understanding & competing in a maturing …...1 understanding & competing in a maturing...

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1 Understanding & Competing in Understanding & Competing in a Maturing Marketplace a Maturing Marketplace Dr. Charlie Hall Dr. Charlie Hall Ellison Chair in International Floriculture Ellison Chair in International Floriculture Texas A&M University Texas A&M University [email protected] [email protected] The key to profitability in this The key to profitability in this industry is industry is not not selling more selling more flowers/plants, flowers/plants, per se per 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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Page 1: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

1

Understanding & Competing in Understanding & Competing in a Maturing Marketplacea Maturing Marketplace

Dr. Charlie HallDr. Charlie HallEllison Chair in International FloricultureEllison Chair in International FloricultureTexas A&M UniversityTexas A&M [email protected]@tamu.edu

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.

Page 2: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Value of a 5" Poinsettia corrected 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

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

Page 3: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Outdoor Living

• Homeowners are now viewing their inside and outside space as a whole.  

• Backyards and patios now serve as playgrounds, living rooms, home offices and kitchens.

Source:  Garden Media Group

Nursery and greenhouse crop consumption 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

Page 4: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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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 lawn and garden retail sales

Reasons for not gardening

Source: Bill Calkins, Ball Horticultural Company

Page 5: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Consumer Gardening Trends

• In 2007, 71% of U.S. HH (82 of 115M) participated in L&G activities– 67% lawn care (55M HH)

– 42% indoor houseplants (35M HH)

– 42% flower gardening (35M HH)

– 37% landscaping (31M HH)

– 30% vegetable gardening (25M HH)

– 26% container gardening (21M HH)

Source: 2007 National Gardening Survey, NGA. 

Consumer Gardening Trends

• Average 2007 Expenditures: $428/HH (+7%)– Lawn care ‐ $208/HH

– Indoor houseplants ‐ $34/HH

– Flower gardening ‐ $71/HH

– Landscaping ‐ $350/HH

– Vegetable gardening ‐ $58/HH

– Container gardening ‐ $48/HH

Source: 2007 National Gardening Survey, NGA. 

Page 6: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Consumer Gardening Trends

• Highest level of participation from:– 55+ years of age; 35‐44 years of age

– College graduates

– Married

– HH Income ≥ $75,000 

– 2‐person HH, no children, South

Source: 2007 National Gardening Survey, NGA. 

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 sales vs. lawn/landscape services

DIY L&G activities = $34.1Bn in 2006 

L&L services = $44.7Bn in 2006 

Page 7: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Trend in Total U.S. Housing Starts

U.S. nursery and greenhouse 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 recession resistance and strong correlation to housing starts.

Page 8: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Page 9: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Average annual growth rate,1967-2007.

• 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

Page 10: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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The Rising Cost of Gettin’ By

• Chemicals ↑7%

• Fuel ↑49%

• Fertilizer ↑69%

• Containers ↑11%

• Machinery ↑7%

• CPI ↑4%

*** price increases since May 2007*** price increases since May 2007

Page 11: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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The Cost-Price Squeeze

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

Page 12: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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•• ““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?

Quotes from article in Florists Review.

MAY 10, 1979!MAY 10, 1979!

Signs of a maturing industry

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.

Page 13: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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So the $64 question is this…

What do firms need to do to compete successfully in a maturing floriculture market?

Page 14: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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“I skate to where the puck is going to be . . .

not to where it has been.”- Wayne Gretsky

© RoyaltyFree/PhotoLink/ Getty Images 

Two Elements of Strategy

External PositioningInternal Alignment

• Understand completely, the external environment

• Match firm’s strengths and weaknesses to external opportunities and threats

• Align all activities to the firm’s market position and make them consistent

• Develop core competencies which lead to new and better competitive advantages

Page 15: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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External strategic responses…

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.

My thoughts…

• The most meaningful increase in margins in the future (for most firms) will have to come from the demand side of the equation (price).

• There is but one way to accomplish this –by successfully differentiating ourselves in the mind of customers!

Page 16: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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External strategic responses…

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.

Differentiation Strategy Defined

• 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.

Page 17: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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• Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals

• Customers value the differentiated featuresmore than they value the low cost

• Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals

• Not spending more to achieve differentiation than the price premium that can be charged

Keys to Success

Drivers of Uniqueness

•Product features & performance

•Complementary services (credit, delivery, repair)

•Intensity of marketing activities

•Technology in design and manufacture

•Quality of purchased inputs

Page 18: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Drivers of Uniqueness, cont.

•Rigor of procedures (quality control, service, frequency of sales visits)

•Employees’ skills and experience

•Location, location, location

•Degree of vertical integration (in‐house control)

Examples of innovative differentiation strategies used in

the green industry:

New plant introductions.

Innovative packaging & labeling.

Advertising and branding efforts.

Generic promotions.

Value‐adding services.

Page 19: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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new plant introductions

Plant SelectionsPlant Selections

Page 20: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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2008 Pack Trials, Photos by Chris Beytes

Ellison’s Greenhouses, Brenham, Texas

Page 21: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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While new products have generated interest, the product life cycle has

shortened!

Time

0

Dol

lars

Intro

duct

ion

Gro

wth

Mat

urity D

eclin

e

Sales

Profits

Page 22: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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innovative packaginginnovative packaging

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brandingbranding

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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.

Page 26: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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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). 

““sustainablesustainable”” brandingbranding

Page 28: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Wollemi pine

Page 29: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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ONE WAY AHEADONE WAY AHEADNo No GreenwashingGreenwashing!!

Page 30: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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generic promotionsgeneric promotions

Project EvergreenProject Evergreen

Project Evergreen’s goal is to promote the qualities of healthy landscapes to U.S. consumers and is funded primarily by turfgrass and lawn‐chemical companies. 

Page 31: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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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

Page 32: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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cause marketingcause marketingPretty in Pink Garden, Hick’s Nurseries

External strategic responses…

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.

Page 33: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Spot/CashMarket Specification

Contracting

StrategicAlliances Formal

Cooperation

VerticalIntegration

Characteristics of “Invisible‐ Hand”Coordination

Self Interest

Short‐term Relationship

Opportunism

Limited Information Sharing

Flexibility

Independence

Mutual Interest

Long‐term Relationship

Shared Benefits

Open Information Sharing

Stability 

Interdependence

Characteristics of “Managed”

Coordination

THE VERTICAL COORDINATION CONTINUUM

NOTE: The diagonal line represents the mix of invisible‐hand and managed coordination characteristics found in each of the five alternative strategies for vertical coordination.  The area above the diagonal indicates the relative level of invisible‐hand characteristics and the are below the diagonal indicates the relative level of managed characteristics

Source: Peterson and Wysocki.  1998 AAEA Symposium

Examples of Coordinated Marketing

Page 34: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Examples of Coordinated Marketing

Examples of Coordinated Marketing

Page 35: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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The reasoning behind coordinated strategies…

• “If we can’t live together, we’re going to die alone.”

• Making Cents blog post May 23, 2008 “The value of building strategic networks”

• Formal contracts do not make successful relationships. People do.

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.

?

RECAP: ItRECAP: It’’s all about value!s all about value!……and relevance!and relevance!

Page 36: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Relationship between price elasticity and

total revenue

Long-run Industry Pricing Equilibrium

Price SMCS1

S2

D2

D1

LS

MCAC

Output

(a) Typical Firm0

Price

Quantity

(b) Total MarketQ2

0 q1 q2 Q3Q1

P1

P2

Page 37: Understanding & Competing in a Maturing …...1 Understanding & Competing in a Maturing Marketplace Dr. Charlie Hall Ellison Chair in International Floriculture Texas A&M University

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Ellisonchair.blogspot.com

Questions?

Dr. Charlie HallDr. Charlie [email protected]@tamu.eduEllisonchair.tamu.eduEllisonchair.tamu.edu