THE PRICE IS RIGHT: How To Sell Your Compost

Rodney Tyler

Over the last five years, composting as a form of solid waste management has im-proved in both popularity and public acceptance. However, even though isolated problems have occurred, they have been overcome through proper customer education and marketing strategies.

Most landscape contractors require proof of high quality, environmentally-safe products. Nationwide, compost is produced using a wide variety of compost systems and feedstocks. Since these locally-produced composts are being used on a regular basis, it suggests that manufacturers are successful in properly educating their customers and setting the right price.

Market Entry How can you determine the "right price?" Market research can identify what is popular in current markets or it can be used in forecasting in new markets. For example, in new markets, phone surveys can reveal im-portant pricing information, which can be extrapolated to include all the reseller's costs. Then, you can arrive at an approximate price the reseller is paying. After verifying this price with them, you can more accurately price your products.

Market testing involves gathering potential customers' opinions and using them in early product development. Additionally, cold calls, green industry meetings, focus groups or open forums can be valuable information sources.

Remember that all major markets have a population center that radiates outward in rings. Freight costs rise as each concentric ring is crossed.

Thus, it is less expensive per cubic yard to move large quantities than small quantities. This can be an advantage for a distributor that is accepting large quantities of a product locally when it may be too expensive for small customers to buy direct from the compost facility.

Market development also includes structuring distributors to boost compost sales through a "mini-marketing" effort. In other words, the mini wholesale or retail markets around the distributors must be developed - this effort is in the interest of both parties.

The basis for minimarketing is to develop a system that takes advantage of the freight cost differential between delivery of small and big compost loads. In almost every case, it is more economical to deliver large quantities (semi-trailers) of compost to distributors and have them resell the material in smaller quantities to customers close to their location.

For instance, it may cost $3 per cubic yard to deliver semi-loads to distributors, while delivering in single-axle trucks to retail may cost about $9 per cubic yard. The $6 per cubic yard difference is often where the distributor can make some of the money required to carry the product at their location.

Logically, if the distributor can deliver the product locally for $4 per cubic yard, it saves the retail customer $2 per cubic yard over direct-from-facility delivery. This relationship usually extends approximately 10 miles from the compost facility, but can be more or less, depending on market and competition. For most compost products, local markets will drive product development. Product lines that address customer needs and create the highest dollar return are the goal for most companies.

Although the majority of compost currently is marketed in bulk, packaging is still a consideration. Each load delivered should have accompanying product information describing correct use, the company name and the contact person.

In many states, the label must be in or with the goods when shipped. Many companies have printed the instructions on the backs of weigh tickets to ensure all customers receive the information from truck drivers.

Numerous opportunities exist to publicize compost's positive effects. For retail sales, supporting distributors through advertising in newspapers, special tabloids, banners, flyers, direct mailers or other means helps announce distributor location and product availability.

For commercial sales, tactics such as advertising in monthly trade journals and publishing how-to-use articles can be effective in reaching an audience.

Public relations campaigns include civic functions, donating materials to special events, speaking at association meetings and neutrally supporting the industry - most customers respond more to neutral information, such as an article written by an independent third party rather than one written by the president boasting about his products.

Name Your Price Picking the right price for the product can be challenging. In fact, the price of your first products is critical to long-term marketing success. Compost facilities must determine financial objectives each year before prices are established. These objectives need to be considered when pricing compost products, as well as designing and building the facility. Review the price sensitivity factors prior to pricing the product from any compost facility. Adaptation strategies are especially important when integrating the pricing function for compost factories already operating.

Since compost is lightweight and often needs to be handled in bulk, the following pricing strategies may help when considering variables such as geographical locations, promotions and other marketing issues.

Product bundling pricing. Grouping products together to sell them as a package at a specific savings. Cust-omers not normally buying all the products may do so because of convenience and price.

Captive product pricing. These are replacement-oriented, similar to cheap razors and expensive razor blades, cheap cameras and expensive film, cheap tub grinders and expensive hammer knives.

Product line pricing. Simply features the good, better and best products within the same line. This gives customers more to choose from or targets specific uses. This method of pricing promises to increase as the industry matures.

Geographical pricing. This relates to the market's distance from the manufacturer. For compost products, the maximum sales radius should be 50 miles for bulk and 200 miles for bagged transport.

The following types of pricing can be used:

* Free-on-board (FOB) origin pricing signifies that the product will be loaded, but the customer must arrange and pay for pick up or delivery.

* Uniform delivered price is similar to postage stamp pricing or "any product, anywhere, one price." This is opposite to FOB, and is based on the average delivery cost to all customers no matter the location.

* Base point pricing requires designating a central point to be considered as a new FOB. This applies well to those operations with satellite sites or distributor locations.

* Freight absorption pricing requires the company pay for freight as a form of market penetration.

Price discounts or allowances. It is often easier to penetrate a market by using the standard pricing with a discount than it is to offer the product at the lower standard price and try to raise it later. Variations are:

* Cash discounts which are common as 21/410 or net 30. Total payment is due in 30 days, but, if the customer pays in 10 days, they may deduct 2 percent. This system helps improve cash flow and collection costs by making rapid payment an incentive.

* Quantity discounts are incentives based on total orders or yearly purchase volume. This is one of the most commonly used pricing methods because it encourages customers to use more materials.

* Functional discounts are the same as trade discounts, where the supplier offers discounts based on the customer's ability to store, display or promote the product. This is effective for setting and monitoring distributorships to carry a compost product line.

* Seasonal discounts are incentives for buying off-season, such as in winter for northern climates. It may be used as a pre-season sales tactic to load customers up with supply if they have adequate storage.

Promotional pricing. These options are common in retail sales and mature businesses and are based on temporary discounts to meet a specific need:

* Loss leader pricing offers temporary discounts to attract price-oriented buyers to purchase additional products. This works well for compost products when combined with planting materials such as flowers, trees, shrubs and other landscape plants. Because compost is often less expensive compared to many of the other products listed above, a bag of compost can be "given" away with each $50 purchase.

* Special events pricing include grand openings, sales records, new management and new product introductions that can be used to attract attention.

* Cash rebates return a set amount of money depending on the rebate. This may or may not cost the company money, depending on the number of rebates actually returned for redemption.

* Low interest or extended financing are terms that have the effect of improving initial cash flow or seemingly reducing the price.

Promotions Promotional activities include specials, giveaways, campaigns, contests, sponsorships, community projects and demonstrations. As markets mature and competition increases, there will be more special mixes to offer for various plant families. As this "blend trend" increases, the need to review the product mix more often will in-crease, especially with promotions.

Another effective tool for promotions is to send news releases to media around the compost facility market. This is one of the oldest forms of free publicity, but is difficult to control due to the influx of other newsworthy releases.

Releases regarding new personnel, products or company changes have a greater chance of being printed than those bordering on advertising.

Sales Strategy Basic sales strategies begin by performing a "customer needs" analysis and identifying the product's benefits to them. Knowing how much to depend on sales revenues to make the entire compost facility profitable helps avoid confusion among operational priorities.

In some industries, service is more important than the product or salesperson. For compost marketers interested in repeat business, a high-quality product backed by exceptional service is the way to structure a winning plan.

Identifying strengths and weaknesses easily can be done through a "SWOT" analysis (strengths, weaknesses, opportunities and threats) for each area. Addressing SWOT honestly will start an initial sales strategy in the right direction. Additionally, SWOT often provides a good starting point for an annual marketing plan.

For example, ABC compost facility recently opened in Big City, USA. They have no previous experience in marketing any organic products. They produce an A-1 product and are a financially-stable company. The closest competition is a local fertilizer dealer who knows everyone and has just started selling organic fertilizers.

A quick SWOT analysis shows the strength in a product, an obvious weakness for the compost facility in the area of a qualified sales representative and a threat of the recent hiring of a local organic fertilizer salesperson who will be competing for compost sales. The logical opportunity would be to hire the fertilizer salesperson or investigate opportunities for the dealer to carry the compost as a distributor.

Another important point to remember when determining price for compost products is that everything is relative to local market conditions. Generally, price will be inversely related to volume in almost all major markets. Most marketing programs selling vast quantities of compost will not be the high price leaders.

Finally, quality control is ever important and needs to be considered at every stage of the marketing planning process. If high quality is not maintained, changes in the yearly marketing plan need to reflect actions appropriately addressing the new quality concerns.

Rodney Tyler is a free-lance writer in Medina, Ohio, and is on the corporate staff with BFI Organics, Lorain, Ohio.