wagons or other vehicles to andfrom the field where they are going to pick. Allthree methods are commonly used on pick-your-own farms.

Highway traffic to pick-your-own farmscan also be heavy, especially on weekends.Some growers hire uniformed, off-duty police-men to direct the cars at the entrance to thefarm. They are efficient and the uniforms giveauthority and respect. Separate entrances andexits to the highway are desirable to helpeliminate confusion and congestion. Parking iseasier and quicker (and all the spaces are filled)when someone directs cars in the parking area.

Good farm roads, dust free if possible, areimportant. When cars are allowed to drivearound the farm, field stations can providevaluable assistance. The attendant directs

customers to the proper row, tree, variety,restrooms and exits. More baskets and bags areavailable there, too. There should be signs todirect people along farm roads to places whereyou want them. Clearly mark entrances andaccess roads with signs to point to the farmmarket if you are also offering customersready-picked produce.

Many pick-your-own farms are small withrelatively simple layouts. One parking areaserves the entire operation. The customerswalk directly to the field, orchard or check-inpoint from their cars. Some growers arrangeparking lots near each field or orchard block tobe picked. Signs or attendants direct customersfrom the highway to these parking areas,which may be different from day to day de-pending on the picking area. Parking alongfarm roads, in the orchard or in parking areasscattered about the farm takes a great deal ofspace, which may be valuable crop land.Parking and access roads can require as muchas 10 percent of the crop acreage. Eachgrower must decide which provides thegreater return — growing crops or parkingcars — and then plan accordingly.

Check-inAt the check-in point, customers receive

bags, boxes, baskets, picking instructions,brochures or perhaps an orchard (or farm)permit. Posted signs give prices, rules and otherinformation. The check-in area need not be anelaborate permanent structure. Wagons, trucksand temporary buildings often fill the needalong with fencing and signs.

The check-in point may be inside a shed,tent or other farm building. Signs shouldclearly indicate whether ready-picked produceis available also. Customers wanting to pur-chase it can then move out of the traffic flowwhere pick-your-own customers may be regis-tering, getting their containers or receivingother information. Separate entrances, even inbuildings, can help when crowds are large.Sometimes customers bring their own contain-ers for picking, and it may be convenient toweigh containers at the check-in point.

The farm supervisor, manager or thegrower often greets customers as they approachthe check-in area or enter the field. Retired

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persons familiar with the farm can do a goodjob. They recognize many people by face, if notby name. Some even try to greet customers intheir native tongues. This friendly atmosphereis important in pick-your-own operations.

When the fields or orchards are somedistance from the check-in point, customers aredirected to a loading area where they can boardwagons or trucks which carry them to thepicking areas. On one farm a sign and full crateinvite everyone to “Have an apple.” Customerswho visit the farm usually eat an apple anyway,so why not offer one? While people are board-ing the wagons, the grower tells the customershow to pick an apple, what varieties are ready,what the picking conditions are and otherinformation about the farm. And customershave a chance to ask questions. Signs, too, giveimportant information about the varieties, uses,their picking dates and prices. Customersappreciate this extra effort; and it pays off ingood relations, a better job of picking by thecustomer and probably higher sales.

Transporting customersGrowers should thoroughly review their

transportation plans with their insuranceagents. The kinds of vehicles used to carrypeople to the fields include:• pick-up trucks• large trucks with seats and steps• ordinary flat-bed farm wagons (build a rail or

barrier to prevent anyone sitting on the frontof the wagon)

• two-wheel trailer wagons, some with en-closed sides, hand rails and seats

• large home-made wagons with two or threelevels of step, storage and seating for 30 to90 people

The driver can also provide valuablecustomer service by giving information aboutvarieties, directions and costs, as well as answerquestions. He must also be a policeman, makingsure that customers pick in the proper field ortrees. He must politely enforce the rules.

Some farms give wagon tours of the farm.One grower takes children on a wagon ridewhile the parents pick. The children are givenan apple to eat as they eagerly look for Momand Dad in the orchard. Some farms feature

early or late season tours. The downside is thatthis can develop into a time consuming activity,especially with school groups.

Field supervisionSupervision of customers in the field

varies greatly from farm to farm. Some have nofield supervision at all, while others find it bestto employ several helpers to direct, instructand supervise customers. The numbers of fieldsupervisors on pick-your-own farms may rangefrom one worker for 5 acres up to two workersper acre, with an average being one worker forapproximately 2 acres. Small farms averagecloser to one worker for each acre.

Some growers keep their customers ingroups as they enter the picking fields. Fieldsupervisors give instructions and a demonstra-tion on where to find the produce and how topick. Supervisors also assign rows, furnishbaskets and urge customers to pick their plantsclean.

Portable two-way radios can help fieldworkers keep in contact with wagons or trucksand the home base so they can call for morepickers, containers or even help, if necessary.Although some may find it surprising, laborcan be one of the largest costs for pick-your-own operations. One kind of labor (field help-ers, supervisors, etc.) is often substituted foranother (harvest and picking labor). Regardlessof the type of labor needed, one of the greatestchallenges for PYO operation is finding, hiring,and retaining competent seasonal help.

What attracts customers?People today enjoy visiting farms and

interacting with farmers. They may travel somedistance, 50 or even 100 miles in extremecases, especially where there are no otheropportunities to pick fruits or vegetables. Theyoften bring their own containers. They go intothe fields or orchards and harvest the crop.They sometimes work harder than if you hiredthem to do the same work! They enjoy thecountry atmosphere. They like the fresh qualitywhich gives them the best value for theirdollar. More and more, pick-your-own is beingconsidered a recreational activity for thefamily. However, direct marketers must con-sider carefully the characteristics of consumers

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in their local trade area. Many have found thatsome consumers prefer farm-fresh fruits andvegetables and are also willing to pay a pre-mium for those that are “pre-picked” for them.

Some farms have established roadside oron-farm markets along with pick-your-ownsales. Small stands may be operated on aseasonal basis. It may be profitable to sellrefreshments such as machine-dispenseddrinks. Some “farm kitchens” serve coffee,donuts, pies, candy apples, ice cream andvarious other items. But remember, these salesrequire more customer assistance and increasesupervision and clean-up costs. Growers mustalso consider zoning and local ordinances, aswell as health inspection regulations whenplanning some of these retail possibilities. Also,be sure to ask your insurance company aboutproduct liability insurance coverage.

Customers appreciate good picking condi-tions. They like clean, neat fields with no weeds,good quality, good yields and different sizes ofcontainers on hand (free or for sale). Most farmsalso provide some sort of bathroom facility.Common courtesies by a friendly staff go a longway toward making pick-your-own a success.

Many growers have a strong philosophy ofselling only their main products along with thevery basic courtesies and conveniences. Theymay not even provide fresh water on the farmand may not offer refreshments. They simplydo not want to put up with the litter and trashthat some of these items generate. Therefore,there is minimum interference with the busi-ness at hand. Some farmers go a step further.Their philosophy is “my business is pleasingmy customers, so how can I do it better?” Thefirst tendency is to have ready-picked produceavailable for retail sales. Some growers provideapples and other produce in bulk bins. Custom-ers then have a choice of whether to go to theorchard or simply pick out of the bins.

Customers appreciate conveniences such ashand-pull wagons for transporting their bags.Other courtesies seen on pick-your-own farmsinclude a place to safely hang your coats/hats,posted recipes and related merchandise such aseggs, potatoes, honey, sorghum and cider. Onegrower offers cider in the customer’s jug (“fillyour own”) at a price savings.

Some growers work at selling the enter-tainment and recreation potential of the coun-

try and farm atmosphere. Several have called it“entertainment farming” or “agri-tainment.”Inviting customers to linger on the farm andinvolving all five of their senses — taste, feel,sight, smell and sound — can increase theirenjoyment. A pile of hay to jump in is a prettysimple pleasure for city kids, or a playgroundarea can be fun for the children while theparents are picking. Day care or school teach-ers may use trips to the farm to teach childrenwhere their food comes from and how it isgrown. A museum of old tools and equipmentcan be educational for all ages. Tables, swings,and picnic and play areas can add to the enjoy-ment of family visits. But when growers pro-vide these extra services, the increased mainte-nance, policing and cleanup will undoubtedlyincrease costs. In addition, insurance coverageand premiums may be dramatically affected.

Children on pick-your-own farmsThere are opposing viewpoints on allowing

children to pick on farms with their parents.Some do not allow children to go to the fieldsand pick. They establish a minimum age of 12or even 18. Growers may provide swings, a playarea and a shady area for children. One growerhas a few berries near the check-out pointwhere a child can be taught how to pick straw-berries. Each grower must decide what his/herpolicy will be. Most growers seem to stronglyfeel that pick-your-own is a family activity andthat children should have a happy experience.In a recent survey, almost ninety percent of thecustomers said that pick-your-own was a worth-while experience for their children.

Methods of handling produceQuart and bushel measures are traditional

with most growers and have been used foryears in PYO selling. Some of the containersused include standard bushel baskets; card-board bushel boxes (often wax-coated); half-bushel bags (plastic or paper); 2 to 6-quartcardboard hand baskets; and 1-quart berryboxes. Extra produce heaped on a standardvolume container can vary from as little as 10percent to more than 30 percent, depending onthe method of handling (whether carriers areused, etc.). To help prevent excessive overfill,

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some growers display an example to showcustomers what they expect to sell as a fullcontainer. The choices of dealing with over-filled containers are to set prices to account fora heaped measure and tell customers to fill thecontainer; simply remove the excess; chargeextra for overfill; take time to weigh the pro-duce and charge accordingly; argue (and lose arepeat customer); or forget it (and lose money).Because of these potential problems, manygrowers have changed from volume measuresto selling by weight. The process of weighingtakes more time than simply counting quarts orbushels, but most feel that it is the fairestsystem for both the customer and the grower.

Products still sold by volume measuretoday include most tree fruits and berries, aswell as vegetables such as beans, greens, peasand tomatoes. Cabbage, corn, peppers, pump-kins and squash are often sold as single itemsor by the dozen. Specialty crops such as Christ-mas trees are priced by the foot or at one pricefor trees in a given size range.

Some growers encourage customers tobring back cardboard trays for reuse (custom-ers may reuse their own containers but grow-ers should always issue new ones). Somegrowers give a credit for each tray that isrefilled. This saves the grower the difference,which can be significant depending on the costof the container. Wax coated, or preferably waximpregnated cardboard trays are best for reuse.They also hold together better in wet condi-tions. Other growers encourage reuse by print-ing the following statement on their trays:“Reusable container. Help us to hold the cost ofour berries down. Bring back this container orsend it with a friend.”

Checking outChecking out can be a simple operation

when someone properly trained is in charge ofcounting or weighing the produce and collect-ing the money. Otherwise the checkout areacan become congested, confusing and compli-cated. Careful planning and training of employ-ees can go a long way toward eliminatingproblems that arise during busy, hot days.There are several kinds of checkout systems:• drive-by checkout booth (or simply an

attendant with a small table stand)• drive-through shed to provide shade and

protection from the weather• portable building on wheels moved to a

different field each day• separate weighing and money collecting

operations at different locations

Whatever the procedure, it is helpful andwise to keep the checkout as orderly as pos-sible. One grower holds cars back in the park-ing lot, permitting them to exit one at a timethrough the checkout lanes to avoid congestionand confusion. A wireless telephone (or por-table radio) at the checkout point, especiallywhen remote from other farm buildings, can bea vital communication link in a time of need.

Recordkeeping for individual sales variesgreatly. Some growers simply count the amountof cash taken in at the end of the day. Otherskeep simple receipts showing the amountspurchased. Some keep a multi-page formshowing complete details of the purchase suchas the pounds, price, total charges and some-times the address of the customer.

Pick-your-own farms sell in largeamounts compared with many conventionalproduce markets. Some growers feel that theircustomers deserve a record of that purchase.There are several advantages for the grower,also, when the sale is recorded on a receipt.Receipts provide records of sales that can beanalyzed as to day, amount, type of produce,weather, etc. This can aid in future managerialplanning. Receipts might be used to recordcustomer names and addresses, which couldbe valuable in advertising. Receipt forms,given to customers when they arrive at thefarm, can also be used to record the numberof containers given to a customer at check-inand can double as a farm entry permit orinstruction sheet.

CommunicationsGrowers use many means to inform

customers about pick-your-own and how to useand enjoy the produce purchased:• postcards or letters to tell when crops are

ready to pick• recipe handouts• thunderstorm watch (to hand out in threat-

ening weather)• newsletter during the off-season to let

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customers learn more about the operation• handouts or flyers providing picking

instructions• map of the farm• price sheets• Christmas cards, gift certificates

Customers expect to find produce ready topick when they drive to the farm and don’tunderstand if the farm is closed and they can’tpick. After all, the local grocery store is openevery day. This is one good reason why manygrowers advise customers to phone ahead, butthe number of calls can be staggering in highlypopulated areas. Many use answering ma-chines with recorded messages because theyare convenient. Several machines can be usedin tandem so that a second one answers whenthe first is busy. The message may be changedseveral times a day. Messages recorded on suchdevices may include:• greeting and name of farm• the date• crop(s) being picked today• picking conditions (may be raining 20 miles

away)• a reminder to bring your own container

(unless they are provided for the customer)• directions to the farm• price• another phone number for detailed inquiries

(The second telephone number can be veryimportant when a customer has a reason totalk personally with the grower).

LaborThe amount of labor needed for the pick-

your-own operation depends on the servicesoffered, the length of the growing season, thedistance to the picking site and the types ofcontainers used. Most operations will needpeople for field supervisors and check stationoperators. If the farm offers only one cropthroughout the growing season, then two orthree people could supervise the entire opera-tion. If the operation offers more crops orservices, more employees may be necessary.These might include baby sitters or playgroundhelpers, container distributors, and transporta-tion operators. Often high school students canprovide the supplemental labor needed.

It is a good idea to have employees wearsome type of similar clothing to identify themas workers. Some examples are t-shirts, caps orbandannas with the pick-your-own logo orfarm name on them. Identifiable attire can helpcustomers easily recognize the employees andreceive the assistance they need.

Even though it is expected that most of theproduce will be harvested by the customers,some harvesting may have to be done by theoperator. Some customers will not be able topick the produce for various reasons, so someharvested produce can be available to sell tothese customers at a potentially higher price.Also, there may not be enough customers topick all the crop when it is ripe, so some of itmay need to be sold through other marketchannels. A field supervisor or driver whopicks while also helping customers may be allthe harvest labor required.

Although small farmers are exempt fromfederal regulations on minimum wages, maxi-mum hours and overtime pay, Tennessee laborregulations need to be considered (e.g. depend-ing on the types and volumes of value-addedproducts sold, it may not be clear whether thepick-your-own operation is considered anagricultural or a retail enterprise). Failure tocomply with the law could shut down thebusiness. For more information, consult the UTAgricultural Extension Service publication(AE&RD 75) entitled Tennessee Farm LaborRegulations and Legal Issues (located on theinternet at http://economics.ag.utk.edu/pubs/resource/ae&rd75.pdf).

LiabilityProducers increase their liability by

inviting the public to come on their property topick produce. Generally, producers should beconcerned about the safety of children andolder people who are more likely to be in-volved in an accident. It is a good idea to post asign, “Not Responsible for Accidents,” but thisdoes not free the owner from liability. Ad-equate insurance is important to reduce theserisks to a tolerable level. Producers consideringpick-your-own operations should have theirinsurance policies appropriately adjusted. Theliability policy should cover liability judgments;expenses in supplying relief at the time of an

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accident; costs of defending against lawsuits;the owner’s expense in the investigation,defense or settlements; and costs of court bondsor interest on judgments delayed by appeals.

Producers also can help ensure customersafety and reduce liability by fencing danger-ous areas, keeping chemicals and machinerylocked up or away from the public area, andkeeping animals tied or penned away fromproduction sites.

Characteristics of successfulpick-your-own operations

In many instances, pick-your-own sellingis often a family business with different familymembers performing many essential jobs suchas hiring and training part-time employees,managing the payroll and record keeping,answering the telephone, stocking containersand other items in the sales area, and generallypitching in to count, weigh and collect moneyas needed.

Successful growers are well organized andgood at assigning jobs and following up to seethat the work has been carried out. Efficientgrowers do not rush from one place to anotherattempting to complete unfinished tasks in thenick of time. Many growers have no assignedtasks and help where needed as the day andcrowd demand. The successful grower, too,learns how to handle large sums of money on aday-to-day basis.

Pick-your-own appears to have promise (inmost areas) as a profitable method of sellingcrops directly to the consumer. Growers shouldhave good locations, grow the best quality andbe able to cope with the problems concomitantwith crowds of people. General advantages ofpick-your-own operations for producers include:• The requirements for harvest labor are

reduced.• Grading, packing and storage costs are

eliminated.• Producers receive payments for the produce

directly, eliminating middlemen.• Container costs are reduced if the customer

provides them.• Price variability risks are reduced and pro-

ducers have more input into the final price.On the other side of the coin, potential

disadvantages of PYO to the producer are:

• Producers assume liability for any accidents.• Pick-your-own operations require long hours

during the harvest season.• Producers must assume retailer services and

responsibilities.• Bad weather or lack of customers may

adversely affect returns.• Customers must be attracted to the picking

site.

A Closer Look atRoadside Stands

Roadside stands or markets are directmarketing sites where growers sell producedirectly to consumers. Roadside markets varyfrom small stands selling one or two products ona seasonal basis to firms selling a diversifiedproduct mix. The roadside stand is usuallylocated on or near the farm or orchard and theproduce sold may be grown exclusively on thefarm or may be purchased from outside sources.A roadside stand may be open only during theharvest season or throughout the year, dependingon the type of produce marketed and the supplysources. Facilities may include elaborate perma-nent structures or mobile units such as trucks ortrailers. Generally, a permanent, year-roundroadside produce business is referred to as aroadside market.

Producers use roadside stands to helpsupplement their incomes, provide employmentfor family members and dispose of extra pro-duce. Besides the possible financial benefits ofestablishing an outlet for produce, producers mayalso enjoy the customer interaction, receive asense of personal pride and independence, andgain satisfaction from growing and selling highquality fruits and vegetables.

Consumers shop at roadside stands in orderto purchase fresh, flavorful, high quality producein a convenient, friendly atmosphere at a reason-able price. Besides quality and price, other factorsthat draw people to roadside stands are conve-nience, advertising and recreation. Some prob-lems consumers experience shopping at roadsidemarkets are the distance to the market, heavytraffic, variable quality and the inconveniencecaused by out-of-stock produce. If producers cansolve or minimize these problems, then repeatcustomers may be established for a market.

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Sales potentialWhen producers consider the sales poten-

tial for their stands, they should consider thenumber of potential customers, the competingbusinesses in the area and the traffic flow.Some population factors growers should con-sider include age, income levels, family sizeand ethnic or racial mix. Some common char-acteristics of roadside stand patrons include:• They usually travel less than 15 miles to the market.• They shop at the market at least twice a month.• The average shopper is middle-aged and from a two-person, middle income household.• Shoppers usually learn about a stand from driving by or from satisfied customers.

Producers should consider the number ofsimilar businesses in the area and how theycompare to their operations. In addition, theyshould consider the level of customer interestand whether it is sufficient to support severalstands. Often several markets can benefit fromthe competition and operate profitably in thesame general area. But in order for several standsto operate in close proximity, there must beconsiderable traffic flow. As long as traffic movesslowly, sales may increase as the number of carsthat pass the stand increases. However, there isan inverse relationship between sales and thespeed of the passing traffic. Roadside stands aregenerally more successful when the averagehighway speed is 45 miles per hour or less.

Hours of operationThe business hours that a roadside stand

keeps depend on the operator and the amountof produce available for direct sale. Someroadside stands operate seven days per weekfor eight to 10 hours per day, year-round.However, some stands are only open selecteddays such as Friday, Saturday and Sunday forfive to eight hours from June to late October.The highest customer traffic generally occurson weekends, particularly on Saturdays.

LocationThe location of a roadside stand can

greatly influence its profitability. Very fewmarket locations are ideally suited. Somevariables to consider when evaluating sites aretraffic count, population density and composi-tion, zoning regulations, distance from custom-ers and competitors, the type of produce to beoffered, and the relative price or rental rate ofthe land. Since land prices in most of the morefavorable locations are likely to be more expen-sive, this requires careful forethought as to aproduct mix that can generate and sustaineconomic profits.

The more successful roadside stand sitesare located near customers and are easilyvisible from the road. Normally, a level stretchon the right-hand side of the road headingtoward town has the most promise as a marketlocation. A stand close to a city may have ahigher weekly sales average than a stand in amore rural area, especially if the road is a busy,main thoroughfare to and from the city. How-ever, in higher population areas, consumerswill travel a shorter distance to a stand (ap-proximately a 15-minute boundary for traveltime to the market).

Availability of parking is another impor-tant factor that should be considered in select-ing the roadside market location. Off-roadparking is essential for the safety of bothcustomers and users of the highway. A frontageroad is not necessary, but the stand shouldhave a safe, easy entrance that is visible fromthe road. The parking lot should be a welldrained, grassy or graveled area. If the standgenerates a large amount of traffic, traffic flowdirections may be needed to assist in orderlyparking.

Organized traffic patterns can make a bigdifference in the number of cars that can parkat any given time. Three main steps an opera-tor can take to fully use parking lot spaceinclude setting up definite entrances and exits,setting up one-way traffic flow and marking offdistinct parking spaces for cars. These elementsimprove safety as customers enter, movethrough and leave the lot. They also eliminateconfusion in the lot and allow for more parkingspace. However, the cost of setting up trafficpatterns and marking off spaces needs to beconsidered. Signs will be required to direct

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traffic and materials will be needed to mark offparking spaces.

Facilities, buildings and equipmentThe facilities used to house a roadside

stand do not need to be elaborate, but shouldserve operational needs. Essential facilities forthe market are a sales area, adequate parkingand roadway access. Some optional facilitiesare a cool storage area, restrooms, playgroundand a picnic area.

A market can be established in new orconverted buildings. The buildings or standsmust be neat, attractive and large enough foradequate displays with plenty of room forwalking. The stand should always be in goodrepair and freshly painted with conservativecolors. The floor can be of wood, concrete,clean shavings or sawdust. The roof should besufficiently high to avoid excess heat radiation.The main purpose of the building is to protectthe produce, employees and customers fromthe weather. When planning a structure, pro-ducers should consider the expected saleslevels, the length of the season and the types ofproduce to be sold. From these factors, growerscan determine the size of the building, theappropriate building design and the construc-tion materials needed.

After evaluating their market expectations,growers may find that no permanent roadsidestand structure is needed. If the grower has oneor two items to sell, a temporary stand or asimple pole shed might be quite adequate.Regardless of the structure used, it is importantto keep the rural image with a colorful, cre-ative stand.

The amount of equipment needed alsovaries with the type of stand. A simple standneeds only a money box or a cash register anda produce display. Larger stands might alsoneed scales, an ice machine, a cold storage unitand accent lighting fixtures. Some specializedequipment might be needed, depending on thetype of market and the services offered.

Source of produceSome roadside marketers sell only pro-

duce they have grown; others purchase fromother area growers or even purchase fromwholesalers. Some markets sell only one supe-

rior quality product during the harvest season.However, some growers who specialize in asingle product do sell small volumes of otherproducts. Having several products exposesconsumers to more produce and can result inincreased sales. In either type of stand, consis-tent, high quality produce is necessary toestablish repeat sales.

DisplaysAttractive displays give your market a

good image and generate impulse purchases.The stand’s design and layout can greatlyinfluence display methods. Location of producecan influence the sales level of all products.Produce that is in high demand should beplaced so that customers walk past less popularproduce. Displays should also be planned sothat the quality of fruits and vegetables ismaintained. Some general practices which helpmaintain produce quality and create attractivedisplays are:• Avoid direct sunlight and excess air move-

ment.• Keep leafy vegetables moist by spraying

them or displaying them on a bed of ice.• Keep displays full and at an easy-to-reach

level.

The type of display also can influencethe quality of the produce. Produce may bedisplayed in bulk or in pre-packaged form.Most on-farm customers prefer bulk dis-plays rather than pre-packaged fruit andvegetables because it allows them to choosetheir own items and buy in volume. How-ever, marketers must consider that after theevents of September 11, 2002, some consum-ers may be leery of unpackaged produceitems from a food safety standpoint and mayactually prefer pre-packaged items in somecases. The primary problem with bulkdisplays is that produce may become dam-aged with continuous customer handling.Inconsistent quality or bruised produce candecrease sales volume. Pre-packaging pro-duce maintains its freshness, reducesshrinkage, allows advance preparation,enhances appearance, allows for quickershopping and maintains neater displays.However, pre-packaging produce may impair

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the farm image of the roadside stand anddeprive customers of their selection process.

Labor and personnel managementThe manager of a roadside stand should

be able to plan, organize and control the entireoperation and its employees. Managers need topossess some merchandising and customerrelations skills in order to have a successfulroadside stand. Principal labor sources for mostroadside stands are growers and their families.Additional labor may be needed for seasonalsales positions.

Employees do not need to be profession-ally trained sales people, but they should befriendly, helpful, alert and courteous. This kindof employee helps establish an atmospherewhich generates repeat customers. Workersshould be courteous and helpful to the custom-ers when they first arrive at the stand. Theyshould be able to distinguish the differencesbetween the stand’s various fruits and veg-etables, intelligently discuss produce varietiesand be honest about produce quality.

Legal considerationsThere are many legal regulations and

restrictions with which a roadside stand opera-tor may need to comply. At the state level,health permits, licenses, sales taxes, weight andmeasure requirements, sanitary requirements,zoning, and right-of-way regulations need to bechecked for each individual operation. Thesesame legal considerations should be checked atthe local level. Roadside marketers also shouldconsider insurance required to cover accidentand product liability.

A Closer Look at Farmers’Markets

Farmers’ markets are a form of directmarketing in which producers come to adesignated place to sell their products directlyto consumers. Farmers’ markets differ fromother direct marketing operations in thatgrowers share insurance, advertising and othermarketing costs. Successful farmers’ marketsare very helpful in increasing the incomes ofsmall farmers who participate in them.

Farmers’ markets range from large, perma-nent facilities (such as the Jackson, Tennesseefarmers’ market) to a tent in a parking lotwhich is open for a specific time period season-ally or throughout the year. A market may beoperated by a grower organization, by commu-nity development groups, or by state and localgovernments. Consumers come to farmers’markets for a variety of reasons, which gener-ally include:• They wish to take advantage of lower prices.• They prefer fresher, higher quality produce.• Farmers’ markets offer a wide variety of

produce to choose from.• Produce is available in large quantities for

canning and preserving purposes.• They enjoy the market atmosphere and

conversing with produce growers.• They like to support local agriculture.

Producers who use farmers’ marketsusually fit into one of three categories: com-mercial (full-time) growers; part-time farmers;or hobby gardeners. Full-time growers use thefarmer’s market as a supplement to othermarkets. In order to participate in a farmers’market, producers need several items forsetting up their stalls, such as a variety of highquality produce, selling tables, a cash box orregister with change, a sales and tax recordbook, produce and price display signs, variouscontainers, certified scales or other measuringdevices, and sales people. In order to be suc-cessful at a farmers’ market, producers need toattract customers to their stalls. It helps to talkwith people as they approach the stall, befriendly and courteous, guarantee produce, usehonest weights and measures, offer volumediscounts, and hand out business cards withthe operation’s name and location.

Producers should carefully plan productionfor crops that are to be sold at a farmers’ mar-ket. As a group, producers should try to have awide variety of crops available as early in theseason as possible. Growers also should try tohave crops throughout the season that arenormally found only at specific times so morecustomers will be attracted to the market and totheir stalls. If a grower consistently suppliesdesired produce before other growers, thenconsumers will more likely patronize that stall.

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QualityFresh, high quality produce is important to

customers. Be sure the produce is clean and freefrom defects such as insect damage. Harvesttiming and post-harvest handling are two impor-tant factors affecting the quality of the produce.Many producers harvest crops in the lateevening before the market day or early in themorning on market day. The optimum harvesttime for each crop should be considered. Ifevening is the only practical time to harvest andthe crop may deteriorate before market time thenext day, the crop should be placed in coldstorage overnight. Some produce should beharvested before it has completely ripened sinceit may mature more at the market.

After crops are harvested, they should begraded according to size and quality and heldunder the best conditions available. Sometimessmaller or second quality produce (if properlyidentified at the market) may be happily ac-cepted by buyers because it is quite adequatefor canning or immediate fresh use. However,producers should not sell any produce thatthey would not use themselves. It is probablybetter for the seller to take any picked-over“junk” produce home than to move it at bar-gain-basement prices. Price cutting may causeill will between the seller and the buyer andalso between the price cutter and other sellers.A reputation for price cutting will soon developand patrons will try to bargain even for firstquality items. Also, severe price cutting late inthe selling day may encourage buyers to waitfor lower prices.

Displays at farmers’ marketsAttractive displays are a great aid in

selling produce. If at all possible, produceshould be kept in the shade to help maintainquality and provide a pleasant shopping envi-ronment. The display should be off the groundso that customers do not have to bend over toinspect the produce. Elbow to eye level is agood rule of thumb to use for proper displayheight. Tables, platforms or truck tail gates maybe used to display the produce. It is importantto keep the display containers full at all timesbecause abundant displays attract attention.When only a small amount of produce isoffered, it is important to spread it out and use

the total amount of space provided to createthe illusion of having more produce.

Color contrast in the display attractscustomers’ attention. For example, displayingred apples beside golden apples, red peppersbeside zucchini, unhusked corn beside carrotsor bell peppers beside yellow squash sets offthe variety of produce available. Containersshould be attractive and clean (wooden basketsare generally used), but they do not need to begiven to customers after the sale. Paper sackswith the farm or market association name andlogo can serve as a carry-out container and alsoas an advertisement. A good way to attractcustomers to the stall is to offer unusual itemsbesides the normal fruits and vegetables. Thesemight include cut flowers and plants, herbs, icewater, a sign or t-shirt with the farmer’s logo,and recipes or preparation ideas.

Laws and regulationsThe laws that apply to farmers’ markets

vary from state to state but may include weightand measure specifications; animal productregulations; labeling requirements; sales taxreporting; vehicle permits; and provisions forthe food stamp and Women, Infants and Chil-dren (WIC) programs. It is very important thatthe market check state health regulations to seewhat types of products may be sold. Processedfoods usually may not be sold. Sales tax re-quirements also should be investigated. Eachproducer may need to have a tax number, orperhaps the market organization may have atax number and file the sales tax for its mem-bership as a whole. In either case, producersmust keep a record of the sales they make andthe sales tax they collect and display a sign thatexplains to customers the sales tax charges.Liability insurance for accidents at the marketor for product liability is also needed but isoften very expensive for a market organizationto purchase. Individual producers may be ableto purchase the product insurance at a morereasonable rate than the organization can.

Major advantages to producers who sell atfarmers’ markets include:• Producers have limited liability for custom-

ers since they are not on the farmer’spremises.

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• Parking space, restrooms and other facilitiesare not the farmer’s responsibility. Publicfacilities are provided by the market.

• Attracting customers is a function of themarket, and farmers do not have to worryabout advertising individually.

• Since a number of producers (usually morethan ten) sell at the same market, continuoussupplies by an individual producer are not socritical.Some of the disadvantages include:

• The time required to transport produce andsell it at the market takes away from thefarm operation.

• Producers may have to rent stalls for theyear when they need them for only a fewweeks. At most markets, the producer cansell only produce grown on his farm.

• Market hours are controlled by the marketorganization and may not be ideal for pro-ducers; advertising, or lack of it, also iscontrolled by the market.

• Markets that are poorly located may notattract consumers, and peddlers may depressprices. This situation is particularly preva-lent in the larger and older city markets.

Advertising and PromotionStrategies

Even if a market has the best qualityproduct, service and prices available, it will notbe successful if it doesn’t attract an adequatenumber of customers. To attract customers, adirect marketer may need to employ some levelof advertising and promotion. To many directmarketers, advertising and promotion costsrepresent a large expense for a seeminglyinvisible product, especially since there may befew visible short-run effects. However, manydirect marketers do not realize the importanceof advertising and promotion in increasing bothpatronage and sales. This section is intended toassist the marketer in developing an effectivepromotional strategy.

At this point, it is helpful to define theterms “advertising” and “promotion.” They areoften used interchangeably to refer to activitiesor special events conducted to increase sales orenhance the image of a product or market. Forthe purpose of this discussion, promotion is

defined as those activities or special events(fairs, field trips, etc.) conducted to increasesales indirectly by enhancing the image of theproduct(s) or the operation itself. Advertising,on the other hand, involves efforts which areconducted to achieve a direct influence (in-crease) in sales, such as radio or newspaperadvertising. Ideally, advertising and promotionalefforts should always complement each other.

Should you advertise?Unfortunately, the benefits of advertising

and promotion for direct marketers have yet tobe consistently demonstrated. Promotion offarm products appears to be effective in somecases, but not in others. To help determinewhen campaigns might be successful, otherdirect marketers (or market researchers) can beconsulted about their experiences.

The potential for successful advertisingand promotion is increased when products areclearly differentiated and are exceptionallyfresh and of high quality. Advertising andpromotion more often pay off when productsare highly seasonal and in high demand; withnew products or new product forms (e.g. valueadded products); with products that are uni-form in quality, size and appearance; andproducts which are competitively priced.

One promotional tool that direct market-ers may want to consider is the Pick TennesseeProducts program. Pick Tennessee Products(PTP) is an ongoing marketing campaign of theTennessee Department of Agriculture — acampaign to help consumers identify andchoose Tennessee produced and processedagricultural products and to put buyers andsellers together. State marketing specialiststravel across Tennessee, the nation and interna-tionally to learn more about new markets andmarketing techniques, to share Tennesseeproducts with buyers, and to share good leadsand prospects with members (see http://picktnproducts.org).

Promotion planIf a direct market operator decides to

conduct an advertising campaign, a compre-hensive plan should be developed. The planshould be prepared with six to 12 months lead

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time, be put in writing and be specific, withconsideration given to the following:• Basic market information. Collect and

analyze data about competition, population,trade patterns, and product strengths andweaknesses.

• Target markets. Determine the nature(buying behavior) of potential customersbased on the information collected above.

• Objectives. Determine specific, short-termobjectives consistent with the long-termgoals outlined in the business plan.

• Alternatives. Appraise and select advertis-ing and promotion techniques to meetcommunication objectives most effectivelyand economically.

• Budget. Decide on the amount and alloca-tion of funds needed to meet objectives.

• Strategy. Select techniques or types ofmedia to be used and determine timing,frequency and coverage.

• Evaluation. Determine returns (net sales) ofthe advertising and promotion in relation tocosts incurred.

Customer characteristicsAdvertising is a means of communication;

and to communicate effectively with potentialcustomers, it is very important that the directmarket operator know the characteristics ofcurrent and potential patrons. The advertisingtechnique to be used should be targeted to thetype of customer to be reached. For example, ifthe operator is placing local newspaper ads butfinds out the majority of his customers aretravelers from other areas, another type ofadvertising should be considered. Some ques-tions an operator should ask about potentialcustomers include:• Are they low, medium or high income?• Are they young, middle-aged or elderly?• Are they local or transient?• Are they blue-collar workers or professionals?• Are they male, female or both?• Are they rural or urban residents?• Are they homemakers or working spouses?• Do they purchase in large quantities (for

canning or freezing) or small quantities?• Are they tourists or travelers?

An understanding of these characteristicswill provide needed guidance in selectingadvertising techniques. It is also important tokeep abreast of consumer trends in order toadjust product offerings and package size tomeet the consumer’s needs. Additionally, anoperator could develop a brief survey to pro-vide further information.

Advertising and promotion goalsIt has been said that the purpose of adver-

tising is to keep present customers whileattracting new ones. Another goal of advertis-ing is to build an image of the market in thecustomer’s mind. Much of this can be done inthe market at a minimum cost and may bemore important than purchased advertising. Apoor image can reduce sales if the market doesnot measure up to customers’ expectations.

Everyone receives impressions and formsopinions about people, places, products andexperiences. Market operators need to decidewhat impressions their customers will get andthe opinions they will form when they visit themarket. Remember, there is just one chance tomake that crucial first impression. A directmarketer can measure the market’s image byasking the following questions:• Are the facilities neat and clean?• Are the market and surrounding areas neat

and uncluttered?• Are the products top quality, fresh, clean and

graded?• Are displays neat, full and convenient?• Are market employees appropriately dressed?• Are sales personnel courteous, friendly and

helpful to customers?• Are management and staff constantly look-

ing for ways to improve the market andbenefit customers?

• Does management seek assistance fromoutside advisers such as Extension staff?

Increasing customer awareness aboutyour operation is another possible goal, espe-cially in terms of the market location, productavailability or new uses of a product.

Establishing a budgetHow much money should be invested in

making sales grow? How should these advertis-ing dollars be allocated? Financial decisions of

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this type are some of the most difficult for thedirect market operator. The amount one wouldlike to invest in advertising and what one canbe afford are seldom the same. Spending toomuch is not necessarily better than spendingtoo little. The costs must be tied to the results,and having a predetermined budget can aidoperators in determining and controlling theamount to be spent on advertising and in divid-ing it wisely among departments or products.

There are several ways to establish anadvertising budget and each has its shortcom-ings and advantages. The Small BusinessAdministration (www.sba.org) distinguishesamong three basic approaches to budgeting: (1)the percentage of sales or profits method, (2)the unit of sales method and (3) the objectiveand task method. A market manager needs toexercise good judgement and caution in select-ing a particular method.

Percentage of sales or profits. Percent-age-of-sales is the most widely used method ofestablishing an advertising budget. Advertisingcosts are treated as a business expense just likelabor and utilities. Therefore, advertising costsare related to the value of the goods sold.

Some businesses use a percentage-of-profits method for setting advertising costs.This approach has some shortcomings. Sinceprofits are influenced by a variety of factors,this approach can make the budget much morevariable and less correlated to the financialsuccess of the business.

In the short term, a market operator mightincrease profits by reducing advertising ex-penses. However, such a policy is myopic andcould lead to long-term erosion of profit. Usingthe percentage-of-sales method keeps the adver-tising in a consistent relationship with salesvolume. Advertising primarily affects salesvolume but also should affect gross margin ifthe advertising outlays are properly applied.

The most difficult factor to determinewhen using this method is obviously theproper percentage of sales to be allotted toadvertising. One of the most common and bestways to answer this question is to find outwhat similar types of markets are spending. Inrecent surveys conducted at several regionaland national direct marketing conferences,program participants reported spending an

average of 3-5 percent of sales on advertising.Of course, a particular market may have rea-sons for advertising more or for advertising lessthan the competition. One may want to spendmore on advertising than the competition andbe willing to cut into short-term profits to doso. In any case, growth requires investment.

The percentage-of-sales approach is conve-nient, quick and easy. It ensures that advertis-ing expenditures are not out of proportion withsales. It is a sound method for businessesoperating in stable markets. Which sales datashould be used to determine the appropriatepercentage of sales? Sales can be determined asa percentage of past sales, of estimated futuresales or a combination of the two. Past salesusually are on the conservative side, andestimated future sales figures tend to be opti-mistic. The combination approach provides amore realistic method during periods of chang-ing economic conditions.

Unit of sales. The unit-of-sales methodsets aside a fixed sum for each unit of product tobe sold. It is based on the marketers own experi-ence of how much advertising it takes to selleach unit. For example, if it takes 2 cents to sella bag of apples and you want to sell 100,000bags, you would plan to spend $2,000 to adver-tise. Thus, your budget is based on a unit ofsales rather than on the dollar amounts of sales.

Unit-of-sales probably lets an operatormake a closer estimate of what they should planto spend for maximum effect. This approach isparticularly useful for products whose availabil-ity is limited by outside factors such as weather.In this case, one would estimate how manyunits of product would be available to them andthen estimate the advertising cost. Obviouslythis approach should only be considered bymarketers who have extensive experience onwhich to base sound judgement.

Objective and task. The objective-and-task approach is the most difficult and leastfrequently used of the methods for determiningan advertising budget. However, it is the mostaccurate method since it relates specific fundsto the marketing task to be accomplished andto the volume of sales, so that profits andreserves are not drained.

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To establish the advertising budget by thismethod requires a coordinated marketingprogram with specific objectives based on athorough survey of the market and its poten-tial. One should set specific objectives (to“increase sales” is not specific enough) andthen determine what media will best reach thetarget market and what it will cost to run thenumber of advertisements it will take to in-crease sales. This process is then repeated foreach objective. Totaling the costs will providethe projected budget. In doing this, marketersmay find that they can’t afford to do as muchadvertising as they would like. Therefore, itwould be a good idea to set priorities amongspecific objectives and then adjust the plan tofit the available resources for advertising.

Allocating the budgetAfter determining your advertising budget,

you must decide how it will be allocated. Someof the more common breakdowns are bydepartmental or product budgets, total budget,calendar periods, media and sales areas.

Departmental or product budgets. Themost common method of allocating advertisingdollars is by departmental budgets in which totaladvertising costs are based on the percent of salesby departments or product categories. By break-ing down the budget in this manner, those itemsthat require more promotion to stimulate salescan get the required advertising dollars.

Total budgets. Total budgets are usuallythe result of integrated departmental or prod-uct budgets. If your market has set an upperlimit for advertising costs, then the variousdepartmental budgets could be reduced propor-tionately. For small markets, the total budgetmay be the only one established. However, itshould be divided into merchandise classifica-tions for scheduling.

Calendar periods. Most business manag-ers plan their advertising program on amonthly or weekly basis. Though the promo-tional plan and overall budget are for a longerplanning period, a breakdown into shorterperiods will give better control. The percent-age-of-sales method is useful here to determine

how much money to allocate for each timeperiod. The standard practice is to match saleswith advertising dollars. Thus, if the month ofApril accounts for 15 percent of sales, youmight designate 15 percent of the total advertis-ing budget for that month.

Another approach is to adjust the advertis-ing allocation downward in some of the heaviersales months so you can boost the budget forsome of the lighter months. This should bedone only if marketers have good reason to feelthat a change in their program would improvesales.

Media. The amount of money placed ineach advertising medium (such as direct mail,newspapers, radio, etc.) should be determinedby past experience, industry practice and ideasobtained from media specialists. Normally, it’swise to use the same sort of media that com-peting businesses use unless personal experi-ence proves otherwise.

Sales areas. You have a choice of spend-ing your advertising dollars in areas whereexisting customers live or in new outlying areasin an effort to draw new customers. In general,it’s wise to do the bulk of your advertising infamiliar areas since it is more costly to developnew markets than to maintain and more fullypenetrate established ones.

A flexible budgetAny of the methods described above may

be used to formulate and allocate your advertis-ing budget. One method, a combination ofmethods or all the methods may be needed tomeet your advertising objectives. Regardless ofhow you plan your budget, make it flexible sothat it can be adjusted to reflect changes in themarketplace. To ensure advertising flexibility,you should have a contingency fund to dealwith special circumstances. This might includesuch things as the introduction of a new prod-uct, special sales or unexpected moves by yourcompetitors.

To summarize, your first budget will bethe most difficult to develop, but it will beworth the effort. The budget will help youanalyze the results of your advertising. Afterthe first year you will have a more factual basis

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for budgeting. Your plans and goals will becomemore realistic with each budget you develop.

Types of mediaThere are many types of media that can

be used separately or in combination. Some ofthe more common ones used by direct market-ers are word-of-mouth; point-of-purchasematerial; signs; festivals or fairs; direct mail;newspaper ads and/or feature stories, buyers’or consumers’ guides (e.g. the TennesseeDepartment of Agriculture Pick TennesseeProducts directory located at http://picktnproducts.org/fruitvegetable.html); exhib-its; yellow pages; window displays at otherretail sites; radio; bulletin boards; television;and Internet Web sites.

Word-of-mouth. Compared to otheradvertising and promotional techniques, word-of-mouth may be the least expensive but themost difficult to generate and evaluate. Itcannot be purchased as can others but must beearned by continually satisfying customers.Satisfied customers will “sing the seller’spraise,” while dissatisfied customers will“shout the seller’s doom.” Thus, if sellers relyheavily on word-of-mouth advertising andpromotion (as most direct marketers do), theymust make every effort to satisfy customers.Most direct marketing activities will have a fewcustomers to begin with but will need to attractmore as the selling season progresses. There-fore, operators must cultivate the friendshipand satisfaction of these potential word-of-mouth advertisers. Attracting customers byword-of-mouth can best be done by beingtactful; showing interest in the customers andtheir families; and offering courteous service,high quality produce and reasonable prices.Customers should be given something to talkabout and “brag on” to their friends.

Road signs. Road signs can be a greathelp to your direct market if they are usedproperly. They can be hindrances if they arehandled improperly. Road signs usually pro-duce the first impression of your market. Ifsigns are appealing, neat and generally attrac-tive, customers are much more likely to stop. Ifsigns are unattractive and unkempt, your

operation is likely to start with a bad impres-sion that will be difficult to overcome. Thereare many things to remember when designingand developing your road signs. For example,the size of the signs that you use will dependupon the following factors:• the type of customers you choose• the amount of information you want to convey• the number of signs you choose• advertising competition (e.g. the number of signs already on the roadside)• zoning regulations• the cost of signs

The type of customers you choose as thetarget for your sales will influence the type ofsigns you use. If your customers are primarilytransient, you might want to make your signslarge to attract their attention. But if most ofyour customers are local and are aware of yourmarket, smaller signs that merely remind themyou are open will be sufficient.

The amount of information you want toconvey to the motorist on the road sign willalso affect the size you choose. A small signcrowded with information will not be readablefrom cars passing at a high rate of speed. Thenumber of signs you choose to display also willaffect the size you choose. For example, if youuse “teaser” signs it may be almost as effectiveto use small signs as larger ones.

If your market is competing for advertis-ing space with many other advertisers, and if asmall sign would be overshadowed by othersnear it, it is probably advisable to use a largersign if you can afford it. Zoning regulations andlaws limiting roadside advertising may dictatethe size of signs you display, if in fact signs arepermitted at all. Rules and regulations regard-ing road sign display should be carefullystudied before investing money in signage.

The cost of signs available to you mayaffect your decision. If there is little differencebetween the cost of large and small signs, youmay wish to display larger ones. If the cost of alarger sign is much greater than the cost of asmaller one, you might consider displayingseveral smaller ones.

The initial road sign should, as a rule, beplaced at least 2,500 feet from your market.After seeing the initial sign, the potential

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customer must decide whether or not to stop atyour market. When one is traveling at 55 milesper hour, there isn’t much time to make thisdecision. Therefore, it may be a good idea tostate the distance to the market from each signdisplayed. Starting well down the road from themarket and placing one or more signs betweenthe initial sign and your market can helpcustomers make their decisions. Marketersdepending heavily upon transient customersrather than local trade should give sign place-ment and distance careful consideration.

Road signs showing the dates and hoursthe market is open are also important. A cus-tomer who has driven several miles only tofind the market closed is quite likely to beangry. Much ill will can be avoided by makinghours and dates well known. For roadsidestands, signs that can be taken down or easilymoved should be used.

A road sign giving the name and locationof your market can be constructed so thatindividual panels listing the types of produce inseason can be hung from the bottom of themain signs. These signs are not much moreexpensive than other types and are actuallymuch more effective. For example, whenstrawberries and blackberries are in season,you can suspend the panel with strawberriesfrom the main sign with small chains. Theblackberries panel can be suspended from thestrawberry panel. This system offers maximumflexibility and also allows your signs to give up-to-date information throughout your marketingseason. The height of your sign should beplanned to accommodate the largest number ofpanels you want to suspend at any one time.

Road signs shaped like produce items soldin your market and realistically painted can beeffective attention getters. The name of themarket can be printed on them or the distanceto the market or both. A large picture (or clipart) of available produce may increase thepotential customer’s urge to buy. People oftenrespond to pictures more quickly than they doto words. The size of letters used on road signsis also important. Seven-inch letters are visiblefrom 200 feet or less while 12-inch letters withstrokes 2 inches wide are easily visible from amuch greater distance.

Direct mail. Direct mail is a good adver-tising medium for roadside marketers. It re-quires the collection of names and addresses ofcurrent and potential customers. The easiestand most economical way to do this is tomaintain a guest register or ask customers tofill out a card. Other means would be throughsurveys, contests and coupons. The mostimportant factor is that these mailing lists mustbe kept current. Direct mail can inform cus-tomers when specific commodities come intoseason or when the market opens. It can alsoadd a personal touch to your advertising as it isa direct communication between the marketerand the customer. This helps to enhance yourfriendly image and set you apart from thecompetition. Direct marketers who are comput-erized may find it advantageous to conduct adirect mail campaign utilizing the e-mail ad-dresses obtained from consumers.

Newspapers. Newspapers generally offerthree types of advertising and promotionaltechniques: (1) the feature story, (2) the displayad and (3) the classified ad. Though different,they aim to achieve the same results. Eachinforms customers about who the seller is,where the location is, what items are for saleand what the business hours are. Most of all,the three methods tell customers that themarketer needs them.

The feature story with pictures may be themost difficult to obtain because usually nomoney is exchanged. It is probably one of themost effective means, however, of attractingcustomers to the market. While it is theoperator’s responsibility to entice the reporterinto writing a story about the market, localcounty Extension agents can be helpful withtheir vast array of contacts. With today’sconsumer-oriented marketing, it is better toplay up the advantages of direct marketing tothe consumer than to capitalize on the farmingaspects. However, freshness of product, courte-ous service and reasonable prices should neverbe overlooked in any advertising and promo-tional technique attempted.

The display ad is another effective meansof catching the attention of customers andpotential customers. It may help in obtainingfeature story coverage as well. If an ad is used,considerable thought and planning should go

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into the layout, and professional help may beneeded. The newspaper staff may provide thisservice.

The classified ad, although much smallerin size and cost than the display ad, is designedto reach those potential customers who want tobuy a farm commodity for home use andpreserving. It is surprising how many consum-ers read the classified ads, and it is just assurprising to know how much information canbe presented in such a small space. The classi-fied ad staff will generally assist in the prepara-tion of the ad.

Newspaper advertising can be effective ifused continually throughout the season. Dis-play ads should be used on a regular basis toannounce new items or to announce an over-supply of one commodity. A logo, trademark oridentifying print style should appear in the adso that consumers will recognize and be condi-tioned to look for the ad on a regular basis.Many operators try a display ad and then shyaway from it if the expected results are notachieved immediately. It takes repetition,however, to develop visual recognition as aconditioned reflex.

Buyers’ and consumers’ guides. Puttingtogether a buyers’ guide, directory or map willrequire group action. It can be done by a groupof individuals, but it can be better handled by aformal group. With the formal group eachindividual has limited liability but still receivesall of the advantages. Several types of directo-ries, guides and maps have been used, but theycontain the same type of information. That is, agood buyers’ guide will include the name andaddress of each direct marketer in the areacovered, the locations and directions for gettingto the markets, a listing of commoditieshandled, the season of availability, the methodsof sale, and the hours of operation. In additionto written descriptions, the guide may includea pictorial map, a county road map or a sketchof the highways, roads or streets on which thevarious farm operations are located. Thus, theconsumer has all of the necessary informationin one publication. The Tennessee Departmentof Agriculture maintains an on-line directory athttp://picktnproducts.org/fruitvegetable.html.

Yellow pages. Many consumers like to lettheir “fingers do the walking” to seek outinformation regarding available markets.People often turn to the yellow pages as theirfirst reference source when searching forproducts or services. These individuals have apositive interest in finding you and what youhave available.

Radio. Radio is also used by many directmarketers. It has tremendous flexibility andallows sellers to select or target the audience towhich their advertisements are directed. Youdo this by advertising on a particular stationthat your target customers listen to and at thetime of day when they are available for listen-ing. Staff at the radio station can assist withthese decisions because they collect extensivedata on their coverage. They can also assistwith developing the actual radio spots. A radioadvertisement usually runs from 10 to 60seconds. Radio has the advantage of gettingyour message to the consumer quickly. This isparticularly helpful when you have an oversup-ply situation due to weather or other factors.Rates vary considerably from station to stationbut are usually within the budgets of roadsidemarketers. The cost has to be balanced againsteffectiveness and timeliness as part of yourtotal advertising plan.

Television. Television is generally moreexpensive than radio. However, having report-ers do a feature story on some interesting andnewsworthy aspect of your market may be agood investment. Direct marketers should visitlocal stations to learn what they have to offer.

Point of purchase. Point-of-purchasematerials can help the customer decidewhether to purchase an item, particularly if itis a new item. Flyers or cards can provideinformation such as price and suggestions foruse. Recipes are very popular with manyconsumers. Brochures that give a history of themarket, list local points of interest, explaincultural practices used in growing your pro-duce and announce product availability canpersonalize the operation. Some of the bestpoint-of-purchase advertising is the quality ofthe products, the neatness of your display and

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the cleanliness and appearance of facilities.Taking care of these factors will boost word-of-mouth advertising and help to build your image.

Festivals. Some direct marketers stagefestivals for advertising very effectively. Festi-vals usually draw large numbers of people andmay gain additional advertising through featurestories. Some marketers conduct a festival oncea year while others attempt to do one eachmonth. Available time and resources may limitthis approach, but they can be quite effective.Be sure to plan well and be prepared to handlevery large crowds. Festivals can center arounda commodity such as corn, peaches or straw-berries, have a seasonal focus, or focus onevents such as blossom time.

Labels. Labels on bags, boxes, jars andcontainers reinforce your market’s name to theconsumer. Potential customers see the label inthe consumer’s home and may be prompted toinquire about it. This provides an opportunityfor word-of-mouth advertising.

Internet Web sites. Many direct mar-keters today find that a Web site increasesthe exposure of their operation to the generalpublic. Not only is the Internet a valuabletool for delivering information about thedirect marketing operation (e.g. when itemsare in season, directions to the farm, hours ofoperation, etc.), but the Internet can be avaluable sales tool as well (e.g. selling value-added products over the internet and deliver-ing via mail).

Additional methods. There are manyother ways to increase sales once the customeris in the market. An attractive display canresult in impulse buying. Samples to taste canentice customers to buy. And a friendly atmo-sphere with courteous service may causecustomers to stay longer. Once customers aredrawn to the market, these techniques mayalso persuade them to return. Through wellplanned advertising, an attractive facility andpersonal attention aimed at satisfying thecustomer, the ground work is set for a success-ful direct marketing business.

Pricing StrategiesThe cultural practices required to produce

a marketable product are easier to define andunderstand than the principles governingcommodity pricing. Pricing, although ulti-mately controlled by the interaction of supplyand demand, is influenced by what people arewilling to pay. In setting prices for a perishablecommodity, particularly one with a very shortmarketing season, direct marketers cannotpossibly consider all of the supply and demandfactors because some of them usually becomeavailable only after the growing season. Thus,trial and error may be the best short-run pric-ing strategy; that is, if the product moves veryquickly or very slowly, then the price is eithertoo low or too high. Price adjustments can bemade to change the pace and volume of sales.

The adjusted price may or may not coverall production and marketing costs and providea profit. Another way of saying this is that theadjusted price may or may not give the seller asatisfactory return on land, labor, capital andmanagerial effort. Planning and researchbefore production begins will help you decidewhat to produce, how much to produce, howmuch of the product at various price levels youcan expect to sell, and whether or not thosesales will provide adequate returns to cover allcosts and yield a profit.

Break-even analysis is a useful tool forcoping with this type of problem. Break-evenanalysis can determine the right price withrespect to a given volume or the necessaryvolume with respect to a given price. To under-stand break-even analysis, it is necessary tounderstand fixed and variable costs. Fixed costsexist whether or not the farmer sells anymerchandise. These obligations must be metregardless of sales volume. Taxes, insurance,salary, interest, basic utility costs, advertisingand depreciation are all fixed costs. Variablecosts are those that are correlated with thelevel of production and associated sales volume(fertilizer, agri-chemicals, etc.), so higher pro-duction results in higher variable costs. Price isset based on the income needed to cover fixedand variable costs and provide a profit.

As an illustration, consider that a growerhas a single commodity to sell. His fixed costsamount to $300 per week, his variable costs are

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15 cents per pound, and he is asking 25 centsper pound for the commodity. Each pound soldgenerates 25 cents, which will cover variablecosts (15 cents) and contribute 10 cents towardthe $300 fixed costs. This amount (10 cents) iscalled contribution-to-overhead (CTO). Howmany pounds must be sold each week to exactlycover all costs? To answer that question, thetotal fixed costs are divided by the contribution-to-overhead generated by each unit sold ($300 ÷10 cents = 3,000 pounds). Thus, 3,000 pounds

Should prices be cut and produce sold at a30 percent margin, then contribution-to-over-

must be sold each week to break even (incomereceived is equal to all costs).

If, in this same situation, the seller antici-pates a 40 percent margin for each item sold,this means that for every sales dollar, 60 centsgoes for the cost of the goods (production costs)and the remaining 40 cents goes to overheadand profit. The breakeven sales volume willcover fixed costs, overhead costs and a prede-termined profit margin. It can be calculatedwith the following formula:

Breakeven point = fixed costs ÷ contribution-to-overhead= $300 ÷ 40 cents = $750 sales

Breakeven point = fixed costs ÷ contribution-to-overhead= $300 ÷ 30 cents = $1,000 sales

This shows what happens when prices arechanged. If by lowering prices sales can beincreased by more than enough to offset thelower contribution-to-overhead, then it maypay to do so. On the other hand, a highermargin and higher contribution-to-overheadmay generate greater profit because there is alower breakeven point, even though total salesare less than at a lower price. One should be

sure of the likely results before changing pricestoo much.

By treating a desired profit level as a fixedcost, the seller can determine the volume ofsales needed to reach a profit goal. For ex-ample, if a profit of $100 per week is desiredwith a 40 percent margin between cost andprice, the formula to use is:

Breakeven point = fixed costs and desired profit ÷ contribution-to-overhead = ($300 + $100) ÷ 40 cents = $1,000 sales

Selling price (SP) = cost of item + desired markupSP = .80 + (.80 x .40)SP = .80 + .3200SP = $1.12

A markup is calculated as a percent ofcost, and margin is calculated as a percent ofselling price. Either method can be used toestablish prices. The following example illus-

head becomes 30¢ of every dollar of sales, so:

trates the use of markups to determine priceswhere the cost of the item is 80 cents and themarkup is 40 percent:

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To use margin in price determination, thefollowing formula is used:

Selling price = cost of item ÷ ($1 - sales margin)If the cost of the item is 80 cents with a desired margin of 40 percent, then:

SP = .80 ÷ ($1 - .40)SP = .80 ÷ .60SP = $1.33

As a guide, most retail stores attempt tooperate on a 35 percent to 40 percent marginon sales or a 50 percent to 100 percent markupon cost. An easy way to keep margin andmarkup straight is to remember the figures 20,10 and 30. The 20 equals the cost of the item,the 30 equals the selling price, and the 10equals 1/2 of the cost and 1/3 of the sellingprice. Thus, there can be a 50 percent markupon cost and a 33 percent margin on sales.

Regardless of costs and desired margins ormarkups, price must be competitive with othersellers. Supermarkets will “average out” on theproduce counter by pricing some items lowerthan the cost of production and pricing otheritems on the basis of what the traffic will bear.With a large volume of produce, over a longperiod of time, this strategy works well. Veryfew direct marketers, however, have the vol-ume to make this work satisfactorily. Somedirect marketers price their produce some-where between the current wholesale andretail prices. This is a workable system, butone’s operating budget and competitors shouldbe kept in mind as well.

Following a price leader is good if thecompetitor is knowledgeable. If his price isbased on quality then this is a good strategy tofollow. That is, price your high quality produceat one level and price lower quality items tomeet competition. If sales volume should drop,however, prices may be too high. Some con-sumers expect prices to be lower at the farmthan at the supermarket. There are probablyjust as many consumers, however, who definequality by freshness and to whom price meansvery little. If this is sensed by the operator,prices can be set to cover all costs plus a profit.

Marketers selling large volumes of pro-duce for home canning and freezing may, at thepeak of the season, change their pricing strat-egy to encourage the customer to buy in largerunits such as flats of berries, boxes of tree

fruits, or 20- and 25-pound units of vegetables.Examples of such differential pricing withberries would be 59 cents per pint, $1.75 for 3pints and $6.50 per 12-pint flat. The pick-your-own price, on the other hand, might be 35 centsper pound. An example for sweet corn is a $5per 5-dozen crate, 10 ears for $1, 13 cents perear or two ears for 25 cents. Should the cus-tomer furnish the container, some price conces-sions might be made; yet if a profit is beingmade on containers that the seller provides, thatis part of the business. The consumer’s ormarketer’s time shouldn’t be wasted changingfrom one container to the other unless a specialpicking container is furnished.

In addition to pricing strategies, certainpricing techniques have proven successful.Supermarkets use the rule of 7’s or 9’s (i.e., 19cents, 29 cents, 59 cents, or 79 cents per unit).This seems cheaper in the consumers’ mindsthan pricing in even numbers. At the roadsidestand, however, 5’s are just as effective andsave pennies (i.e., 5 cents, 15 cents, 25 cents,35 cents, or 75 cents per unit). This techniquepermits specials to stand out. For example, byshifting the special items from prices ending in5 to prices ending in 9, it is easy to showsavings for buying in volume (39 cents or 3 for$1 saves 17 cents).

When considering specials, marketersshould keep in mind the expected sales vol-ume. For instance, mid-week specials mayattract extra customers during a time whenbusiness is slow. Evening specials may attractthe working people and increase sales volumeduring peak harvest. Clean-up specials may beposted near the close of a day’s business, butsellers should be careful because some custom-ers, anticipating price reductions, may put offshopping until late in the day.

Finally, sellers should watch the image ofthe business by keeping prices fair. To do so,they must know the costs of doing business.

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Knowledge of costs will help keep the businessprofitable. Knowledge of customers will help inthe decision of what and how much to produceand how best to market it. Production costsand competitors’ prices will establish the lowerand upper limits for pricing. Only the businessoperator, however, can control the quality, thevolume to offer and the price to ask.

SummaryDirect farmer-to-consumer marketing

includes any method by which farmers selltheir products directly to consumers. Justifica-tion for establishing a direct farmer-to-con-sumer marketing outlet is based primarily onthe producers’ desire to increase the financialreturns from farm production by (1) reducingmarketing costs (and capture profits) attributedto intermediaries (middlemen) in the supplychain, and (2) capitalizing on the desire ofconsumers to buy (and willingness to perhapspay a premium for) riper, fresher, higher-quality fruits and vegetables. However, ifgrowers expect to receive prices similar tothose at retail outlets, they must provide thesame value of services consumers have come toexpect from other retailers and wholesalers. Ata retail store, the price consumers pay forproduce generally covers the costs of produc-ing, grading, packing, transporting, wholesalingand retail merchandising. To receive higher netreturns, direct marketers must either providethe marketing services at a lower cost, provideservices not available through other marketsand/or eliminate certain unnecessary services.

Operators of small farms may find thatdirect marketing translates into additionalincome when there is insufficient volume orproduct selection to attract large processorsand/or commercial retail buyers. Thus, directmarketing may be the only viable marketingalternative for small farmers. A substantialnumber of producers use direct marketingchannels to augment sales to wholesalers,retailers and processors to reduce the risk ofrelying on a single market channel.

Although additional income is the primarymotivation for direct marketing, several otherfactors may influence the producer’s decision.Flexibility and the ease of market entry associ-ated with direct marketing operations enable

almost anyone with the desire and a few acresto become involved. Many producers favordirect marketing, especially pick-your-ownoperations, because of the reduced laborrequirements associated with not having toharvest, grade, sort and pack produce. How-ever, the most attractive aspect of direct mar-keting to some farmers is the opportunity toown their own business, be their own boss anddo their own thing. This flexibility allows themto determine their own product mix and tobalance this production between consumerdemand and individual talents for selling andmarket management. Direct farm-to-consumermarketing allows many producers to capitalizeon individual strengths (e.g., good location) toachieve increased income.

For Further ReadingThe author would like to thank the follow-

ing individuals and institutions for permissionto adapt and use the following publications inthe development of this handbook. Readersmay also be interested in obtaining thesepublications for further information.

Barefield, A., G. Smith, and E.M. Westbrook.Exploring Entrepreneurship. TennesseeAgricultural Extension Service PB 1630,http://economics.ag.utk.edu/pubs/business/pb1630.pdf.

Farmer-to-Consumer Marketing: An Overview. PacificNorthwest Extension Publication No. 201.Washington State University CooperativeExtension Service, Oregon State UniversityCooperative Extension Service, Universityof Idaho Cooperative Extension Service andthe U.S. Department of Agriculture.

Farmer-to-Consumer Marketing: Production andMarketing Costs. Pacific Northwest Exten-sion Publication No. 202. Washington StateUniversity Cooperative Extension Service,Oregon State University CooperativeExtension Service, University of IdahoCooperative Extension Service and the U.S.Department of Agriculture.

Farmer-to-Consumer Marketing: Merchandising,Pricing, and Promotional Strategies. PacificNorthwest Extension Publication No. 203.Washington State University Cooperative

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Extension Service, Oregon State UniversityCooperative Extension Service, Universityof Idaho Cooperative Extension Service andthe U.S. Department of Agriculture.

Farmer-to-Consumer Marketing: Place of Business andProduct Quality. Pacific Northwest Exten-sion Publication No. 204. Washington StateUniversity Cooperative Extension Service,Oregon State University CooperativeExtension Service, the University of IdahoCooperative Extension Service and the U.S.Department of Agriculture.

Farmer-to-Consumer Marketing: Personnel Manage-ment. Pacific Northwest Extension Publica-tion No. 205. Washington State UniversityCooperative Extension Service, OregonState University Cooperative ExtensionService, University of Idaho CooperativeExtension Service and the U.S. Departmentof Agriculture.

Farmer-to-Consumer Marketing: Financial Manage-ment. Pacific Northwest Extension Publica-tion No. 206. Washington State UniversityCooperative Extension Service, OregonState University Cooperative ExtensionService, the University of Idaho Coopera-tive Extension Service and the U.S. Depart-ment of Agriculture.

Green, Judy. Doing Your Own Market Research--Tipson Evaluating the Market for New Farm-BasedEnterprises. Resource Sheet #6, FarmingAlternatives,. Farming Alternatives Pro-gram, Cornell University, Ithaca, NewYork, http://www.cals.cornell.edu/agfoodcommunity/afs_ld.cfm.

Gibson, Eric. Sell What You Sow! The Grower’s Guideto Successful Produce Marketing. New WorldPublishing, Carmichael, CA, ISBN 0-9632814-0-2.

Ishee, Jeff. Dynamic Farmers’ Marketing: A Guide toSuccessfully Selling Your Farmers’ MarketProducts. Bittersweet Farmstead,Middlebrook, VA, ISBN 0-9656890-0-X.

Kenkel, Phil. Tennessee Farm Labor Regulations andLegal Issues. AE & RD #75, Department ofAgricultural Economics, University ofTennessee, http://economics.ag.utk.edu/pubs/resource/ae&rd75.pdf.

Lloyd, Renee, James Nelson, Raymond Schatzer,Daniel Tilley and Raleigh Jobes. Should IGrow Fruits and Vegetables? Identifying andEvaluating the Possibilities. OklahomaCooperative Extension Service Fact Sheet F-180, http://agweb.okstate.edu/pearl/agecon/farm/f-180.pdf.

Lloyd, Renee, James Nelson, Raymond Schatzer,Daniel Tilley and Raleigh Jobes. Should IGrow Fruits and Vegetables? Basic BusinessDevelopment Plan for Horticultural Producers.Oklahoma Cooperative Extension ServiceFact Sheet F-181, http://agweb.okstate.edu/pearl/agecon/farm/f-181.pdf.

Lloyd, Renee, James Nelson, and Daniel Tilley.Should I Grow Fruits and Vegetables? DirectMarketing for Fruit and Vegetable Crops.Oklahoma Cooperative Extension ServiceFact Sheet F-183, http://agweb.okstate.edu/pearl/agecon/farm/f-183.pdf.

Lloyd, Renee, James Nelson, and Daniel Tilley.Should I Grow Fruits and Vegetables? Pick-Your-Own Markets. Oklahoma CooperativeExtension Service Fact Sheet F-184, http://agweb.okstate.edu/pearl/agecon/farm/f-184.pdf.

Lloyd, Renee, James Nelson, and Daniel TilleyShould I Grow Fruits and Vegetables? FarmersMarkets. Oklahoma Cooperative ExtensionService Fact Sheet F-185, http://agweb.okstate.edu/pearl/agecon/farm/f-185.pdf.

Lloyd, Renee, James Nelson, and Daniel Tilley.Should I Grow Fruits and Vegetables? Road-side Stands. Oklahoma Cooperative Exten-sion Service Fact Sheet F-186, http://agweb.okstate.edu/pearl/agecon/farm/f-186.pdf.

Sullivan, G., V. Kulp, R. Treadway and P.Kirschling. Direct Farm to Consumer Market-ing — A Profitable Alternative for Family FarmOperations. HO-160. Indiana CooperativeExtension Service.

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The Agricultural Extension Service offers its programs to eligible persons regardless of race, color, age, national origin,sex, disability, veteran status or religion and is an Equal Opportunity Employer.

COOPERATIVE EXTENSION WORK IN AGRICULTURE AND HOME ECONOMICSThe University of Tennessee Institute of Agriculture, U. S. Department of

Agriculture, and county governments cooperating in furtherance of Acts of May 8 and June 30, 1914.Agricultural Extension Service

Charles L. Norman, Dean.

Visit the Agricultural Extension Service Web site at:http://www.utextension.utk.edu/

PB1711-5M-8/02 E12-4115-00-003-02