PRICE POLICY OF HORTICULTURAL SEED COMPANIES OPERATING ON THE POLISH MARKET

Tomasz W. Bralewski, Roman Hołubowicz
Department of Horticultural Seed Science and Technology, August Cieszkowski Agricultural University of Poznan, Poland

ABSTRACT

The paper shows the problems of the price policy of horticultural seed companies operating on the Polish market in the trade seasons from 1999/2000 to 2004/2005. It characterizes different strategies of seed companies, the way of calculating seed price by them and a role of the price in fighting down competition. It shows how a seed bag size affected the elements of final seed price, margin and earning level.

Key words: price, price policy, seed company, seed market, seed marketing.

INTRODUCTION

In the conditions of constantly increasing competition, marketing has become more and more important. This is because on the developed markets, it is easier to produce than to sell [23]. Marketing consists of classical marketing mix, i.e. product, price, distribution and promotion, which was fully characterized in numerous literature positions [15, 16, 24].

This paper characterizes one of the elements of activities of horticultural seed companies operating on the Polish market – their price policy. Price has been one of the important elements affecting decisions about buying seeds by professional gardeners on the Polish market [2].

MATERIALS AND METHODS

The problem concerning the price policy was characterized based on information received from horticultural seed companies operating on the Polish market and analyzing their trade materials, including mostly price lists. The carried out research included 6 seasons of selling seeds from 1999/2000 to 2004/2005.

RESULTS

The price policy of the horticultural seed companies operating on the Polish market included two elements: the way of calculating seed prices and a role of the price to fight down the competition.

The principles of calculating prices of seeds were different for domestic and foreign companies. The representatives of most of foreign companies operating on the territory of Poland were only importing seeds. When calculating the seed price of the imported seeds, they were using their own margin. Foreign currency exchange rates had the biggest effect on their seed price strategy. Therefore, big differences in the rate forced them to correct the price during the year¹.

Seed price calculation by Polish seed companies were based mainly on the simplified method of summing up costs. In the case of strong competition though, the price was calculated using the demand-supply method. In the used method, seed companies were calculating the level of profitability on different seed weights for individual species and cultivars describing the following elements: seed cost, permanent cost of a company, and seed bag price. For the calculated this way profitability level, they added their own margin. The participation of the elements in the final price was different and strongly depended on the seed bag size, species, cultivars (Fig. 1) and a company. The recorded differences amongst the tested companies came mostly from differences in the permanent costs and margins in the individual companies.

When using the method of summing up the cost of seed bags, some regularity could be seen. Smaller the seed weights, bigger participation in the final seed price the price of a seed bag and margin, smaller participation in the final price the permanent costs and seeds. These regularities, especially the one saying that smaller the seed weight, smaller the participation of seed cost in the final product price, had a crucial effect on profitability levels for large seed bags of various vegetable species. They very quickly got unified when the seed weights in the bags went down. The process was really quick in the weight range from 1000 g to 100 g and in some species – also down to 50 g. In the seed bags with the weights of 50 g or less, the profitability levels were very similar (Fig. 2).

The changes of elements of price of seeds and bags sometimes resulted in unification of seed price of different cultivars when their seed weights were low (Fig. 3). This was so despite the fact that companies kept price differences for the individual cultivar for all range of bags’ size.

The height of margins used by seed companies varied much. They depended not only on a species, cultivar and seed bags weight but also on seed policy of a seed company. Their height fluctuated from several to a few hundred percent of the full cost² of getting a bag of seeds (Fig. 4). Despite such level of the used margins, the mean income earned by the Polish seed companies was only several percent of their turnover value.

The seed price was one of the crucial areas of competition amongst the analyzed seed companies³. Its role in the fight for the market was the biggest in the case of selling small seed bags to amateurs. In the case of selling bigger amounts of seed to professional gardeners, cultivar and seed quality were as important as the seeds’ price.

When analyzing price strategy of Polish seed companies in the trade seasons from 1999/2000 to 2004/2005, there could be distinguished 2 basic strategies of seed prices: balanced and unbalanced. The first one was based on the stable prices, which were hesitating only slightly in the individual trade seasons (Fig. 5, company no 2). It concerned seeds sold in large bags to professional gardeners by all the companies tested and small bags in the case when a company was selling large amounts of such seeds on the amateurs’ market. The unbalanced price strategy consisted in large, often reaching some scores of per cent, fluctuation in a price of a single bag of seeds amongst the individual trade seasons (Fig. 5, company no. 1). The latter was used by small companies, which wanted to increase their selling on the amateurs` market taking advantage over large companies competing with them mostly by a price.

The analysis of the price strategies of seed companies in the trade seasons from 1999/2000 to 2004/2005 also showed that the real price of retail seed bags went down or did not change (Fig. 5). Despite the fact that a common amongst seed companies opinion that seeds are too cheap, the companies were using price as a basic tool for combating competition. This was especially well seen on the amateurs’ market in the case of small seed companies⁴.

Sometimes, however, the competition was only seeming, because although the company did lower the price of the bag it was only due to lowering the weight of the seeds inside it⁵. The price on the market came only from the competition amongst the Polish seed companies, because the foreign companies small bag seeds were always a few time more expensive than the domestic ones (Table 1). Also in the case of the seeds additionally improved offered to the professional gardeners⁶, the prices offered by the Polish companies were more attractive than the foreign ones. The price policy was also affected by wholesale dealers, who have been always considering a seed price as a basic element of competition and effectively opposing the tries to increase prices by the seed companies⁷.

DISCUSSION

In their research the authors showed the role of a price policy in the strategies of seed companies, what confirms the opinions of Bojerski [1] and Szpitter [26]. The price was found to be the basic tool of competition on the market used by the Polish seed companies. The same conclusion concerning the role of a price in the competition combat was presented by Grzegorczyk [10], Waniowski [27], Ducker [4], Kowalczewski [17], Penc [22], Strzelczyk [25] and Mruk [20]. Galicki [9] showed that a price lowering as a way to enlarge market, though according to Strzelczyk [25] a price reduction is a sample and easy to follow instrument, however, with little final effectiveness. According to Knecht et al. [14], competitiveness in the range of the same product is based firstly on its price and quality and only then – on advertising and brand. Christopher and Peck [3] claimed that following price lowering will become a worry of many producers in the incoming decade.

The authors showed lack of balance between use of competition on the market of price and other excluding price tools. A need to keep such the balance was pointed out by Waniowski [27] and Mruk [20] as a character of a beginning development of a market.

The characterized by the authors’ methods of calculating seed prices – summing up costs and supply-demand were presented by Hołubowicz [11]. The methods, as the elements of a proper price policy were also mentioned by Waniowski [27]. It was found, however, that the tested seed companies used two other methods mentioned by Hołubowicz [11] – based on costs and based on bonus.

As described by Łaguna [18] and Mruk [20], the authors proved the existence on the Polish market the phenomenon called “downsizing”, i.e. lowering the product’s price by lowering its weight. So, one of the price competition was seeming lowering of the weight of seed in a retail bag when keeping the same price per unit. This, unethical towards a client behaviour, was also pointed out by Mruk [19]. This, however, could be overcome by showing information where a comparable price per unit (e.g. per 1 kg) is used. It the case of the tested seeds, such information was not found though.

The authors found out that the competition amongst the Polish seed companies has led to the stagnation or decrease of prices of seeds on the Polish market in the recent years. As mentioned by Christopher and Peck [3], the lowering of products prices in the recent years has been an all-market phenomenon. The problem of too low prices of seeds as a result of a price policy of the Polish seed companies on the domestic market was already mentioned by Just [12] and Nicholsson [21]. Klarzak [13] mentioned lowering seed prices as one of the results of crisis and competition, which affected the Polish seed sector, when adjusting it to the conditions of free economy market. The seeds from the Polish seed companies were cheaper than from the foreign ones, what has been also confirmed by the data presented by Podlaski [23]. He also pointed that high prices for sowing material in the developed countries come from high costs of the breeding programmes and improving quality of seeds before sowing them. A conclusions can be then stated that majority of domestic seed companies prefers to base their incomes on large turnover and small increases of seed prices, what, as mentioned by Szpitter [26], in the case of large companies, guarantees a market success in a more save way than a large price increase and small turnover. The recorded in this research income of the Polish seed companies was several percent of their annual turnover. According to Duczmal, the income in the European Union’s horticultural companies may reach from 10-15% [6, 7] to 15-20% [5, 8].

CONCLUSIONS

1. The price policy of horticultural seed companies operating on the Polish market consisted on the following elements: the way of calculating the seed price and a role of the price in combat the competition.

2. The representatives of a majority of foreign companies operating on the Polish market, as importer of the seeds, calculated the price by adding their margin to the price of the imported seeds.

3. The Polish seed companies calculated the seed prices mostly based on a simplified of summing up costs method including the cost of seeds, permanent costs of a company, the cost of a seed bag and a margin. In the case of a strong competition, the seed price was also calculated using the demand – supply method.

4. Smaller the weight of seeds in a seed bag, bigger the participation in their final price the cost of seed bag as well as a margin and smaller and smaller the permanent costs of a company and seeds.

5. The significant differences between the profitability levels of large seed bags of various species of vegetables very quickly got unified when lowering the weights of seeds in bags.

6. The heights of margins used by the Polish horticultural companies were very different and fluctuated from several to a few hundred percent of the total cost of getting a small seed bag. It increased when lowering the seed weight.

7. The mean annual income earned by the Polish horticultural seed companies was several percent of their turnover.

8. The seed price was one of the basic areas of competition of seed companies, especially on the market of small bags for amateurs. In the case of the seeds sold to the professional gardeners, it was not of the highest importance.

9. In the trade seasons from 1999/2000 to 2004/2005, there were 2 basic strategies of the price policy used by the Polish horticultural seed companies: the balanced one and the unbalanced one. They concerned the smaller seed companies operating on the amateurs’ market and competing with the larger ones mostly by the price.

10. In the trade seasons from 1999/2000 to 2004/2005, the real prices of small seed bags sold by the Polish seed companies lowered or were not changed.

11. The price competition amongst the Polish horticultural seed companies on the market of small seed bags for amateurs sometimes only seemed and consisted in lowering the bag’s price by decreasing the seeds’ weight.

12. Strong competition leading to lowering a price of seeds was a specific of the Polish seed companies, because the foreign companies` seeds for both professional and amateurs’ gardeners were always more expensive than the ones from the domestic companies.

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FOOTNOTES

¹ Information about ability of changing the seed price during the trade season, depending on the exchange rate with PLN, the companies were usually submitting into their catalogues.
² Some seed companies in Western Europe orientated mostly for selling their products to professionals are using, in the case of the amateurs market, the margins over 1000%.
³ Out of the horticultural seed companies with a meaningful participation in selling seeds, the exception is the French-Polish joint venture “CNOS-Vilmorin”, which has been usually competing on the market not with a price but using other marketing instruments (e.g. bags and various offer).
⁴ Sometimes when learning about prices of competitors, the companies were changing already printed price lists before putting them on the market.
⁵ Proving such practices was difficult due to the common omitting to infirm about the unit prices (e.g. per 1 kg), what could enable to objectively compare prices of individual products.
⁶ Some companies entered the market with a special product line of the improved seeds solely for professionals. Such seeds have been available for example from the company “Polan” – since 2001 and “PlantiCo Zielonki” – since 2002.
⁷ There was a misunderstanding of the mechanism if: higher the price for a unit, then it is enough to sell lower number of bags to get a satisfactory financial result with the same level of price discounts offered by a seed company.

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