- - AGRICULTURE CORE CURRICULUM - - (CLF1000) Advanced Core Cluster: AGRICULTURAL BUSINESS MANAGEMENT (CLF1450) Unit Title: MARKETING ______________________________________________________________________________ (CLF1451) Topic: INTRODUCTION TO Time Year(s) MARKETING 2 hours 3/4 ______________________________________________________________________________ Topic Objective: Upon completion of this lesson, the student will be able to: Learning Outcome #: *-* - Explain the basic concepts of marketing. (M-1) - Explain what is meant by the term, "free enterprise system." (M-2) - Describe key factors in marketing. (M-3) - Describe types of markets. References: Luening, R. A., Klemme, R. M., & Mortenson, W. P. (1991). THE FARM MANAGEMENT HANDBOOK (7th ed.). Danville, IL: Interstate Publishers. Resources: Deere & Company. (1987). FARM AND RANCH BUSINESS MANAGEMENT (2nd ed.). Available from: John Deere Technical Services, Department F, John Deere Rd., Moline, IL 61265. Evaluation: Completion of activity assignments, final marketing plan, and marketing plan presentation. TOPIC PRESENTATION: INTRODUCTION TO MARKETING A. What is marketing? 1. Marketing is the process of finding buyers for the goods and services produced by a business. 2. Marketing involves: a. Advertising b. Contacting potential buyers c. Negotiating sales d. Packing and shipping e. Grading and storing f. Buying and selling 3. Agribusiness managers must consider their marketing options with the goal of producing a quality product sold at the highest possible price at the most profitable time. 4. A marketing plan is needed when making decisions about what to produce or sell. B. What is a market? 1. The term "market" refers to a place where buyers and sellers come together to determine the price of various commodities. 2. Businesses generally operate in two markets: product (output) markets or supply (input) markets. Other terms relating to different types of markets include: a. Wholesale markets where goods are bought and sold by businesses, usually in large quantities. b. Retail markets where goods are sold to consumers. c. Farmers' markets where producers sell goods directly to consumers. d. Local markets where producers in a region or area sell their products; examples are local grain elevators, stockyards, or wholesale produce markets. e. Stock markets and commodity markets where financial instruments such as stocks, bonds, futures contracts, and options are bought and sold. No actual product is brought to or sold at these markets. 3. Economies of different countries vary depending on how much control the government has over prices, wages, and the use of resources. a. In a free market economy, the government exerts no control over prices, wages, and resources. b. In a command and control economy, the government fixes wages, prices, and resources. c. Most countries have a mixed economy where prices are determined partly by markets and partly by government. d. In the U.S., prices are determined mostly by markets. e. The U.S. government does intervene in some markets, particularly those for basic agricultural commodities such as grain, sugar, and cotton. 4. Property laws affect how markets operate. a. Where private ownership of the means of production is allowed, the economy is said to be capitalist. b. Where private ownership of the means of production is not allowed, the economy is said to be communist. c. In the United States, the system of capitalism combined with a mostly free market economy is called a free enterprise system. Property rights are controlled to a certain extent by government, as is demonstrated by the Williamson Act in California (which allows differential treatment of farmland for tax purposes). C. How Markets Work 1. Buyer or consumer wants and needs are the basis of market pricing and become the basis for the allocation of scarce resources. 2. Consumers' wants and needs are directly expressed in the marketplace. 3. Buyers make their wants known by "voting" with their dollars, effectively "bidding" the price up on whatever scarce items they want. 4. Businesses and producers must monitor changing buyer wants and changes in the prices of the supplies and services they purchase with the goal of maximizing profits. 5. In a market economy the consumer is king and businesses strive to meet the consumer's wants and needs D. The "Invisible Hand" 1. Adjustments in supply and demand through the operation of markets are often referred to as the "invisible hand" which directs the allocation of resources. This term was coined by economist Adam Smith in 1776. 2. The following example shows how markets operate to allocate resources. When consumers learned that eating beef was not as healthy as eating chicken, they began to buy less beef and more chicken. Meat buyers began to order less beef and more chicken. The price of chicken at first increased as more buyers chased the same number of chickens. However, producers soon began to produce more chicken and the price stabilized. Just the opposite happened to beef prices. At first beef prices dropped but, over time, production was reduced and the price of beef stabilized. More recently beef producers have focused on producing leaner beef in response to consumers health concerns. E. Profits and Marketing A. Profits are the motivating force for going into business. Profits serve as a reward for the willingness to take the risk of operating a business enterprise. 1. In order to maximize profits, businesses strive to buy inputs at the lowest possible price, and to sell their products at the highest possible price. 2. A business makes decisions about what to produce depending on the profitability of production. If profits in one area (chickens) increase, then the business will produce more chickens. New businesses will also begin to produce chickens. 3. Profits signal to business which products are hot and which are not. In this way, profits are very effective in helping to allocate scarce resources. B. For a producer, the goals of marketing are: 1. To produce, pack, and ship products of the most profitable grade possible 2. Deliver products at the most profitable time 3. To minimize risk 4. To take advantage of scaricity or lack of product 5. To take advantage of specialized product markets ___________________________________________________________ ACTIVITY: 1. Discuss the function of an auction in price discovery. 2. Using the example of fads in fashion, discuss how profits help to guide producer decisions. 3. Go to a wholesale fruit and vegetable market if one is nearby. Interview a produce broker or producer and find out how the prices of fruits and vegetables are determined. 4. Discuss the merits of the free enterprise system considering the "freedoms" of the system and its effectiveness. When should the free market system be regulated? Discuss why our society bans certain drugs but condones alcohol and cigarettes. 5. Read and discuss the case study, "Pigs and Coconuts," pages 7-2 and 7-3 of John Deere's, FARM AND RANCH BUSINESS MANAGEMENT. ___________________________________________________________ 12/11/91 EEZ/ez #%&C