A price strategy can help farmers attract new customers, increase sales volume, boost revenue and gain access to new markets.
The following five strategies work well in direct sales channels such as farmers’ markets, farm stands, Community Supported Agriculture, retail, restaurant and institutions.
Penetration pricing attracts customers with a low price for a limited period of time. The low introductory price reduces consumers’ perceived risk of purchasing new products.
Penetration pricing sacrifices immediate profits to build long-term relationships with buyers. The strategy assumes satisfied consumers will buy the product for full price when the offer expires.
Example: A rancher offers an introductory price on beef steaks to a local restaurant buyer. Penetration pricing gets her steaks in chef’s hands and diners’ mouths. Fantastic feedback and customer demand for the steaks on the restaurant’s menu justifies the buyer paying full price in future orders.
It is important for farmers to disclose the initial price is an introductory offer, and that the item will return to full price when the offer expires. Full transparency is critical to building positive long-term relationships with buyers.
Bundle pricing groups several like items together for a single price. The strategy prompts consumers to purchase multiple products, thereby increasing sales volume and boosting revenue.
Example: A vegetable grower bundles slow-selling eggplant with top-selling tomatoes to move more eggplant. The grower creates salsa and stew kits containing all the ingredients shoppers need for a single price.
The bundle pricing strategy is apparent in Community Supported Agriculture (CSA), where customers purchase a share of the harvest upfront, then receive regular deliveries of bundled items throughout the growing season.
3Loss leader pricing
Loss leader pricing sets prices on select products very low, assuming consumers will purchase additional products that make up for the loss. The strategy is effective in increasing total sales.
Example: A farm stand operator advertises summer squash for $1 per pound on a roadside sign. Customers stop to buy squash and also pick-up peaches, peppers and other premium priced items while they shop.
Farmers can use a loss leader strategy to gain access to new markets. Selling lettuce greens at a loss to an institutional market increases the probability the institution will purchase additional fresh food items for the salad bar.
Bulk pricing compels consumers to buy in bulk to achieve savings.
Example: A farmer prices beans at $4 per pound or the canner’s special: five pounds for $17. Consumers that buy in bulk save $3.
Bulk pricing is advantageous when farmers have a large volume of product to sell in a crowded and competitive marketplace.
5Good, better, best pricing
Good, better, best pricing creates price levels for related products based on demand or product attributes.
Example: A fruit grower offers a good level price of $8 per peck for Red Delicious and Granny Smith apples, a better level price of $12 per peck for Golden Delicious and McIntosh apples, and a best level price of $15 per peck for exotic Ambrosia and Honeycrisp apples.
The good, better, best pricing strategy allows the fruit grower to counter customers’ claims a product is too expensive: “If the Honeycrisp price is beyond your budget, consider our lower priced Golden Delicious or Granny Smith apple varieties.”
(Farm and Dairy is featuring a series of “101” columns throughout the year to help young and beginning farmers master farm living. From finances to management to machinery repair and animal care, farmers do it all.)
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