Value-Added Products-We’re Going to Be Rich!!

Ginger S. MyersUniversity of Maryland ExtensionExtension Ag Marketing Specialist, Director, Maryland Rural Enterprise Development Centergsmyers@umd.eduExtension.umd.edu/MREDCExtension.umd.edu/AgMarketing301-432-2767

mailto:gsmyers@umd.edu

Ginger S. Myersgsmyers@umd.edu 301-432-2767

Director of the Maryland Rural Enterprise Development Center Extension Marketing Specialist, College of Agriculture & Natural

Resources, University of Maryland Extension. Over 30 years of experience in production agriculture, agri-

business and consulting to this position. Currently works with agricultural entrepreneurs, develops new

markets and networking opportunities, works with new and beginning farmers, and assists with business development and business planning.

Operates a grass-based livestock farm with husband.

mailto:gsmyers@umd.edu

Former Trader Joe executive Doug Rauch has opened a Boston market that brings healthy food to people who

usually can't afford it

At the Daily Table, half of the food the store sells is prepared, a result of customers' lack of time. "Eighty percent of Americans don't know what they're having for dinner at 4pm in the afternoon," he says.

This Presentation Discusses:

Value-Added ProductsWays to take advantage of value-adding

opportunities.Why Value-Added Products Fail

Value-Added Products: Marketing Strategies

What is Value-Added?

A customer-driven process in which the farmer retains more of the food dollar by processing, enhancing, packaging and/or marketing the product him/herself.

Degrees of Added Value

Minimal Change of State- often used to extend shelf life

Production Methods- Organic, grass-fed, heirloom varieties, etc.

Adding Value to the Purchasing Experience- Agritourism, Wineries

Deciding on Value-Added

May increase farm viability May increase farm visibility May expand the market

season May open new markets

There is considerably more risks involved in value adding than selling the bulk commodity.

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Pros & Cons of Value-AddingPros-

Higher profitsMaster of your own destiny- value to quality products

Cons-Competition will react with a vengeance if your product becomes successful and is a serious threat to their market share

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Why Value-Added Products Fail1. Product doesn’t match or satisfy a

customer’s wants or needs (perception). Lack of trust in unknown sources – particularly those seen as unregulated or lacking standards.

2. Are you starting a business or making a job for yourself?

3. Not Pricing for ProfitExample: You sell gourmet apple burtter

for $10.00 per jar.

Selling Price $10.00Variable CostsRaw Material $3.00Hourly Labor 1.00Sales Commission (10%) 1.00Shipping Charge 0.50Total Variable Costs $5.50Price minus Variable Costs $4.50The $4.50 is called the contribution margin becauseit represents how much is "contributed" from each unit of sales toward paying for fixed costs and profits.

Sheet1

Example: You sell gourmet apple burtter

for $10.00 per jar.

Selling Price$10.00

Variable Costs

Raw Material$3.00

Hourly Labor1.00

Sales Commission (10%)1.00

Shipping Charge0.50

Total Variable Costs$5.50

Price minus Variable Costs$4.50

The $4.50 is called the contribution margin because

it represents how much is "contributed" from each

unit of sales toward paying for fixed costs and profits.

Sheet2

Sheet3

Example: Fixed expenses ( per month)

Lease payment 800.00$ Telephone 100.00$ Insurance 50.00$ Bookkeeping 100.00$ Loan Payments 300.00$ Total Fixed Expenses 1,350.00$

Question ???How many jars of apple butter do youhave to sell each month to pay for your variable & fixed expenses ?

Sheet1

Example: Fixed expenses ( per month)

Lease payment$ 800.00

Telephone$ 100.00

Insurance$ 50.00

Bookkeeping$ 100.00

Loan Payments$ 300.00

Total Fixed Expenses$ 1,350.00

Question ???

How many jars of apple butter do you

have to sell each month to pay for

your variable & fixed expenses ?

Sheet2

Sheet3

Your “Break Even Point” Selling Price = $10.00 / jar Variable costs = $5.50 /jar Contribution margin = $4.50 / jar Fixed costs = $1,350.00 /month $1,350.00 $4.50 = 300 jars per month

When you sell jar #301 you have made a profit.

1. Supplying a sufficient amount of the product at the initial delivery.

2. Delivering product on a consistent basis and meeting strict delivery schedules.

4. Problems with Distribution

Rules for Success #1 The backbone of value-added

marketing is high quality products.

#2 Start Small- Determine how much high quality product can you process and deliver on a consistent basis. Then match your “placement” to that volume.

#3 The emperor may have no clothes. Many claims about the sales potential for value-added products may be overly enthusiastic.

#4 Honest accounting. Be honest with yourself about how much time the business will demand.

#5 Price and convenience do matter. While many customers will support locally produced, the real work suggests that price and convenience do matter to almost all customers.

# 6 Seasonality can be a significant handicap. Some customers, such as big food institutions may not easily accommodate seasonality.

http://www.chewingthecud.org/tn_Steak_in_fork1.jpghttp://www.chewingthecud.org/tn_Steak_in_fork1.jpg

#7 Only be as different as you can afford to be. Some differentiation in the market may help you capture niches, but going to extremes may yield a product that no one is willing to pay for.

Adam & Eve Hot Sauce

http://www.sweatnspice.com/prodimages/adam_eve_set.jpghttp://www.sweatnspice.com/prodimages/adam_eve_set.jpg

#8 Make a plan on how to “scale up” that matches profits to costs of growth. Not just $$, but period required for growth.

Successful MarketingFind the Right Message

Use the Right Media

Deliver to the Right Market Segment

http://www.extension.umd.edu/Agmarketing

http://www.extension.umd.edu/mredc

Questions?

Ginger S. Myers University of Maryland Extension Extension Ag Marketing Specialist, Director, Maryland Rural Enterprise Development Center gsmyers@umd.edu Extension.umd.edu/MREDC Extension.umd.edu/AgMarketing 301-432-2767

mailto:gsmyers@umd.edu

Value-Added Products-�We’re Going to Be Rich!!Ginger S. Myers gsmyers@umd.edu 301-432-2767Former Trader Joe executive Doug Rauch has opened a Boston market that brings healthy food to people who usually can't afford itThis Presentation Discusses:What is Value-Added?Degrees of Added ValueDeciding on Value-AddedPros & Cons of Value-AddingWhy Value-Added Products Fail3. Not Pricing for ProfitSlide Number 11Your “Break Even Point”4. Problems with DistributionRules for SuccessSlide Number 15Slide Number 16Slide Number 17Slide Number 18Successful Marketinghttp://www.extension.umd.edu/Agmarketinghttp://www.extension.umd.edu/mredcQuestions?