Is giving the customer what they want really the best thing?

Stratus Ag Research recently surveyed 1,800 farmers across the United States about their local ag retailer. We wanted to further understand the interactions that ag retailers have with their farmer customers.

September 21, 2015

We have all heard the experts say that success comes from first knowing what your customer wants.  

But, there have been other famous perspectives that provide a very different point of view of the traditional “the customer is always right” way of thinking.

           

We know that successful ag retailers do respond to the demands of their customer base, our data proves this point.  We explored this relationship in a past post, “Survey Finds Successful Ag Retailers Not Afraid to Get Their Boots Dirty”.

But what if market dynamics force farmers to a new reality?  Commodity prices are down, farmers’ margins are being squeezed and thus the reality of having to focus on decreasing input costs to maintain profit per acre.  The chart below illustrates the average corn price received in the US in May (when discussions with regards to crop inputs are happening) for years 2013 through 2015.

In our research we have identified two segments of farmers that differ in how they approach a decision on which ag retailer to support.  There are those farmers who rank knowledgeable agronomists that can provide technical advice as very important in their choice of which ag retailer to support, the “Agronomic Advice” segment.  Then there are those farmers who rank products available when needed and at a good price as most important, the “Transactional” segment. 

Recently we asked farmers across the US to think about their crop chemical discussions they had with their ag retailer this past crop year.  Were those discussions focused mostly on the technical aspects of their crop chemical purchase, or the services provided by the retailer, or on the price of their crop chemicals?

What we found was that ag retailers are more often having technical discussions with the Agronomic Advice segment compared to the Transactional segment, which is what you would expect if ag retailers are focusing on what matters most to the customer.

Interestingly though, we see a bit of a shift occurring in 2015 compared to the previous year, where discussions were less about the technical aspects of the product and slightly more about price. 

Our hypothesis is that this may be a result of lower commodity prices and a push by more farmers to focus on reducing input costs.  However, regardless of whom, the farmer or the retailer, is driving this shift to fewer technical discussions, the result is a negative impact on the ag retailer’s business.

Ag retailers earn a greater share of crop chemical expenditures from farmers with whom they have had technical discussions versus those that were only about price.  In other words farmers who are having technical discussions with their ag retailer in turn reward them with more of their business, whereas farmers who are having discussions mostly about price tend to spend less with those retailers.

It is important to a farmer’s bottom line that they look for ways to reduce their input cost as a measure to enhance profitability, and as a result their focus in the discussion may be about price.  The message to ag retailers is that a competitive price must be a given, but farmers reward those retailers that can move past price and provide value in the delivery of technical advice and service.


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