1Evaluating Demand and Supply Factors Affecting the Decisi.docx

1
Evaluating Demand and Supply Factors Affecting the Decision
to engage in Organic Farming
Table of Contents
1. Introduction.
2. Choice of organic crop.
3. Demand determinants for organic corn.
4. Price elasticity of demand and Demand curve.
5. Supply determinants for organic corn.
6. Price elasticity of supply and Supply curve.
7. Cost of switching to organic.
8. Recommendation.
References
1. Introduction
The subject of the supply and demand analysis of this
paper is organic farming in the U.S. In the situation described
in scenario D of the assignment, there is a farmer who is
experienced in growing (non-organic) corn on his 100 acre field
and who is interested in switching to presumably more
profitable organic farming. The farmer wants to know what the
best (most profitable) organic crop is and how much it will cost
to become a certified organic farmer. This paper argues that the
organic crop the farmer should be growing instead of regular
corn is organic corn, evaluates demand and supply factors for
organic corn, estimates demand and supply elasticities and
assesses the cost of becoming a grower of organic corn.

2. Choice of organic crop
The key difference between the regular and organic crops
is the use of pesticides and fertilizers. According to Kaiser and
Ernst (2011), organic crops are the ones that are grown using
production methods that are “intended to mimic natural
processes”. Such methods include various cultural practices and
natural inputs and exclude “most synthetic pesticides and
standard commercial fertilizers”.
In our case, the farmer has extensive experience of
growing corn and all necessary supplies, tools and equipment.
Switching to growing a different crop would require a
significant investment in learning about this new crop (and,
inevitably, a learning curve) and buying new equipment and
supplies. Given that our farmer does not work on a large scale –
he only has 100 acres of land to work with – investing in self-
education and new props may require a substantial investment
outlay (and thus significant fixed costs) which may suppress
profits at the initial stages. On the other hand, switching from
regular to organic corn will not require a lot of additional
investment.
Another reason to switch to organic corn (as opposed to
some other organic crop) is that currently U.S. demand is not
being met by local supply. There is generally not a lot of data
on organic crops – for example, U.S. Department of Agriculture
(USDA) only started collecting organic crops data in 2011 – but
according to Brat (2015) sales of foods certified as free of
synthetic chemicals or genetic engineering by the U.S. were up
11% in 2014 relative to 2013 and amounted to about 5.1% of
U.S. grocery spending. The same article also states that the
average annual growth of the organic sector was about 10%
which is three times higher than that of the overall food sales,
citing USDA and trade association data.
According to the data published on Mercaris Company
website [4], as much as 24% of the organic corn sales during
7/2012-6/2013 was imported (and according to Brat (2015),
with over 90% of U.S. corn being bioengineered, most organic

corn comes from abroad – for example, the U.S. import of
Romanian corn went up to $11.6 million in 2014 from $0.55
million a year before.)
Domestic organic corn has its advantages from the buyer’s
perspective because it is easier to verify its organic status and it
may be cheaper due to lower transportation costs. According to
an expert cited in Brat (2015) , the problem with growing
organic corn (and other crops) domestically is that in order to
be certified organic there is a requirement that a farm must be
free of anything non-organic (seeds, chemicals, etc.) for three
years. During this time, the farmer sells the crops at regular,
non-organic prices whereas the cost of non-chemical growing is
higher. As a result, farmers lose profit for 3 years before
realizing any price benefit from the organic product and until
now this has been the main reason why U.S. farmers had little
reason to switch. Lower crop and higher labor cost per acre and
the three-year transition rule had been making organic products
not worth the risk. However, most recently with changes in
commodity prices and tightening of the farmers’ margins to the
point of just breaking even, more farmers may choose to invest
in switching to organic (Brat (2015)).
Finally, the three-year rule applies to all types of organic
crop so it affects the choice to switch to organic but does not
affect the choice of the crop type therefore it does not add to
the argument in favor of organic corn.
3. Demand determinants for organic corn
USDA website states that consumer demand for
organically produced goods has been growing at double-digit
rates during most years since the 1990s and organic products
sell at substantial premiums over conventional ones. It is
reasonable to expect that with the overall trend towards higher
consumption of organic foods, both types of demand will
continue to experience steady growth.
According to Kaiser and Ernst (2011), organic white and
yellow food grade corn is produced for human consumption

(organic cereals, tortillas, corn chips, snack foods, cornmeal,
and other corn-based processed products) and for animal feed
(production of organic beef, dairy, poultry, and hog). Thus,
demand for organic corn has two components – final consumer
demand and animal feed demand.
In general, demand for a product is determined by
consumer income, consumer tastes and preferences, prices of
related goods, number of buyers and expectations for the future.
Consumer income. Organic corn is a normal good and if
income goes down its demand will go down as well.
Consumer preferences. Although for most people organic
goods are more desirable than conventional ones, many people
still consider them to be a luxury good and there is some
disagreement about just how significant are the health risks
associated with consumption of conventional foods (the ones
grown with pesticides, genetically modified, etc.) Future
demand for organic corn will be affected by the change in
attitudes about health risks of non-organic products. For
example, if (as unlikely as it is) new scientific evidence
suggested that conventional, non-organic foods present no
health risks, the demand for organic goods would be negatively
affected.
Price of substitutes. If relative price of substitutes -
conventional foods – goes up (which could happen if, for
example, some of the effective pesticides were banned), demand
for organic goods would increase.
Number of buyers. If more people switch from consuming
conventional to organic corn, the number of buyers will
increase.
Expectations for the future. Some people might be
incentivized to switch to organic if they believe that organic
will become relatively cheaper in the future or if they anticipate
that further evidence will be found about the health dangers of
non-organic foods.
4. Price elasticity of demand and Demand curve

There is no consistent available data about organic corn
prices and quantities demanded. I am going to assume that in
2014 the average price was $11 per bushel, and in 2015 it was
$14, whereas the quantities sold were 30 and 28 million
bushels, respectively. Then, using the midpoint formula, price
elasticity of demand can be calculated as:
Midpoint
Elasticity=
(Q2– Q1)
(Q2 + Q1)/2
÷
(P2 - P1)
(P2 + P1)/2
=
(28 – 30)
(28 + 30)/2
÷
(14 - 11)
(14 + 11)/2
, which is -0.287. The slope of demand curve is a change in
price divided by change in quantity, which is (14-11)/(28-30) =
-1.5
5. Supply determinants
The supply of domestically grown organic corn is fairly
stable in the short run because new, not recently farmed land
(“organic land”) is prohibitively expensive for most U.S.
farmers and because of the three-year transition rule for the

previously farmed land. The supply of foreign organic corn,
which constitutes about a quarter of organic corn sales in the
U.S., has more variability in the short run.
Formally, supply of a product is determined by production
costs, technology, sellers' expectations and number of sellers.
Production costs. Production costs include fixed and
variable costs. According to Kaiser and Ernst (2011), fixed
costs include cost of land, management, marketing and capital,
and variable costs include land preparation (including seeding),
purchase of seed, fertilizers, harvest and handling costs.
Marginal cost is the cost of each additional bushel of corn.
Technology. Technology is unlikely to change dramatically
– after all, the point of organic is that the crops are grown using
the methods that are “intended to mimic natural processes”
(Kaiser and Ernst (2011)).
Sellers’ expectations. Farmers’ expectations for future
prices of organic goods are an important factor for their
decision to switch to organic.
Number of sellers. Finally, number of farmers can increase
over time if conventional crops farmers will be switching to
organic (it is unlikely that the total number of farmers, organic
and non-organic, will go up a lot unless some changes in U.S.
legislation increase the attractiveness of farming business.)
Each firm aims to produce at the optimum level where
marginal revenue (price) equals to marginal cost and is higher
than average variable costs. Producing at any different level
would not allow the firm to maximize the profit and could even
result in a loss.
6. Price elasticity of supply and Supply curve
Similarly to demand data, I am going to make assumptions
about organic corn supply data. I will assume that for the prices
of $8 per bushel and $9 per bushel in 2012 and 2013, the
quantity supplied was 24 and 26 millions of bushels,
respectively. Then, using the midpoint formula, price elasticity
of supply can be calculated as:

Midpoint
Elasticity=
(Q2– Q1)
(Q2 + Q1)/2
÷
(P2 - P1)
(P2 + P1)/2
=
(26 – 24)
(24 + 26)/2
÷
(9 - 8)
(9 + 8)/2
, which is 0.680. The slope of supply curve is a change in price
divided by change in quantity, which is (9-8)/(26-24) = 0.5.
7. Cost of switching to organic
Switching to organic will imply operating at a lower profit
in the first three years, and possibly even at a loss. For the first
three years the revenue will be lower than before (selling price
will be equal to non-organic because it is still too early to be
able to call yourself organic grower, however the crop yield will
be lower because we already use organic way of farming). At
the same time, the costs will be higher because organic
processes are more labor intensive and in addition natural
fertilizers are probably more expensive than chemical ones.

8. Recommendation
My recommendation is that if the lost profit in the first
three years is expected to be lower that the gains from
additional profitability of organic corn (the benefit that can be
reaped starting from year 4), the farmer should switch to
organic. In order to estimate if the switch should be advised it
is necessary to develop forecasts for future market price of
organic corn and the likely yield of the farmer’s land if farming
is done in organic way.
References:
1. Bjerga, Alan. “U.S. Forced to Import Corn as Shoppers
Demand Organic Food”, Bloomberg News, April 15, 2015.
http://www.bloomberg.com/news/articles/2015-04-15/romanian-
corn-imports-to-u-s-surge-as-shoppers-demand-organic
2. Brat, Ilan. “Hunger for Organic foods stretched the supply
chain”, Wall Street Journal, April 3, 2015.
http://www.wsj.com/articles/organic-food-firms-tackle-supply-
constraints-1428081170
3. Kaiser, Cheryl and Matt Ernst, “Organic Corn for Feed or
Food: Crop profile”, Center for Crop Diversification, University
of Kentucky College of Agriculture, Food and Environment,
February 2011.
https://www.uky.edu/Ag/CCD/introsheets/organicfieldcorn.pdf
4. Mercaris Price Preview: What Trade Data Reveals About
Organic Supply in the U.S.
http://www.mercariscompany.com/newsletters/14
5. McNeil Maggie, “Benchmark study yields key insights into
global organic food trade”, April 15, 2015.
https://ota.com/news/press-releases/18062

1
982426Price, $Q, mil bushelsSupply
14112830Price, $Q, mil bushelsDemand
Marketing Analysis. i need 3 parts to cover with all the
information that needs to be covered. There are some
instructions to follow and might be some correction or
adjustment after submission. There are quite a lot of info,
reading and research. 10 pages at least.
Positioning: We came up with the following statement
that reflects the ideal position of our brand:
Our Subway is a healthier alternative to fast food without
sacrificing taste, as our invigorating menu offers organic
options with a range of exotic spices.
Target Market: Ages 25- 40
Young Professionals
Health conscious
“Working Moms”
College Students
Brand equity: The strategy for brand equity growth
consist of ensuring consumers that we are a healthier alternative
to fast food by offering organic ingredients from local
suppliers. By doing this, the restaurant will not only take
advantage of the “organic” and “homegrown” trends but also be
perceived as a good “corporate citizen”. Menu will also
include signature subs made with Caribbean, Asian and Middle
Eastern flavors.

Pricing Strategy: A premium pricing strategy will be
employed and justified by the healthy, organic, diverse menu.
Promotion Strategy: “Two for one” deals will be offered
during slow periods.
Team please refer to the attached template to see what should be
included in your sections.
article online, looks like we are on the right path
I think it can be viewed as an opportunity.
https://www.washingtonpost.com/news/wonk/wp/2015/06/04/su
bway-is-cutting-fake-colors-and-flavors-that-wont-make-it-any-
healthier/
Marketing Plan
Template
http://www.subway.com/storelocator/default.aspx
1
Executive Summary
Mission Statement
Situation Analysis
Industry Analysis
Environmental Analysis
SWOT Analysis
Competition Analysis

Marketing Strategy
Growth Strategy
Objectives
Target Markets
Positioning
Marketing Mix
Price Strategy
Product Strategy
Promotion Strategy
Distribution Strategy
Financials
Marketing Controls
IMPLEMENTATION
CONTINGENCY PLANS
Table of Contents
2
Executive Summary
3

Situation Analysis
INDUSTRY ANALYSIS
Current status of the Fast Food Industry
Changes in the Market
Total Size of the Market in terms of Gross Sales & Units
4
Situation Analysis
ENVIRONMENTAL ANALYSIS
Technological Developments
Economic Trends
Social Factors
Regulatory Factors
5
Situation Analysis

SWOT ANALYSIS
6
Situation Analysis
COMPETITION ANALYSIS
Provide details about the competition
Competition Strengths & Weakness
7
Marketing Strategy
GROWTH STRATEGY
Subway is launching new menu options (i.e. the product) that

will target new market segments, thus the need for a
Diversification Strategy
8
Marketing Strategy
OBJECTIVES
Should be the following:
9
Marketing Strategy
TARGET MARKET
Subway has their own target market but this section will
consider the ethnic background of the Subways target market.
We will employ market segmentation

10
Marketing Strategy
POSITIONING
Sample chart. Depends on Market Research figures.
11
Marketing Mix
PRODUCT STRATEGY
State 5 Product Levels
How is Product Classified
How is it Differentiated
12
Marketing Mix

PRICING STRATEGY
Pricing Objectives
13
Marketing Mix
POMOTION STRATEGY
Media Selection
Promotion Budget
http://smallbusiness.chron.com/promotion-strategy-restaurants-
52398.html
14
Marketing Mix
DISTRIBUTION STRATEGY
State Strategy
State Distribution Process

http://www.smallbusiness.wa.gov.au/business-in-wa/about-
sbdc/corporate-publications/business-guides/marketing-place-
distribution-strategy/
15
Financials
SALES FORCAST
BREAK- EVEN ANALYSIS
16
Marketing Controls
Describe the process of measuring marketing results and
adjusting the plan as needed

17
Marketing Controls
IMPLEMENTATION
18
Marketing Controls
CONTINGENCY PLANS
19
Marketing Mix
The marketing mix for the Subway comprises of the
product, price, promotion and distribution strategies of the
Subway.
Product:
The product offered by Subway to the customers is the
Subway sandwiches along with side options of cookies and
beverages including aerated drinks and coffee. The five levels

of the product in the product strategy are core product, generic
product, expected product, augmented product and potential
product. In case of Subway, sandwiches are the core product
which has the purpose of satisfying the hunger of the individual
(Armstrong et al., 2009). It serves as a meal for the people and
the core intention of the Subway sandwiches is to satiate
hunger. The second level of product is the generic product
which comprises of the qualities which the product possesses.
Subway sandwiches have the quality of satisfying the hunger in
a healthy and non-fussy manner. The sandwiches can be eaten
while travelling unlike fine dining or a full meal; however, one
sandwich is sufficient to make a person feel full.
The third level of product is expected product which
provides the aspects that a customer expects from the product
upon purchasing. Subway’s expected is a healthy, delicious and
fresh sandwich that provides the benefits of a healthy meal to
the individual. Augmented product is the fourth level of a
product and it includes the additional factors that differentiate
the product from competitors. Subway sandwiches are offered in
several options of meat, vegetables and spices and the
customers could choose from large menu, prepared in front of
customers in a hygienic manner.
Potential product is the fifth level and it comprises of the
changes which the product may undergo to enhance the product
attributes. Subway sandwiches could include more meats such
as kosher and halal and falafel patties to appeal to the ethnic
groups. Further changes in the menu could be done to ensure
that the popular breads within ethnic groups are also offered to
customers as the sandwich base.
Price:
The prices of the Subway’s products are comparatively
more than the competitors. The company uses the value-based
pricing strategy to differentiate its offering from the
competitors. Subway has a unique theme of providing healthy
yet fulfilling meals to customers which are hygienic, fresh and
prepared in front of them, giving them full control of their

meals. The hygiene standards at Subway are exemplary and all
these factors make customers attack higher value to Subway
meals. This enables company to use good-value pricing wherein
high quality of goods and services are provided for reasonable
prices.
Subway also uses Everyday Low Pricing (ELP) as it offers
Sub of the Day for the low prices (Kotler & Keller, 2011).
Every day of the week a specific sub is offered for lower prices,
which allows customers to have the same product and service at
a lower price. The pricing objectives for the location with the
diverse menu are;
· Increasing the market share of Subway as a result of
increasing appeal to the ethnic groups
· Building the relationship with new and existing customers
through diverse menu which understands and meets their
requirements in a better manner.
· Attract the ethnic groups to try Subway
Promotion:
For promoting the diverse menu, Subway would use
integrated marketing communication to generate interest and
awareness of their new menu. The new menu would be launched
at one location initially and the promotional campaign would
include advertising, sales promotions and public relations. As
the menu will be launched, outdoor advertising using print
media, billboards, wallscapes and GPS-enabled advertisements
would be used (Kotler & Keller, 2011). As an introductory
offer, for the first week of menu launch, the new subs would be
offered for a price of $4 per piece. Some local charity events
would also be sponsored such as fitness race wherein the ethnic
groups would be the target population and free subs would be
provided to the participants in the event.
The promotional campaign would be run for three months
and the total promotional budget is $73,000. The detailed
budget is;
Promotion
1st Month

2nd Month
3rd Month
Advertising
· Pamphlets
$1,500
$1,500
$1,200
· Newspaper advertisements
$3,000
$2,000
$1,500
· Billboards
$15,000
· Wallscapes
$22,000
· GPS-enabled mobile advertisements
$3,500
Sales Promotion
· Discounts
$3,000
Public Relations
· Fitness Race
$8,000

· Healthy Eating Community Event (in coordination with local
NGO)
$10,000
Total
$56,000
$13,500
$3,500
Distribution:
Subway uses the direct distribution strategy as the subs are
prepared in front of the customers and served to the customers.
The company uses exclusive distribution as Subway sandwiches
are available at Subway outlets only. The new menu will
initially be launched at one location only and the direct,
exclusive distribution strategy would be used.
Marketing Controls
In order to assess the success of the new menu and the
marketing plan, marketing controls would be practiced. The
first marketing assessment would be performance after six
months of the marketing plan implementation. The measures
which would be used to assess the success of the marketing plan
are;
· Profitability of the new menu: Weekly sales of the location
would be assessed to identify the sales percentage of the new
menu items. The monitoring would be done for six months.
· Return on Marketing Investment: The marketing budget of
$73,000, which is the net costs of the investment in marketing
plan, would be taken a denominator and the net returns from
marketing investment becomes the numerator. The net returns
from marketing investment would be calculated from the
revenue of sales of the new menu items for a period of six
months.
· Increase in Customers: The number of customers in the present
month would be compared with the number of customers in the

previous months adjusted for seasonality.
References
Gary Armstrong, Michael Harker, Philip Kotler & Ross
Brennan. (2009). Marketing: An Introduction. Financial Times
Prentice Hall.
Kotler, P. & K. L. Keller. (2011). Marketing Management (14th
ed.). New York: Prentice Hall.
MKT Plan Group 4 Task ListTaskDetails Assigned ToTeam
LeaderCoordinate the activities of the group and consolidate
group members input. Distripute information to Group
members. Adminsitrative and Clerical duties.EXECUTIVE
SUMMARYOutlines the strategy and tactics employed in the
planDone last after the plan has been completedUsually about 1
page or lessSummary of the overall planMISSION
STATEMENTReflects the vision of the company and provides
direction for future.Normally found on the websiteIf your
company does not have one – make it upShould be short,
memorable and meaningfulSITUATION ANALYSISPresents the
relevant background data on the market, industry, trends and
external and internal environmentsMARKET SUMMARY –
INDUSTRY ANALYSISBe sure to address your ‘industry’ i.e.
if your product is a car, you look at the auto
industryENVIRONMENTAL ANALYSISSWOT (refer to
template)Review page 49 in your textS = Internal company
StrengthsW = Internal company WeaknessesO = External
company OpportunitiesT = External company
ThreatsCOMPETITIONReview competitors both direct and
indirectMARKETING STRATEGY Growth strategy (refer to
competitive strategy option & Product market
combinations)This is where your team will decide what growth
strategies you want to employ in the plan From your growth
strategies will come your objectives and tactics (4 P’s)On page
42 and 43 in your book, several are givenNatoliThere is the
Intensive Growth which will be the focus of your plan

OBJECTIVESEstablish Marketing Goals and ObjectivesGoals
are qualitativeObjectives are quantitativeNatoliObjectives are
what you will be MEASURED on at the end of the plan
period.These are Marketing objectives NOT corporate Sample –
Increase market share from 50% to 75%Develop 2 new products
this yearDo NOT simply use “increase profit by 20%” that is the
corporate goal – your job is to plan HOW you will actually DO
that.TARGET MARKETSRefer to the 4 ways to segment a
market in Chapter 8 in your book.POSITIONINGReview
Chapter 10 on how to craft your brand positioning.Do a
positioning statement.MARKETING MIXPRODUCTIn this
section you will be doing your product STRATEGY – not a
description of the productSee Chapter 13What are your 5
product levels? How is your product classified? How is it
differentiated?PRICE In this section you will develop your
product STRATEGY – not list the price of your product.See
Chapter 16What are your pricing objectives? PROMOTION with
budgetWhat will you choose to communicate your
product?Which media?Do a budget for your promotion. Give
yourself enough to work with. See Chapters 19-
22DISTRIBUTIONWhat is your strategy?How is your product
distributed?See Chapter 17FINANCIALSAll I am looking for in
this section is a sales forecast and maybe a breakeven or other
numbers you see as necessary.NatoliMARKETING
CONTROLSProcess of measuring marketing results and
adjusting the marketing plan as
needed.IMPLEMENTATIONImplementation strategy that
describes specific tasks and the resources needed, who is
responsible, and metrics to track success.CONTINGENCY
PLANSPlans that can be implemented should something happen
that negates the viability of the marketing plan.
Case Study Group 4 Task ListGroup Member AssignedCase
Question # Case SectionLauren1Introduction of the problem.
State the problem, the reason for writing this case study, clearly
and succinctly. In a detective story, the crime happens right at
the beginning and the detective has to put together the

information to solve it for the rest of the story. In a case, you
can start by raising a question. You can, for example, quote
someone you interviewed.Fahad2Background on the company. A
company's past can greatly affect the present and future state of
the organization. Make sure your case study analysis
investigates the company's founding, critical incidents,
structure, and growth.Renne3Identify the strengths and
weaknesses of the company. For example, make a list of the
value creation functions of the company. For example, the
company may be weak in product development, but strong in
marketing.Yvon4Identify the actors. Describe the key players,
from the CEO to the plant floor manager, in the study. Provide
information on their education, how they got to their current
position, their business philosophy and their views and roles in
the problem the study is spotlighting. In this section, a strong
case study will also describe unique qualities about the person.
For example, if the company leader wears Brooks Brothers
button down shirts, but works in the Silicon Valley where
executives wear polo shirts, put this in the case study. It is a
piece of information that speaks loudly about one of the main
players in the study.Caroline5Evaluate the problem or the
potential solutions. Make sure this section requires the reader to
think critically and analytically about the different paths to
take. Make sure to have enough information for a good analysis.
Some of the areas you can spotlight can be: corporate level
strategy; business level strategy; business strategy
implementation and organizational structure.Lauren & Viola
Come to a conclusion. Your case will need a conclusion. Rather
than putting in your answer in the case, leave the reader with
some more questions.1. Do you agree with HubSpot that eh
‘rules of marketing’ have changed? If so, how? Is inbound
marketing the answer? Why or why not?2. Is HubSpot
finding and serving the right set of customers? Given its
position as a start-up company, should it widen its focus to
serve any customer that comes its way? Or narrow its target by
focusing on either Owner Ollies or Marketer Marys? Or by

focusing on either B2B or B2C customers?3. HubSpot has
begun to differentiate its products as it has learned more about
its customers. Should it do more? Should its pricing strategy
change too? Does the software-as-a-service (SaaS) pricing
model work for both MMs and OOs? Should HubSpot try to
immediately capture more value for either of these
customers?4. Are Halligan and Shah Being too stubborn by
not doing any outbound marketing? Of should they continue to
practice what they preach by focusing on inbound alone?5.
Halligan and Shah want HubSpot to be to marketing, what
salesforce.com is to sales. What would your plan of action be to
make this happen? Why would you take these actions? What
keeps you up at night about your plan?
Sheet3

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