Strategic positioning.

The retailer/dealer continues to play an essential role in the distribution channel for agricultural inputs. However, retailer/ dealer organizations are often hammered by dramatic changes both before (manufacturer) and after (farmer/grower/rancher) their position in the channel.

These challenges include:

1. The changing farm customer base including consolidation and changing purchasing strategies;

2. Continuous cost pressures as rising labor, energy and regulatory compliance costs continue to erode profit margins;

3. Commoditization of product offerings/generics as suppliers in general are increasingly facing more competition from lower cost generic and off-patent products;

4. Commoditization of service as it becomes part of the "standard" offer, and provides little differentiation; and

5. Consolidation in the channel as players capture economies of size and "shorten" the channel with fewer players from manufacturer to farmer; and

Of course, such changes bring opportunities as well as challenges and a key question becomes how should a retailer/dealer strategically position itself to survive and thrive in such a chaotic market environment? We offer the following thoughts on this question.

1. Segmentation will be even more aggressively pursued. Given increasing consolidation among agricultural producers, "value add" will be defined by the customer, not the retailer/dealer. Large growers/producers will consider each element of the product/service/ information bundle individually. Flexible approaches allowing substantial tailoring to meet individual needs will be required. This will place heavy demands on staffing to execute such a segmentation strategy at a high level of performance.

2. "Owning" business-focused relationships will be more important. Moving to the "supplier of choice" position will force retailers/dealers to pursue key account management ideas. A deep understanding of the producer's business goals and strategies is essential in creating value here. For marketers, communications on the customers' terms, be it e-mail, podcast, cell phone call, or something more traditional is essential.

3. Significant opportunities exist for local branding. As retailers/ dealers consolidate, they achieve scale to justify investments in building a local brand. Branding here is built around superb execution of a local, customer-focused model. In an environment when the quantity of communication keeps escalating, a well developed local brand can play a very important signaling role to producers literally drowning in information.

4. Services will be managed as a profit center. This point covers the service waterfront: service pricing, quality management, cost measurement and management, and profitability analysis. Some retailers/dealers may likely adjust their service portfolio as a result of the search for profit from services--dropping some services that no longer create value, and moving into new areas where producers will "buy" instead of "make."

5. Efficiency gains will be driven through multilocation management skills. There is no question that efficiency and cost management will become increasingly important. At the same time, there will be pressure to keep service levels high. This requires retailers/dealers to carefully look at every aspect of multilocation management: plant economies, number of locations, timing of operations, utilization of equipment/people, and purchasing economies.

6. Profit growth will require exploiting capabilities into related businesses. Successful retail/dealer organizations have a variety of core capabilities: deep relationships with growers, information management capacity, service-oriented staff, regulatory compliance, and logistics abilities to name a few. Managers of these firms will look broadly for opportunities to apply these capabilities in their geography--and some of these opportunities will lie outside what we typically consider "agriculture."

7. Access to employees with necessary skills and abilities will separate winners from losers. As retail/ dealer organizations get larger, by necessity more opportunities for professional growth are created. These organizations will clearly communicate the advantages of working in a smaller/mid-size organization (flexibility, responsibility, impact, etc.), and work toward a culture that truly values employees.

Change always creates challenge, but one firm's challenge is another's opportunity. We see real opportunity for those retail/dealer organizations that move quickly, and strategically, to position their operations in the face of this new market reality.

Drs. Jay Akridge, Mike Boehlje, and Allan Gray are professors of Agricultural Economics at Purdue University. They can be reached at [e-mail]; [e-mail]; or gray@ purdue.edu.