Thursday, March 27, 2008

Promotional program impacts

Several in the Green Industry have postulated regarding the impacts of generic promotion programs and there are rumblings (at least there were before the economy slowed) of another industry-wide generic promotional program surfacing. It behooves us to consider all of the case study experiences before embarking on such a task. To that end, the most recent HortScience contained an article analyzing the effectiveness of Texas citrus promotions that also has some interesting insights for other commodity promotion programs.

This study finds that Texas citrus promotion programs have effectively enhanced shipments of Texas grapefruit and that the benefits of the promotion efforts in terms of increased grapefruit industry revenues are greater than the costs. The study also finds that the promotion programs have had no statistically discernible effects on Texas orange shipments and, hence, have not generated returns to Texas orange growers. Although specific to the promotion program of Marketing Order 906, these results provide some important insights for the operation and management of other commodity promotion programs, particularly those at the state or regional level:

Growers in a particular state or region can successfully promote the demand for their products if they are sufficiently differentiated from those produced in other states or regions as in the case of Texas grapefruit. However, funds invested in promoting homogenous, undifferentiated commodities like Texas oranges are unlikely to stimulate a shift in consumer demand for those commodities.

Even for undifferentiated commodities like Texas oranges, however, advertising can enhance buyer loyalty by reducing their price responsiveness. As a result, a weather-induced run-up in price, for example, is less likely to drive buyers to alternative sources of the product.

The gains from promotion can dissipate quickly if the marketing order or other commodity promotion group fails to at least maintain its level of promotion funding from year to year.

How a marketing order or other commodity promotion group chooses to allocate its promotion funds among alternative promotion activities can influence the effectiveness of the funds in enhancing demand. In the case of Marketing Order 906, a shift in promotion strategy away from merchandising to public relations likely contributed to a decline in the effectiveness of promotion activities.

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