In the Q2 CC Hugh Grant revealed an important policy shift in Monsanto’s strategy for pricing seeds. The essence of the shift is that products will be priced to increase market share rather than set to recoup a certain percentage of the projected $ value enhancement to the farmer.
Thus, the major drivers of price will be competitive pressures rather than value enhancement .... At first, I suspect , the farmers will be pleased with this policy shift because it will result in lower prices on the premium brands. But with time, I anticipate that many lower priced seeds will become unavailable due to the competitive pricing and costs to the farmer will increase because of forced changes in mix to more premium seed.
A corollary to this strategy shift is that there will be regional specific changes in the packaging of the various ancillary treatments with the seeds (e.g. seed treatments, insecticide/herbicide-seed packages, ...) to fine tune competitive pricing. This will provide the farmer more options, but at the cost of greater risk (i.e. the farmer might forgo a treatment that is advantageous only in occasional years in an effort to reduce costs).
This shift has been driven by the success of the competition in gaining market share on the basis of price. Apparently, Monsanto believes that it will be harder to fight price competition when selling future traits that promise yield advantages rather than reduced herbicide and insecticide costs.... I agree, yield advantage will be hard to recognize with consistency on the individual farm due to confounding variables of weather, soil quality, etc. ... It will be seen in the population statistics, however.
The critical quotes were:
Hugh Grant in his prepared remarks:
Some of our competitors have been less successful matching our new product innovation and have been more focused on creating bigger price gaps against us. That competitive price focus is a near term factor so we have to be as flexible and as innovative in our pricing as we already are in our product development. That’s especially true now that we’ve entered the era of selling yield traits rather than insect and weed control ones.
Our revitalized product strategy enables us to evolve a more dynamic pricing model.....We have experience with both pricing for penetration and now upfront all-in pricing that we employed with SmartStax and Roundup Ready 2 Yield and with that full data set it tells me that penetration pricing is probably the better option, both for us and for our customers.... So in some cases, we may adjust our value spread relative to competitors. In others, we’ll bring in new products at brand new price points, and in even more we’ll be looking to enhance our value proposition with the inclusion of additional meaningful benefits.
So in some cases, we may adjust our value spread relative to competitors. In others, we’ll bring in new products at brand new price points, and in even more we’ll be looking to enhance our value proposition with the inclusion of additional meaningful benefits.
Hugh Grant in the Q&A:
<Q – Don Carson>: Yes, a question on pricing for penetration. Based on our calculations and, of course, lower corn and soy prices it seemed you’re asking for about 50% of value created. Traditionally you’ve priced more to get a third of the value creation. Is that the kind of shift you’re talking about? And what, if any, implications does this have for your previous volume targets in ‘11 and ‘12 for both SmartStax and RR 2? <A – Hugh Grant>: ... So let me try and frame this, because when you talk about penetration pricing, the immediate reaction is broad-based price cuts. ...But in some areas geographically we’ll move in price relative to our competition, and we’re not going to declare that today, but directionally we’ll narrow that gap. And in other areas we’ll bring in a new suite of products, and that will be based in corn largely on our new Double PRO and our VT Triple PRO. And they’ll work underneath the SmartStax umbrella and those will give us the opportunity to create pricing ladders and bring growers into the products at a different price point and a different experience point....And then in the last area that we’ve been working on in the last couple of months, we’re taking a hard look at our value proposition where we can bolt on benefits and have the choice or the option of selling those at the same price. A great example of that is the migration from refuge reduction to RIB. And we had not priced RIB into our future value expectations. So that’s a benefit for the grower that would not be seen as a price move but would add a great deal of incremental value to that bag. ...
<A – Hugh Grant>: Yeah, I just – I’d only add one thing. It kind of ties back to Don’s question a lot earlier, and that is, we will be driving a product strategy that’s kind of back to the future. So it will tie back to our early experience on penetration pricing. And when you take a penetration pricing approach, which is more focused on rapid adoption, then I think it’s fair to assume that there will be a volume driver within that. So rather than the analytics on how big is the gap between price and volume, I think as we look at this new strategy, we’ll be focusing more on that volume driver effect, and we’ll populate that through a broader range of product offerings, but also trying to get faster, earlier trial by growers. And that was the feedback from 1,200 growers this year. And when you get told the same thing often enough, it becomes pretty compelling.
<A – Hugh Grant>: ....And as we spent a lot of time on this call talking about pivoting a new product strategy, about getting much more aggressive in the penetration pricing and product strategy approach. But our firm belief, and you hear this clearly from growers when you go out and sit down and talk to them in their own backyard, innovation is the trump card. Innovation that drives yields, that makes the grower more efficient, is the trump card. So as we look to the future out beyond 2012, and the long-term viability of this business, it begins and ends in our ability to deliver that innovation to growers here and around the world.
AI
