VEGETABLE SEED DISTRIBUTION ON THE POLISH MARKET. PART II

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

ABSTRACT

In this paper, the authors characterize problems concerning distribution of vegetable seeds on the Polish market. They discuss creating distribution channels and managing them. The research results were based on information received from seed companies and other participants in vegetable seed distribution systems. The research was done for the years 2001-2004.

Key words: seed distribution, seed company, seed market, seed marketing.

INTRODUCTION

Every company that wants to carry out trade activity and develop on the market must base its activities on an established strategy. At present, companies have a pro-market orientation which has led to an increase in the importance of marketing [19,20,21]. Distribution, in addition to product, price and promotion belongs to the classical marketing mix [11,12,22]. Such marketing factors as product, packaging, price or promotion would not play their role in the market, if there were not a proper system of distribution, guaranteeing clients’ access to company trade offers.

MATERIAL AND METHODS

The role of distribution in the Polish vegetable seed market and problems connected with seed distribution channels are presented in this manuscript. The data was provided by seed companies operating on the Polish market and other units dealing with the seed trade. Data was received from the following Polish companies: CNOS-Vilmorin, PlantiCo Zielonki, PNOS Ożarów Maz., Polan, Spójnia, Torseed i W. Legutko. The research was carried out in the years 2001-2004.

CREATING VEGETABLE SEED DISTRIBUTION CHANNELS

The creating of seed market distribution channels started at the consumer level. To begin, final purchasers of seeds were identified taking their geographical location into consideration <footnote 1>. Then, the possibility of reaching them with the existing distribution system was analyzed. If this was not possible, a new channel of distribution was created. It was critical not to create competition amongst one seed company’s distributors.

The development of distribution also included getting new markets. Each new wholesaler (middleman) brought the company new buyers for seeds in their region of activity. The important issue here was a certain policy toward co-operation with newly acquired wholesalers not to create competition in the same area of activity. Also important was avoiding competition within the same company on the same level of distribution through co-operating with middlemen <footnote 2>. A selling channel could be developed passively where a candidate for a wholesaler was looking for a company or actively where the company was looking for candidates for wholesalers. Each new candidate declaring the will to co-operate was checked in terms of his/her reliability. Most of the companies took into consideration business of their own contributors (wholesalers) with a certain amount of turnover <footnote 3>. Especially rigid segregation into the operating areas was reported for Polish companies representing foreign enterprises. Their system of distribution was based on regional representatives (distributors) <footnote 4> (Fig. 1). An active building up of distribution channels by a company was usually based on guaranteeing a wholesaler a more profitable price discount than he had had before.

An agreement with distributors was covered by a multi-year written contract. A typical agreement included provisions for price discounts, transport, wholesaler storage, the terms and methods of payment, promotion activities, <footnote 5> and dispute resolution procedures.

In the case of purchasers with whom the company was just starting its co-operation, a mortgage or bill of exchange was used to back up a value equal to the value of seeds received. Some companies treated all of their wholesalers this way. Creation of a new distribution channel was sometimes connected with the necessity to force a seed company to change the product, package, price or promotion. Examples of such integrated activities are presented in Table 1.

MANAGING VEGETABLE SEED DISTRIBUTION CHANNELS

Limited abilities of seed companies to affect the seed distribution channels resulted in the fact that the number of contributing distributors (wholesalers) was not permanent and was changing constantly. The more built up the distribution channel, the smaller the control over it by a seed company. When working under conditions of permanently built up distribution systems, a seed company, in order to manage them effectively, kept controlling its middlemen.

First, there was an annual assessment of wholesalers which was the main bases for continuing co-operation with them and setting up conditions for continuation. This included the amount of sales, number of returns, <footnote 6> and honesty in paying on time. Based on this information, the seed companies made decisions concerning the basic price discount given to an individual wholesaler and the deadlines for payments (Tab. 2) and payment schedules. The Polish seed companies in the years 2001-2004 used various systems of basic price discounts. They varied from 10-19% to 20-28% <footnotes 7 and 8> (Fig.2). Sometimes this discount was enlarged by a bonus price discount. It was used when large amounts of seeds were sold in a short time or the wholesaler paid for them upon receipt <footnote 9>. For such distributors in the trade season 2004/2005 the bonus price discount was 3-5 %.

The system of seed distribution on the Polish market was based on a whole series of free services run by the seed companies for wholesalers. They were stipulated in the agreements. They included:

• transport of seeds without any limitation - this was based on the size of an individual order. In the case of smaller orders, one seed transfer was done for a few orders from the same area,

• making available (with return deposit) or selling mobile stands to encourage attractive seed bag displays <footnote 11>,

• providing all printed advertising materials such as brochures, folders, catalogues, posters, calendars, etc.,

• organizing lectures and talks for wholesaler's clients (e.g. professionals gardener),

• organizing courses for the employees of a wholesale house,

• promoting the best wholesalers and middlemen by putting their names and addresses in the advertising materials of a company (e.g. in a catalogue or promotion article in branch journals).

In addition to discount systems, and payment deadlines and terms, the seed companies tried to encourage their wholesalers to sell more seeds for them through rewarding the ones with the highest selling record after each selling season <footnote 12>.

For wholesalers who did not abide by contract provisions, the companies used the following restrictions: 1/ stopping or delaying new seed delivery, 2/ breaking off the co-operation agreement. In the case of not paying for seeds received, the companies used their bills of exchange to sue the wholesaler in court or authorizing their professional collection company to regain the money owed. In addition, delaying payment or not paying some wholesalers engaged in unethical practices such as:

• selling seeds at higher prices than agreed <footnote 13>, which came from the desire to increase earnings or to sell more seeds from one company than from another based on prices competition,

• selling seeds at a lower price than agreed <footnote 14>, which came from the desire to sell seed from the former trade season before the seeds lost their viability.

Challenges connected with management and control of the seed distribution system came predominantly from the fact that on the Polish market most seed wholesalers sell seeds from many companies. Such wholesale houses comprised 90-99 % of the total working companies co-operating with Polish seed companies operating in the years 2001-2003.

DISCUSSION

When characterizing seed distribution on the Polish market, attention was paid to numerous marketing activities undertaken by individual participants of the distribution channels. These activities are called marketing-logistic management [31, 32] or marketing logistics [2]. As mentioned by Kauf [13], Marciński [17] and Christopher and Peck [2], achieving integrated marketing and logistics often gives a competitive advantage to a company. According to Swercewicz [29] competition on the market also requires co-operation of the individual participants of the distribution channels in order to increase services for clients. Wide co-operation in distribution channels is now a permanent element of the market [5, 6, 26, 27, 30]. One such Marketing activity carried out by a seed company was promotion support, what, as claimed by Czubała [4] and Nowacki [19], was an important element of their marketing activities. The middlemen, in turn, as mentioned by Czubała [6], expect this marketing support.

Numerous supporting activities were carried out by seed companies for their wholesalers. This phenomenon was also described by Sławińska [26] and Czubała [7, 8]. These activities, as written by Czubała [7], built loyalty of middlemen in the distribution channels. Some seed companies imposed regressive activities on some wholesalers when conflicts in the distribution system developed. This was also mentioned by Downey [9]. Also Ostrowski [20] has written about such conflicts. However, most of them end with an agreement. Results of this research allowed the identification and description of some activities in the area of marketing that wholesalers do for seed retailers. Such activities including promotional support and adjusting offers to meet client's expectations are also characterised by Ostrowski [20] and Reformat [25].

The most important tools that the companies used when negotiating with wholesalers were price discounts and extended deadlines for paying. At the same time, this built wholesaler’s loyalty to the seed companies. This was in agreement with facts previously reported by Czubała [3, 8] and Sławińska [26]. They considered both elements as factors affecting middlemen. Just [12] has written about long term credit given by seed companies to private wholesalers who took over seed distribution channel functions of collapsed co-operatives after 1990. He also discussed large seed price discounts and prolonging payments for seed as elements of competition amongst Polish seed companies. Also Kowalczewski [16] has written about the effect of competition on improving payment conditions in seed distribution channels. The reported level of seed price discounts for Polish wholesalers ranged from 10-28 %. According to Hołubowicz [11] this range varies from 10 to 20 % and according to Duczmal [10] it was15-20 %. Companies were also giving additional (bonus) discounts for individual products. This phenomenon was also described by Czubała [4]. The short term credit terms or deadlines for paying described in this research were more developed (longer and varied terms) compared to the study by Hołubowicz [11] who as a rule has reported the period as 30-60 days.

Similar to other researchers [3, 4, 7], the authors pointed out the requirement/desire by the seed companies for exclusive rights for the activity of a wholesaler to operate in a given area as an important element in building up a distribution system. Such procedure eliminates the horizontal competition in the distribution channels and reduces conflicts [20].

Despite the fact that co-operation of the company with wholesalers limits its direct contacts with clients [3, 4, 8] and releases it from costs of building up the distribution channels [4], this way of building up a distribution channel may lead to producers losing control over it [3, 4]. At the same time, the authors paid attention to problems of managing the seed distribution channels in Poland due to their building up. In such circumstances, as mentioned by Czuba [8], companies encourage fewer bigger middlemen in order to make distribution channel management easier.

FOOTNOTES

1. For example, a distribution channel, in which one of the levels was a trade network, the arrangement of individual shops was not important, whereas the geographical location of potential clients was crucial in the case of concentration of professional gardeners in a given area.

2. For example, some Polish seed wholesalers considered it competition when a domestic company developed seed sales to amateurs by mail or through the internet.

3. A definition of a seed wholesaler with a significant selling record in a majority of domestic companies stands for one whose turn over in one trade season exceeds the value of at least 100,000 PLN. The biggest wholesale houses, selling seeds for over 500,000 PLN per trade season, could count on exclusivity of operation in a certain area (e.g. around 120 km). However, it happened that seeds were sold in one trade area by two wholesale houses operating in two different distribution channels: one was selling seeds solely to professional gardeners, whereas the latter was selling seeds to middlemen offering them to amateur gardeners.

4. Sometimes, depending on the distribution policy of a company, the regional representatives were full time employees of the company.

5. Usually, a seed company’s agreement with a wholesaler requires the wholesaler to carry out promotion activities.

7. The example range of seed price discounts: 15-19 %, 20-21 %, 22-24 %. The lowest discounts are usually given to wholesalers who sold seeds in a single trade season for less than 100,000 PLN.

8. Some companies offer wholesalers products with an additional discount. This is done to increase the selling of a given product during a certain period of time.

9. A wholesaler could pay money directly to a company cashier or bring proof of money transfer to the company’s bank account. Some companies applied the discount if money was paid within 7 days after receiving the seeds.

10. Some companies limited the maximum number of shipments free of charge.

11. The seed companies offer a few different kinds of seed stands: from small, rotary ones designed to be kept on a counter (for 3-4 thousand seed bags) to a large, stationary stand (for 15 thousand and more seed bags).

12. These activities depend on additional promotion (sales promotion) carried out by seed companies.

13. Price higher then shown in a seed company offer for a given season.

14. Price lower than shown in a seed company offer for a given season.

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Accepted for print: 15.10.2006

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