Opinion: Why growers should call the pricing shots
By Golden Sun Marketing president Don Goodwin
I can only imagine what it is like to work all year to bring a crop to market, ship it by water, and then hand over the process of establishing its value to a remote seller. Sure, the process has worked well much of the time for many years. Many of these remote sellers have been long established and have performed admirably. Yet, the marketplace continues to consolidate more power in the buy-sell relationship into the hands of fewer buyers. It’s time to give control back to the growers.
Over the last seven years, my company has had the privilege of working with several sales teams of produce companies. We have helped the owners measure and analyze performance, develop strategies for key customers, and look for ways to optimize net returns to growers. One simple conclusion is that selling produce is a complex process. It involves balancing today’s volume with customer needs while taking a long view of grower returns. Many pricing decisions are made in the moment with the buyer on the other line. Watch it all happen and it’s easy to see why growers don’t always get the best returns. In general, most sellers have a hard time saying no to a large customer. Many buyers know this and try to push until they find the limit.
Keep sellers on their toes
I propose that growers need to be asking better questions of their sellers. In reviewing performance of sales teams at the individual level, we are seeing huge disparities between the top and the bottom. In some cases, the top performers are selling three times more cases at substantially higher selling prices, sometimes as much as 7-10%. Some of this is due to customer mix; however, I submit that much of it is a result of the skill of the seller. The first discussion you should have with your sales agent is to ask to see the sales of your products by seller. Make inquiries about the sales training process and ask, “Are you adequately training or replacing your lowest performers?” Challenge them to improve performance not just at the aggregate level, but at the individual level.
At the customer level, we are seeing even greater disparities in net pricing. We are challenging all our clients to measure each of their customers in terms of pricing, rejections, payment terms and so on. We are encouraging them to eliminate the bottom 5 -10% of their customer base each year. Of course, they don’t really call up those customers and say, “We won’t sell to you anymore.” – or – that they don’t want to sell to them anymore. Instead, they simply raise their prices to be more in line with the cost to serve them. In many cases, the customer never really leaves. We often see them buying less product at higher prices. So, the next question you should ask is, “Are you eliminating the bottom 10% of your customers each year?” If you do, your returns will increase.
Price it right
The final area where we see opportunity for improvement is in contract pricing. Growers have seen tremendous increases in input costs over the last few years. Yet, contract pricing has not increased at the same pace. We often challenge our clients to proceed cautiously when offering long-term pricing. Can you make more if you have a smaller volume commitment from a contract customer? Can you live without them? What analysis are you completing to determine the correct contract price? Are you aggressively selling the customer on the need for higher pricing? Why should the basis for contract pricing be this year’s price when discussing next year. Supply will be different. Growing costs will be different. Does your seller have the courage to say no?
With all respect to the many fine sellers in our industry, I know we can do better for the grower. Growers need to take more control of how their products are sold!
Golden Sun Marketing provides strategy and marketing services to the fresh produce supply chain from seed to retail.