What Purpose Does Packaging Serve?

Take a minute to think about the last packaged product you purchased.  Was there anything about the package that drew you to it?  Perhaps the size, shape, color, or story about the business on the label?  Or, perhaps you prefer glass to plastic.  I know that when I'm traveling and stop for a snack, I'm usually looking for something in a resealable package (I don't want my snack getting loose in my bag or car, after all!).

I look for resealable packages,
like this one, when traveling.

When it comes to a package, it serves four principal functions:

• Containment - Obviously, with multi-item products, such as my M&Ms, they need to be contained in some fashion.  As do food products such as juices, jams, sauces, etc.
• Protection - There are many reasons we want our food products protected through the use of packaging - protection from the elements, from possible tampering, from shock, vibration, etc.  Packaging helps to ensure that food items are in the same condition when the consumer purchases it as it was when produced.
• Information - Packaging serves as a convenient place to provide a variety of information to the consumer about the product itself, as well as the company that produces it.  Information can range from legal requirements, such as nutritional information and ingredients, to stories about the company background or founders.  Product packaging also conveys information in the form of "trade dress," or the set of visual characteristics that help the consumer identify products from the competition.
• Utility of Use - Let's face it, packaging makes life easier when it comes to using the product, whether it be pouring, dipping, or storing the item.  The right package can make a big difference.

However, packaging also helps with the mental placement of a product in peoples' minds.  I saw this quote in the book Successful Food Packaging Design and wanted to share it:

"Packaging is people's perception of the brand; it's that core....When people think of your product - whatever kind of food it may be - they picture the package it comes in" (Mark Greene, Pecos Design)

Every mix of packaging material(s), color(s), size, and other characteristics sends unspoken messages to your customers about your product.  I'll discuss some of these elements in coming posts.  However, food entrepreneurs should first be concerned about these four functional aspects of packaging.

Food Products and UPCs

by Winifred McGee, Extension Educator, Dauphin County

There are so many things for a new business owner to consider as the product moves from a "vision" to reality.  When the food items are created to have shelf life, designing an appropriate package is always part of the process - and whether to include a Universal Product Code (UPC) on that package is always a consideration.  Food products that will be sold exclusively in farmers' markets, specialty stores, or over the Internet (so that they never pass over a scanner) do not require barcodes.  However, if a would-be food entrepreneur envisions the product in a grocery or big box store sometime in the future, having the code on the label will, sooner or later, be a necessity.

UPCs were launched by a 10-pack of Juicy Fruit gum
and a hand-made laser scanner.

Although many of us cannot remember a time when UPCs were not common in the marketplace, the initiation of this system is "relatively" recent.  A UPC produced its first familiar "beep" when a 10-pack of Wrigley's Juicy Fruit gum passed over the prototype scanner at March Supermarket in Troy, Ohio, on June 26, 1974.  The technology is actually 39 years young!

At a 2004 ceremony commemorating the original first scan, Tom Jackson, the president and chief executive of the Ohio Grocers Association, said "(t)he bar code has forever changed the world and the way we do business as an industry."  Although other industries had experimented with barcodes before 1974, the groceries were early adopters of the UPC, since this technology allowed the stores to change from using item-level price tags to shelf tags, and eliminated the keypunch errors at the register.  In an era before the "super store," grocery stores of the 1970s had a finite number of price lookups (PLUs) and the average customer bought a number of items per store visit - this made these retail establishments a "natural" for trying out the concept.  March Supermarket was chosen to be the first to incorporate the technology because of its proximity to Dayton (home of the NCR where the checkout counter was designed).  After a number of years of "trial and error," it was noted that using barcodes resulted in fewer under-rings (reducing revenue loss), and helped keep shelf inventories more efficiently - forever linking UPCs with grocery stores.

Almost 40 years later, food entrepreneurs who visualize their gourmet jams, salsa, or meat rubs on a retail shelf will find that joining the tradition of incorporating a UPC is a must.  For a proactive business owner, including a barcode with the first run of labels may make great sense, so that the product is ready when the demand is right.  Since UPCs depend on company-specific codes, barcodes must be purchased from a vendor.  This is most easily accomplished by going to the non-profit company, GS1 US.  Although barcodes are available at other sources, GS1 US guarantees that each company prefix will be unique, and they provide the tools and training for business owners to get started using UPCs.

This familiar UPC is a "must" for selling through
groceries and big box stores.

The amount a company pays for barcodes is determined by the number of distinct products the company makes (and the number of different sizes of each variety) since each flavor and quantity will need its own code.  A secondary factor affecting the cost of barcodes is the annual gross revenues realized by the business.  New customers can easily estimate the fees that they will likely pay, using the downloadable Barcode and Fee Estimator, available on the GS1 US website.  The smallest purchase increment available is 100 barcodes, and the smallest revenue level is "less than $250,000" - these two factors resulting in an initial fee of $760 and annual renewal fees of $158.  While this may seem like a lot of money to spend before a wholesale contract is in hand, the costs will most likely be greater if an entrepreneur waits to retro-fit packaging (that is, to include the barcode) until he or she actually has an order from a store.

Being ready to respond to the demands and expectations of the customer is the road to business success.  In a marketplace laden with choices, it is much easier to launch an exciting, professional-looking food product that catches the consumer eye.  Food entrepreneurs who are looking for more information about food packaging may reference Food Labeling, a Penn State Extension fact sheet covering basic label requirements, or visit the Penn State Extension's Packaging and Labeling resource page.  For more comprehensive information about starting and growing a food business, look for a Food for Profit workshop near you this fall - bookmark the site and return in July to see upcoming class dates and locations.

Financial Management Invaluable for Farm Success

by Miguel Saviroff, Extension Educator, Somerset County

A farm business depends on its finances!  Financial management is as critical as the other components of the business, such as crop, labor, nutrient, and pest management.  Lenders expect farmers to manage the funds they lend to them, so a farmer-lender relationship is very important.  Credit institutions will rarely extend credit when there is no visible record of your past income or when a financial plan cannot be prepared to convience them of the ability to use funds efficiently and repay the loans.  Financial literacy and management are a must for anyone aspiring to be a successful farmer.

Miguel Saviroff leads a Farm$en$e workshop

The Farm$en$e program trains farm managers who receive financial assistance from the USDA Farm Service Agency.  The course is 25 hours spread over 4 days.  Making decisions on the farm is a daily activity, but buying land or equipment requires informed decisions and the use of financial statements.  The program covers the use of the balance sheet, a "snapshot" of the farm financial condition at a single point in time.  In order for the balance sheet to balance, total assets on one side have to equal total liabilities plus shareholders' equity on the other.  The accrual income statement is a summary of the revenues, and the expense associated with generating those revenues, during a production cycle.  The accrual concept applies directly to agriculture; farm managers in the program learn that changes in inventory are part of the farm revenues.  The cash flow budget statement allows producers to project cash flows for each month of the upcoming year; it is the best financial planning tool.  Participants are required to prepare these statements for their own farm.

The workshop is designed to teach farmers how to assess their financial strengths and weaknesses, to identify the specific goals of the farm, and how to prepare a production plan that outlines the changes required to improve profitability.  Enterprise budgets are used to better analyze short and long run fiscal impacts and evaluate profitability.  Managing risks like price, cost, and interest rates are considered in this plan.

Monitoring financial ratios can be useful to adjust operations throughout the year, rather than once a year.  Borrowers attending the program learn to calculate their farm's financial ratios obtaining them from the key financial statements.  The liquidity ratio measures the ability to pay bills when due, the solvency ratio indicates the amount of debt relative to equity, and the profitability ratio indicates the true financial performance of the business.  These ratios are applied to troubleshoot and fix financial and production problems.

As many beginning farmers, Orlo St. Clair, attendee of the program, lacked land, equipment, managerial experience and access to financial resources.  St. Clair started as a herd manager on a farm in Indiana County.  "I asked the owner if I could raise my own heifers, and he accepted," St. Clair said.  "I wanted to have a base to start with."

Orlo St. Clair and his girlfriend review some of his financial records

"Since I am a production guy, usually it is my sister helping me with the financial accounting, but now I enjoy planning my year's cash flow," said St. Clair, who milks 90 cows and crops 175 acres.  "Thanks to the Farm$en$e program, I am able to plan my goals, changes, and measure the impact on the net income due to these changes."

Penn State Extension and the FSA assist farmers in adopting the financial tools necessary to become active managers.  For more information about Farm$en$e, contact Miguel Saviroff at the Somerset Extension office at 814-445-8911 ext. 144.

Youth Entrepreneurship - Developing a PASSION

by Michelle Kowalewski, Extension Educator, Susquehanna County

There are no specific traits that are required to be a successful entrepreneur, but one thing that is required is a PASSION for something specific you are drawn to.  One's "passion," or "love for what you do," must be realized; it cannot be substituted nor can someone else tell you what it is!

Your passion might be to be your own boss, or to be creative, or a desire for change.  Nothing else keeps you going, and your passion must belong to you.  Whatever the passion is, it's a "must!"  It's the passion that pushes entrepreneurs through difficult times with the necessary drive to find answers to seemingly unanswered questions.

Working with the 4-H animal science project members, I find that they have a passion for raising, showing, and selling livestock.  These 4-H youth, believe it or not, are running a business.  The life skills they are developing through these projects are skills that will help them in their next business venture as adults.  Skills such as decision making, record keeping, and marketing are all things that apply to an entrepreneur.

An enterprising youth shows off their market hog

The first step in the process for them is selecting a market animal (decision making) and then deciding where to house the animal, what to feed the animal, and also when to do routine animal health treatments.  Members keep careful track (record keeping) in their project record book of when things are done and if an expense or income might be associated with any of the activities.  The project book serves as the member's business plan as they use it to set goals and gauge their accomplishments and level of success of the project.

On of the most important parts of a successful market animal project is the sale of the animal.  By raising a market animal, they are part of the food supply continuum.  As the producer, they are responsible for providing animals with the proper care and environment needed to produce a safe and wholesome product for customers.  Members are strongly encouraged to reach out to potential buyers (marketing) and invite them to attend the auction and hopefully purchase his or her animal(s).

The 4-H animal science market animal project is just one example of youth entrepreneurship.  It goes without saying that a 4-H'er must have a mentor in order to fully do everything involved in raising a market animal.  That mentor might be a parent, 4-H leader, or friend.

In closing, think about what you or your children are passionate about and see how it fits into a possible long term life plan.  Serve as a youth mentor and help them develop their passion.  There are many ideas created by youth that have turned into famous products, such as Popsicle® which was created by accident by 11-year old Frank Epperson in 1905.  Although it took him years to develop, perfect, and patent his product, Popsicles® are a household favorite among my youngsters!

Pricing Power for Direct Marketers

by John Berry, Extension Educator, Lehigh Co.

Agricultural marketing activities account for over 17% of the nation's gross national product.  Additionally, roughly eighty cents of every consumer food dollar goes to cover marketing expenses.  Clearly, performing some marketing chores are a possible source of increased revenue for food producers.

Is $1.00/lb the "right" price?  Well, it depends...

However, when we take on the chores of marketing many challenges must be expected. Academics tell us marketing consists of product, promotions, placement, and pricing.  One aspect of marketing that generates many questions is the function of pricing.  "What should I be pricing my melons at?" is heard on many visits to local farm markets.  This leads me to suggest that prices and pricing must be a well thought through piece of your overall marketing plan.

I firmly believe cost of production is the basis of calculating price.  If our price does not at least cover our cost of production we are not even trying to break even.  My mantra is "I can sit on the porch all day and be broke. I don't need to work and be broke."  As an integral part of the marketing plan, price must be flexible enough to meet the competition and adjustable to changing situations.  Having a clear idea of your marketing objectives and the target market for your products makes selection of a "proper price" easier.

Is the Point Profit?

As we get comfortable with setting and adjusting our retail prices, we can start to consider if we are trying to maximize total profits, or the profit per unit.  Are you willing to take a lower price if you could sell more units?  The following table gives you a picture of this "game."  The first row states that if your margin is 10% and you reduce your price 5%, it will take an increased sales volume of 100% to meet your planned revenue goals.

Current				Required %
% Profit		% Price		Increase in
Margin		Reduction		Sales Volume
10		5		100
15		5		50
15		10		200
20		5		33
20		10		100
25		5		25
25		10		67

An effective pricing strategy reflects four factors:

• Your cost for each product.  Retail price needs to cover the cost of the good itself and ideally include a profit in addition.
• Possible sales response to price change.  Many consumers are aware of the going market price.  We do need to understand how our most significant buyers might respond to price adjustments.
• Costs and prices of the competition.  If my cost of production and thus price, is higher than my real competition's selling price; why would customers buy from me? This is where we start to talk about "value" and not price.
• Probable responses from the competition to what you do.  Many successful businesses pay attention to competition.  How might the alternative sources of your products respond to your prices and any price adjustments?

Proper pricing is essential to long-run business success, and pricing is as much a marketing concern as an accounting one.  Additionally, pricing strategies can be a measure of management effectiveness.  Ultimately, as we develop effective pricing strategies we harness the power of retail farm marketing.  We are able to more easily reach our enterprises' marketing and financial goals.