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Sunday, November 06, 2011

How Do You Make Decisions On Farm Equipment Purchases?



 

Is your machine shed full of green iron, or red iron, or a rainbow of colors?  Now, why is it that way?  Are your farm equipment preferences inherited from Dad?  Is it because the big regional dealer has the lowest prices?  Is it because of convenience?  Your reasons may not be the same as your neighbor, or the majority of other farmers.  But the response of farmers to those questions certain guide the way farm equipment is marketed to you.

Whether you are buying a $75,000 piece of tillage equipment or shelling out $300,000+ for a combine with the latest technology, you have a reason for going to a specific dealership and writing a check for a specific brand of machinery.  When farm equipment dealerships are selling big ticket equipment, each buyer is important.  But as farms consolidate and fewer farmers control more land, the targeted marketing of equipment will become more intense.  A group of ag economists from Purdue and Sam Houston State studied farmers’ habits of buying machinery since farms with more than $100,000 in annual sales account for 58% of the equipment purchases.

Their research premise was “understanding and successfully serving these commercial producers who represent such a large portion of machinery and equipment expenditures is critical to the success of dealers and manufacturers as they look for ways to retain customers, increase repeat customer transactions, and capture and increase customer lifetime expenditures.” 

To no surprise, equipment purchasing habits have changed overtime as the industry has changed.  The researchers uncovered a 1956 survey that reported, “A favorable price and having the desired item are the two main reasons that explain the farmer’s decision to choose a specific dealer.”  Looking at the way Deere and Company view the marketplace, the economists identified 8 segments of farmer-customers:  not-for-profit public companies, not-for-profit property owner, part-time producers, traditional producers, large producers, extra-large producers, agricultural service providers, and commercial companies.  They said Deere determined there were three segments that were growing exponentially:  the large mega farm, the custom contractor (chemical dealerships), and the not for profit group (state highway department.)

The researchers collected nearly 2,600 questionnaires which asked about equipment buying behaviors, giving choices of convenience/location, customer service/information, price, product performance, and support services, as well as equating all five, which they termed a “balance.”  They said, “Members of the Balance segment look for a capital supplier who can provide a wide array of benefits including service and information, convenience, competitive prices, and equipment that performs well,” and indicated that 59% of farmers placed themselves in that category.

Buyers in the Price segment placed 47% of their decision on the cost of the equipment, and made up 18% of the total group.  12% of the group made their decision on convenience and 48% of their decision accounted for the convenience and location of the equipment dealer.  Performance of the equipment was the reason 12% of the purchases were made, and those buyers reported that 50% of their decision was performance related.

1. Of the group in the segment considering themselves to make a balanced decision, the researchers say they are slightly less educated, with 27% having a college degree, slightly older than producers in other segments, with 37% of them having gross sales over $1 million.  24% of the group were crop operations and 24% were livestock operations.

2. Producers in the convenience category had the least education, were the oldest segment, had the smallest farms, and more likely to have livestock.

3. Producers in the price segment have the second highest level of education, are the youngest, and 37% have gross sales over $1 million.

4. In the performance category, the members had the most education, were the second youngest, and were more likely than anyone else to be in the $1 million gross sales group. 

The economists found some significant differences in the way farmers made their purchasing decisions.  “Although there are no significant differences across segments, slightly over half of the respondents make decisions without input from others. For these producers, it is important for technical representatives and salespeople to directly approach the primary decision-maker. The second largest set of respondents make decisions after extensive discussions with other family members and/or employees. For these producers, it is important for technical representatives and salespeople to engage more members of the operation.”

Balance buyers are the most likely to report that they are brand loyal. Price buyers are the least likely to report they are brand loyal.  Balance and Convenience buyers also prefer to buy their capital items from one supplier.  Performance buyers are the most likely to notice differences in the quality of ser-vices provided by local suppliers, followed by Balance buyers.  Slightly over half of the respondents indicated that they use their dealer/supplier’s financing options. 

Summary:
Farm equipment buying decisions are based on price, convenience, performance, and a balance of those.  Each group will have a predominance of demographic factors of age, education, and gross farm sales.  The balance group includes nearly 60% of all buyers, but farm equipment makers and dealers can structure their marketing to individual groups based on the demographic characteristics.

Posted by Stu Ellis on 11/06 at 11:51 PM | Permalink

Comments

There is a very interesting PhD thesis on this topic done a while ago by Maarten Kool (Wageningen University), for those who are interested visit: http://edepot.wur.nl/132857

Posted by: Joost M.E. Pennings at November 7, 2011 7:07AM

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