Pushing the pencil   high tunnel economics feb.7&8,2012
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Pushing the pencil high tunnel economics feb.7&8,2012

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by Karl Foord. Presented at the 2012 MN Statewide High Tunnel Conference

by Karl Foord. Presented at the 2012 MN Statewide High Tunnel Conference

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Pushing the pencil high tunnel economics feb.7&8,2012 Presentation Transcript

  • 1. Pushing the financialpencil with hightunnels Statewide High Tunnel Conference Brainerd-The Lodge February 7&8,2012 Prepared by Karl Foord/Presented By Prof.Ward Nefstead Pushing the financial pencil: - Karl Foord - 1 12/3/2010
  • 2. The most important aspect The most important aspect of any crop is the ability to market it for a profit after considering the added costs when using a high tunnel Every area has different pricing pressures. Pushing the financial pencil: - Karl Foord - 2 12/3/2010
  • 3. Flow of this talk Price, margins, profitability Customer issues  Perceptions, behavior, total experience  Seller buyer perspective Pushing the financial pencil: - Karl Foord - 3 12/3/2010
  • 4. Price, margins, profitability First of season products  price premium = higher margins  greater profitability Maintain price premium Monitor labor efficiency Pushing the financial pencil: - Karl Foord - 4 12/3/2010
  • 5. What Are We Really Selling? “Revlon sells chemicals Women buy glamour” Fruits and vegetables Flowers Pushing the financial pencil: - Karl Foord - 5 12/3/2010
  • 6. What Are People ReallyBuying? Health, Taste The experience of the market itself Support of local growers What are your customers really wanting? Pushing the financial pencil: - Karl Foord - 6 12/3/2010
  • 7. Exchange Something of value for an amount of satisfaction The perceived value > the price Largely behavioral not mathematical Usually an emotional trigger Buy and justify Pushing the financial pencil: - Karl Foord - 7  12/3/2010
  • 8. PRICING DECISION CHART COMPANY VIEW Our Asking Price Our Costs - Our GoalsPricing Goal No ($) Exchange Profit WIN - WIN Profitable Enterprise Exchange Price Range Total Costs LOSE - WIN Exchange Fixed Costs Overhead Salaries, Etc… Variable Costs Direct Costs Materials Pushing the financial pencil: - Karl Foord - 8 12/3/2010
  • 9. PRICING DECISION CHART Customer CUSTOMER VIEW Value Satisfy a Want Determination Perceived Value > Price WIN - LOSE Line of Perceived Value ExchangePrice WIN - WINRange Exchange Focus of Marketing Efforts Perception Factors Convenience Philosophical Match - Ecological Emotional Health Benefits Benefit Quality - Reputation - Dependability Selection - Uniqueness Confidence: no frustrations, headaches Reference Prices Context - Urgency Functionality Low Perceived Value Pushing the financial pencil: - Karl Foord - 9 12/3/2010
  • 10. PRICING DECISION CHART COMPANY VIEW Customer CUSTOMER VIEW Our Asking Value Satisfy a Want Price Our Costs - Our Goals DeterminationPricing Perceived Value > Price Goal No WIN - LOSE ($) Line of Perceived Value Exchange Exchange Profit Profitable Enterprise WIN - WIN Exchange Focus of Marketing Efforts Total Costs LOSE - WIN Perception Factors Exchange Fixed Costs Convenience Philosophical Match - Ecological Overhead Salaries, Etc… Emotional Health Benefits Benefit Quality - Reputation - Dependability Selection - Uniqueness Variable Costs Confidence: no frustrations, headaches Direct Costs Materials Reference Prices Context - Urgency Functionality Low Perceived Value Statewide High Tunnel Conference 12 2010, Karl Foord Pushing the financial pencil: - Karl Foord - 10 12/3/2010
  • 11. Customer Perception Key customer perception factors How buyer uses product & impact of attributes on value Value varies among buyers - all will not use it in the same way Pushing the financial pencil: - Karl Foord - 11 12/3/2010
  • 12. Perception management Manage customer perception Proactively to influence the gap between price paid and value received Pushing the financial pencil: - Karl Foord - 12 12/3/2010
  • 13. Improving customerexperience 5 Sense your market  Taste, touch, smell, sight, sound Do you provide recipes?  Sensory extrapolation Pushing the financial pencil: - Karl Foord - 13 12/3/2010
  • 14. Customer overview Understand key customer perception factors for your products Consider impact of emotion on the total customer experience Pushing the financial pencil: - Karl Foord - 14 12/3/2010
  • 15. Pricing Issues Capture the early premium Understand the true impact of price reductions Vary your crop mix with an eye to margins and profitability Pushing the financial pencil: - Karl Foord - 15 12/3/2010
  • 16. High Tunnel Revenue 3,000 2,500 Determinate Revenue Indeterminate Revenue 2,000Dollars 1,500 1,000 500 0 1 2 3 4 5 6 7 8 9 1 1 1 Weeks of the Season Beginning July 1 Pushing the financial pencil: - Karl Foord - 16 12/3/2010
  • 17. Price changes through the Tomato Season July August September Price Weeks Weeks WeeksStrategy Revenue Season 1 2 3 4 1 2 3 4 1 2 3 4 Difference Revenue Hold (Hold vs. $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 Totals Price Drop)Yield - 14 lbs./plt Revenue from Hold Strategy 373 $1,119 $1,119 $1,119 $1,119 $1,119 $1,119 $1,119 $1,119 $1,119 $1,119 $1,119 $1,119 $13,428 $1,306 Drop $3.00 $3.00 $3.00 $3.00 $2.75 $2.75 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 PriceYield - 14 lbs./plt Revenue from Drop Strategy 373 $1,119 $1,119 $1,119 $1,119 $1,026 $1,026 $933 $933 $933 $933 $933 $933 $12,123 ($1,306) Statewide High Tunnel Conference 12 3 2010 - Karl Foord Pushing the financial pencil: - Karl Foord - 17 12/3/2010
  • 18. High Tunnel Crop Mix Mini Bell Item Tomatoes Cut Flowers Cucumber Peppers Number of 320 1350 630 384 plants Total crop 0 2,700 25,200 11,520 produced Unit size Pound 10 stems each each Price/unit $3.00 $3.50 $0.40 $1.00Gross income $0 $9,450 $10,080 $11,520Income/foot ² $0.00 $4.92 $5.25 $6.00 Season 7/10-10/5 6/25-9/15 6/30-9/15 7/10-9/15 96 x 20 high tunnel Pushing the financial pencil: - Karl Foord - 18 12/3/2010
  • 19. Go to spreadsheets Pushing the financial pencil: - Karl Foord - 19 12/3/2010
  • 20. Author and Reference Karl Foord Ph.D. MBA Regional Educator, Horticulture foord001@umn.edu (651) 480 7723 High Tunnel Production Manual Pushing the financial pencil: - Karl Foord - 20 12/3/2010