osu seminar 2008 - aggie horticulture · differentiate in some way ‐specialize by product,...
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Dr. Charlie HallDr. Charlie HallEllison Chair in International FloricultureEllison Chair in International FloricultureTexas A&M UniversityTexas A&M [email protected]@tamu.edu
Green Industry 2010: The Green Industry 2010: The Dynamics of HypercompetitionDynamics of Hypercompetition
Hypercompetition
“an environment characterized by intense and rapid competitive moves in which competitors must move quickly to build new advantages and [simultaneously] erode the advantages of their rivals.”
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Hypercompetition
Hypercompetition
In response, companies must constantly:
‐‐ innovate within their supply chain, innovate within their supply chain,
‐‐ tweak their value propositions, tweak their value propositions,
‐‐ or have enough financial capital to or have enough financial capital to outlast other competitors .outlast other competitors .
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DISTRIBUTION &LANDSCAPE FIRMS
MINING
OIL WELLS
FORESTRYFISHERIES
Extractive & Manufacturing
PAPER MILLS
PRINTED MATERIALS:(Catalogs; signs; packaging)
Wrappings,Containers
Packaging materialsLabels
Irrigation materials
PLASTICSMANUFACTURING
PETROLEUMPRODUCTS
FERTILIZER;PESTICIDES
CHEMICAL PLANTS
FERTILIZERPLANTS
METAL WORKING
TOOLS &MACHINERY
Production
AG COLLEGES;RESEARCH FARMS
Nursery& Greenhouse
Firms
Marketing
ConsumptionRETAILING• Garden centers• Retail nurseries• Retail greenhouses• Florists• Supermarket floral depts.• Discount mass merchants• Home improvement centers• Farm markets• Mail order & internet sales
INDIRECTMARKETING
FIRMS
• Installation• Maintenance• Storage• Transportation• Financing• Information
FUNCTIONS• Brokers• Landscape contractors• Lawn maintenance firms• Re-Wholesalers• Terminal market firms• Cooperatives• Auctions
DIRECTMARKETING
INSTITUTIONAL• Schools; Churches• Hotels; Resorts• Hospitals• Restaurants• Interior landscapes• Malls• Corporate landscapes• Public buildings• Community parks
IMPORTS:• Columbia, The Netherlands,• Ecuador, Mexico, Canada, • Guatemala, Australia, Israel,• England, Costa Rica, Hawaii,• Philippines, Japan, China,
Africa
EXPORTS:• Market Area to
Market Area• Other states• Canada• Europe
TRADE PRESS & PUBLICATIONS
Trade AgreementsTrade Barriers & Import RestrictionsAPHIS/PPQPatents, Royalties & CopyrightsEnvironmental ProtectionPesticide and other chemical regulations
TRADE
ASSOCIATIONS
Regulatory
End Consumer
FragmentedFragmentedBipolarBipolarComplexComplexMatureMature
Nursery and greenhouse crop Nursery and greenhouse crop consumption by householdconsumption by household
$112$117
$122$131$132$135$139$143
$149$152$152
$146$147
$90
$100
$110
$120
$130
$140
$150
$160
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
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Source: National Gardening Surveys, NGA.
$33,
519
$33,
404
$37,
734
$39,
635
$38,
371
$36,
778
$35,
208
$34,
077
$35,
102
30,00031,00032,00033,00034,00035,00036,00037,00038,00039,00040,000
Mill
ions
($)
1999 2000 2001 2002 2003 2004 2005 2006 2007
Total U.S. household Total U.S. household lawn and garden retail saleslawn and garden retail sales
Source: National Gardening Surveys, NGA.
05,000
10,00015,00020,00025,00030,00035,00040,00045,00050,000
2001 2002 2003 2004 2005 2006
Mill
ions
($)
Total U.S. HH lawn & garden retail Total U.S. HH lawn & garden retail sales vs. lawn/landscape servicessales vs. lawn/landscape services
DIY L&G activities = $34.1Bn in 2006
L&L services = $44.7Bn in 2006
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U.S. nursery and greenhouse U.S. nursery and greenhouse grower cash receipts($1,000).grower cash receipts($1,000).
$0$2,000,000
$4,000,000$6,000,000
$8,000,000$10,000,000
$12,000,000$14,000,000
$16,000,000
$18,000,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
p
Industry has shown some recession resistance and a strong correlation to housing starts.
Trend in Total U.S. Housing StartsTrend in Total U.S. Housing Starts
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Average annual growth Average annual growth rate,1967rate,1967--2007.2007.
• In the 1970’s: 13.64%13.64%
• In the 1980’s: 9.91%9.91%
• In the 1990’s: 4.64%4.64%
• In the 2000’s: 2.87%2.87%
2.2%2.4%
5.4%4.6%4.8%
4.4%2.0%
9.3%4.6%4.9%
4.6%1.9%
5.6%4.3%
11.9%7.2%
8.4%12.6%
9.5%5.6%
14.3%12.8%
9.8%7.0%
14.6%13.1%
17.1%10.4%
20.7%15.2%
10.9%18.0%
10.5%5.8%
3.2%3.7%3.9%4.1%
20042003200220012000199919981997199619951994199319921991199019891988198719861985198419831982198119801979197819771976197519741973197219711970196919681967
Year
Source: USDA Situation & Outlook, 1967‐2007.
1.0%20051.0%2006
1.5%2007
The Rising Cost of The Rising Cost of GettinGettin’’ ByBy
• Chemicals ↑7%
• Fuel ↑49%
• Fertilizer ↑69%
• Containers ↑11%
• Machinery ↑7%
• CPI ↑4%
*** price increases since May 2007*** price increases since May 2007
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The CostThe Cost--Price Price SqueezeSqueeze
Retail consolidationFewer buyersOversupply
• Product tags/labels• JIT delivery, setup & care• Barcode/pre-pricing• Returnable shipping
equipment• Pay-by-scan• Take back unsold product• Consistent pricing• Continuous volume
replenishment• Rising input costs (e.g.
fuel)• Labor availability
•• ““These staggering costs have us scared to deathThese staggering costs have us scared to death””
•• ““We are surviving, but profitWe are surviving, but profit‐‐wise, itwise, it’’s a squeeze.s a squeeze.””
•• ““Costs of energy, labor, fumigants, pots, Costs of energy, labor, fumigants, pots, polyethylene, delivery polyethylene, delivery –– everything is going up. Iteverything is going up. It’’s s really beginning to hurt.really beginning to hurt.””
Emotional reactions to rising costs?Emotional reactions to rising costs?
Quotes from article in Florists Review.
MAY 10, 1979!MAY 10, 1979!
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Signs of a maturing Signs of a maturing industryindustry
Slowing demand breeds stiffer competition.
More sophisticated buyers demand price alignment.
Greater emphasis on cost reduction and service.
“Topping out” problem in adding production capacity.
Product innovation and new end uses harder to come by.
International competition increases.
Industry profitability falls due to decreasing margins.
Mergers and acquisitions reduce number of industry rivals.
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So the $64 question is So the $64 question is thisthis……
What do firms need to do to compete successfully in a maturing market?
“I skate to where the puck is going to be . . .
not to where it has been.”- Wayne Gretsky
© RoyaltyFree/PhotoLink/ Getty Images
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External strategic External strategic responsesresponses……
1. Become a low‐cost operator and play the volume (commodity) game.
2. Differentiate in some way ‐ specialize by product, service, customer type, or geographic area.
3. Increase customer value via horizontal and/or vertical coordination.
As firm size increases, economies of scale and scope lead to decreasing per unit costs.
sizesize
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Many firms are becoming increasingly automated leading to improved cost performance.
automationautomation
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climate control climate control systemssystems
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tissue culture tissue culture and plug and plug productionproduction
biotechnologybiotechnology
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container technologycontainer technology
slowslow--release and release and soluble fertilizationsoluble fertilization
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irrigation technologyirrigation technology
My thoughtsMy thoughts……
• All of these technologies have been used to decrease costs of production, successfully.
• While some firms have a ways to go, many have stretched their production systems as thin as they can be stretched. Lean (flow) manufacturing is important, but will only take us so far.
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My thoughtsMy thoughts……
The most meaningful increase in margins in the future (for most firms) will have to come from the demandside of the equation (price).
The key to profitability in this The key to profitability in this industry is industry is notnot selling more selling more flowers/plants, flowers/plants, per seper se..
The key to profitability is The key to profitability is getting more dollars for the getting more dollars for the flowers/plants we do sell.flowers/plants we do sell.
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Value of a 5" Poinsettia Value of a 5" Poinsettia corrected for inflationcorrected for inflation
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
1965 1975 1985 1995 2005 2007
Retail ‐ INF Whole ‐ INF Actual Wholesale
External strategic External strategic responsesresponses……
1. Become a low‐cost operator and play the volume (commodity) game.
2. Differentiate in some way ‐ specialize by product, service, customer type, or geographic area.
3. Increase customer value via vertical coordination mechanisms (alliances and partnerships).
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Differentiation Strategy Differentiation Strategy DefinedDefined
• An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being customers perceive as being differentdifferent in ways that are important to them.
Examples of innovative Examples of innovative differentiation strategies used in differentiation strategies used in
the green industry:the green industry:
New plant introductions.
Innovative packaging & labeling.
Advertising and branding efforts.
Generic promotions.
Value‐adding services.
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new plant introductionsnew plant introductions
2008 Pack Trials, Photos by Chris Beytes
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Ellison’s Greenhouses, Brenham, Texas
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innovative packaginginnovative packaging
brandingbranding
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“…“…innovative new plants designed to innovative new plants designed to solve specific landscape challenges.solve specific landscape challenges.””
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•Good For Your Sole – a national campaign for the Stepables® brand of plants, a line of groundcovers that withstand foot traffic.
Under the Foot Plant Co.Under the Foot Plant Co.
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Frederique van der Wal
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Paradox of choice?Paradox of choice?
• the paradox that more choices may lead to a poorer decision or a failure to make a decision at all. It is sometimes theorized to be caused by analysis paralysis, real or perceived, or perhaps from rational ignorance (when the cost of educating oneself outweighs any potential benefit).
generic promotionsgeneric promotions
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• civic pride
• community involvement
• cooperation between government, business, private citizens & communities
• economic development
• increased property values
• increased tourism
• decreased vandalism
• feedback from judges
cause marketingcause marketingPretty in Pink Garden, Hick’s Nurseries
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External strategic External strategic responsesresponses……
1. Become a low‐cost operator and play the volume (commodity) game.
2. Differentiate in some way ‐ specialize by product, service, customer type, or geographic area.
3. Increase customer value via horizontal and/or vertical coordination.
Examples of Coordinated Examples of Coordinated MarketingMarketing
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Examples of Coordinated MarketingExamples of Coordinated Marketing
Cost of goods sold (COGS)
Product price (P)
Perceived value (PV) = ∑ of perceived benefits
Objective value (OV) = ∑ of all benefits
{Firm’s incentive to sell: (P‐COGS)>0
{Customer’s incentive to purchase: (PV‐P)>0 (economic utility)
$0
Marketing efforts
Prices of substitutes
Source: Note on Behavioral Pricing, Harvard Business School, 9‐599‐114.
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RECAP: ItRECAP: It’’s all about value!s all about value!……and relevance!and relevance!
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Relationship between Relationship between price elasticity and price elasticity and
total revenuetotal revenue
LongLong--run Industry Pricing Equilibriumrun Industry Pricing Equilibrium
Price SMCS1
S2
D2
D1
LS
MCAC
Output
(a) Typical Firm(a) Typical Firm0
Price
Quantity
(b) Total Market(b) Total MarketQ2
0 q1 q2 Q3Q1
P1
P2
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Ellisonchair.blogspot.comEllisonchair.blogspot.com
Questions?Questions?
Dr. Charlie HallDr. Charlie [email protected]@tamu.eduEllisonchair.tamu.eduEllisonchair.tamu.edu