Introduction
Niche markets and sustainable agriculture
Sustainable agriculture is often associated with small operations and non-corporate producersReference Onozaka, Nurse and McFadden1. Although their ‘small’ status may increase the attractiveness of their outputs to some consumersReference Nurse Rainbolt, Onozaka and McFadden2, small non-corporate and local agricultural producers do not possess the resources of their major corporate competitors in most agricultural produce markets. This resource mismatch not only has disadvantages with such small players in terms of direct economies of scale in production, but also in terms of their capacity to develop, manage and sustain viable channels of market distribution within the mainstream food markets, which also offer economies of scale to larger marketersReference Lev and Gwin3, Reference Oberholtzer, Dimitri and Jaenicke4.
For these reasons, sustainable agricultural producers tend to develop and retain a presence within small and discrete sub-marketsReference Conner5. These markets are commonly described as ‘niche’ markets within the sustainable food production literatureReference Conner6. Research that uses this concept is well represented within the literatureReference Berlin, Lockeretz and Bell7–Reference Magdoff10.
Although the term ‘niche market’ is widely used within the sustainable agricultural production literature, references to it have usually been incidental to other arguments and objectives. There is no research available that directly addresses the process of niche marketing as a marketing management process in its own right, and as the basis by which small sustainable food producers may establish and maintain a presence in the marketplace using a smaller resource base.
This paper makes a specific contribution in this area by demonstrating the means by which small agricultural producers can become successful niche marketers. This paper first considers the nature of niche markets, and then examines the mainstream/corporate niche market development literature. The blackcurrant industry is then introduced as an industry which particularly suits the study of niche marketing in an agricultural context. A detailed case study of niche marketing practice within this industry is then presented using populations from Canada and New Zealand. The findings are then discussed with an emphasis on how practice in this agricultural industry differs from commercial practice. This paper concludes with a discussion on the relevance and implications of these findings to sustainable agriculture's growth and development.
The nature of niche markets
There is a strong link between successful sustainable agricultural practice and niche marketing, largely because sustainable systems are frequently pioneered by individual and small enterprises which address an equally small initial marketReference Jordan11–Reference Ilbery and Kneafsey15. The ‘niche’ concept was initially developed in the context of an ecological niche which refers to an ecosystem where a particular set of natural relationships is comprised of different species in different geographical areas. Lambkin and DayReference Lambkin and Day16 refer to these similarities by pointing out that in both cases the organizations and organisms live in their immediate physical environment and must adapt to a changing local macro-environment. The organization, like a living organism, lives in this local niche environmentReference Hooley and Saunders17.
The concept that most markets consist of a mainstream market and a series of niches is well established in the marketing literatureReference Dalgic18–Reference McKenna20. Niche markets may evolve into mainstream markets, or they may remain as independent entities indefinitelyReference Dalgic18, Reference McKenna20. The characteristics of a desirable niche described by Shani, Chalasani and Kotler are: (1) it should be of sufficient size and purchasing power to be profitable; (2) it should have growth potential; (3) it should be of negligible interest to competitors; (4) the firm should have the skills and resources to exploit the niche; (5) the firm should gain economies through specialization; (6) the niche should provide entry barriers for competitors; (7) the customers in the niche have a distinct set of needs; (8) the customers will pay a premium price to the firm that best satisfies their needsReference Kotler19, Reference Shani and Chalasani21.
By specializing along market, customer, product or marketing mix lines, a firm can match the unique needs of the nicheReference Shani and Chalasani21. The strategies by which relatively small firms can survive in niches that are too small and not considered worthwhile for mainstream companies to address are also well developedReference Ilbery and Kneafsey15, Reference Jain22–Reference Pavitt24.
Shani and ChalasaniReference Shani and Chalasani21 describe ‘nichemanship’ as a method of carving out a small part of the market whose needs are not fulfilled and matching these unique needs by specializing along market, customer, product or marketing mix lines. They differentiate segmentation as a top-down approach, whereas niche marketing is bottom-up. Niche marketing, according to Dalgic and LeeuwReference Dalgic and Leeuw25, is designed to fit a specific market need; whereas segmentation aims to break the market into manageable parts based on shared consumer preferences. Kara and KaynakReference Kara and Kaynak26 conclude that niche marketing takes segmentation one step further by creating a distinct group of customers.
Although niche marketing can be carried out by firms of any size, small and medium-sized firms appear to be particularly motivated to apply this strategy as a means to reduce their exposure to price pressure and market turbulenceReference Kotler19, Reference Parrish, Cassill and Oxenham27–Reference Ward and Lewandowska32. Niche marketing is considered to be primarily defensive in natureReference Dalgic18, Reference Hezar, Dalgic, Phelan, Knight and Dalgic33, Reference Ries and Trout34. However, niche marketing may be used as an offensive strategy, where the aim is to dominate one or a portfolio of smaller marketsReference Parrish, Cassill and Oxenham27, Reference Hamlin, Henry and Cuthbert35. In either case the attraction of selecting a niche strategy lies in the ability of the niche firm to limit competitionReference Parrish, Cassill and Oxenham27, Reference Campbell-Hunt28, Reference Hezar, Dalgic, Phelan, Knight and Dalgic33. Creating a unique product or service offering that will satisfy the needs of consumers requires product and market innovationReference Maye and Ilbery30, Reference Mitchelson36. On-going innovation is often required to preserve market leadership and to maintain entry barriersReference Dalgic and Leeuw25, Reference Parrish, Cassill and Oxenham27.
As niches tend to emerge, evolve and disappear at a high rate, successful niche marketers are also actively engaged in environmental scanning and market research to identify potential new niche marketsReference Dalgic18, Reference Kotler and McDougal37–Reference Siu and Kirby41. They also employ both vertical and horizontal cooperative networks within channels of distribution to shorten the value chain and maintain contact with suppliers, middlemen and customersReference Ilbery and Kneafsey15, Reference Dimara, Petrou and Skuras29, Reference Maye and Ilbery30.
Agricultural niche markets and diversification
Producers of mainstream agricultural products compete on price and channel logistics rather than on the basis of product differentiation. The existence of agricultural/food niche markets provides smaller producers with an alternative to this strategy if the niche must satisfy the eight characteristics noted aboveReference Lev and Gwin3, Reference Conner6, Reference Ilbery and Kneafsey15, Reference Dimara, Petrou and Skuras29, Reference Maye and Ilbery30.
Niche marketing in agriculture is therefore a form of adaptive change that is commonly initiated at the individual farm or small collective levelReference Magdoff10. This may be driven by a desire simply to access new markets, or to reduce risk by diversifying farm output into a portfolio of lower volume products rather than a single outputReference Hamlin, Henry and Cuthbert35. Non-traditional crops such as herbs, and crops grown for nutraceutical purposes, as well as livestock raised for specialty markets, such as ‘Angus’ beef, are examples of niche agricultural productsReference Siebert and Jones42, Reference Basu, Thomas and Acharya43. These products are often packaged and marketed in a value-added manner through additional processing, and either direct marketed or sold via an alternative merchandising program through exclusive arrangements with processors, distributers or other members of the value chainReference Basu, Thomas and Acharya43.
Historically the niche's differentiation was maintained by the nature of the product itself, or in other words by ‘what’ is producedReference Dalgic18. In the past three decades the ‘how’ and ‘where’ aspects of an agricultural product's production history have become sufficiently important in the eyes of some consumers to support a viable niche position within which smaller producers may operate. The terms ‘organic’, ‘welfare friendly’ and ‘locally produced’ have all been used as a way of defining niche markets for agricultural products that have achieved effective market separation from their otherwise functionally indistinguishable mainstream alternativesReference Andreatta44–Reference Honeyman, Pirog, Huber, Lammers and Hermann47.
Entering niche markets: Strategy or happenstance?
The academic literature on business models and strategic market planning describes the benefits of the development of a formal business model, and written long-range marketing plans, and largely assumes that they will be developed as part of any marketing initiativeReference Morris, Schindehutte, Richardson and Allen48–Reference Schoemaker53. The model depicted in Figure 1 reflects a synthesis of the relevant literature from the marketing management and planning literatureReference Morris, Schindehutte, Richardson and Allen48, Reference Shafer, Smith and Linder49, Reference Porter54–Reference Prahalad and Hamel56. Corporate niche market selection takes place in the strategic domain which is represented by Level 1 in this model.
Figure 1. A model of the decision-making process. Based on Morris et al.Reference Morris, Schindehutte, Richardson and Allen48 p. 20 and Shafer et al.Reference Shafer, Smith and Linder49 p. 202.
The literature from which this ‘corporate’ model is drawn has a strong focus on large-scale organizations. Small businesses may possess neither the necessary skills and time nor the corporate structure/environment to develop these planning instruments. Planning in these environments may therefore be unstructured, ‘entrepreneurial’ and experientially based using unarticulated rules of thumb (heuristics) and the decision makers’ intuitionReference Allred, Addams and Chakraborty57–Reference Sandberg, Robinson and Pearce60. In this situation, the knowledge of the decision maker, gained over many production cycles, provides the framework for a heuristic decision-making model that can be applied to a variety of strategic decision-making situations. Boyd and Reuning-ElliotReference Boyd and Reuning-Elliot61 suggest that where strategic planning has been studied in these situations, the marketing variables that form a major input to more formal plans are not included. The process is highly situation/personnel specific, and therefore cannot be reliably articulated in the manner shown in Figure 1.
It is presently not known which of these approaches is used by small sustainable agricultural concerns to identify, develop and sustain the niche markets that appear to be critical to their long-term survival. There is a possibility that the unique nature of small-scale agricultural production and food products marketing may have led to an approach that does not closely conform either to the corporate or entrepreneurial model.
Blackcurrants as an agricultural niche marketing environment
The blackcurrant industry was selected as the subject of this study of niche marketing practice as it has a well-defined structure containing both mainstream and niche markets. The international market for blackcurrants is dominated by their use as the identifying ingredient for soft drinks and cordials and this market is in turn dominated by Suntory and their cordial brand ‘Ribena’ (previously owned by GlaxoSmithKline)Reference Jaques62. The ‘Ribena’ operation is not vertically integrated, and sources its blackcurrants from a variety of independent suppliers. Supply is dominated by very large and highly intensive producers. However, small producers can, and do, contribute inputs to the larger manufacturers on both a continual and an ad hoc basis. A variety of smaller manufacturers also exist within the industry, who also source from both large and small blackcurrant producers. These smaller concerns vary widely in their markets, outputs and the level of their dedication to blackcurrants as an input. ‘Barkers’ of New Zealand are a typical example: a small company that manufactures a variety of drinks, preserves and commercial/foodservice ingredient inputs made from a wide variety of soft fruit, including blackcurrants. The outcome of this flexibility is a wide variety of enterprise sizes within the industryReference Cuthbert63.
The dominance of the single beverage input market and the dominance of ‘Ribena’ within that market mean that the mainstream is well defined with a predictable behavior, and all the other markets for blackcurrants may be considered to be ‘niches’ of varying scalesReference Cuthbert63. These niches may be developed upon a variety of bases, but perceived or actual nutritional differences based upon sustainable and organic blackcurrant production practices is a well-recognized avenue of niche developmentReference Smith-Spangler, Brandeau, Hunter, Bavinger, Pearson, Eschbach, Sundaram, Liu, Schirmer, Stave, Olkin and Bravata64. This opportunity arises as an outcome of the positioning of the majority of existing mainstream blackcurrant products, including Ribena, on health/functional/ nutraceutical propertiesReference Lister, Wilson, Sutton and Morrison65, Reference Kazimierczak, Hallmann, Rusaczonek and Rembiałkowska66. Although the blackcurrant industry may not have one of the highest penetrations of sustainable practices, it represents an excellent environment to examine the marketing practices by which further penetration of sustainable practice may be achieved.
Study Aims and Research Hypotheses
The niche market literature described earlier concentrates almost exclusively upon non-agricultural corporate practice. ‘Best practice’ involves careful research to identify a specific niche, careful planning in order to exploit it, a specific single decision and then a high level of organized commitment to that niche. There is ample evidence that this approach works well in its current corporate environment, but to what degree can it be applied to agriculture and particularly to sustainable agriculture where the organizational structures, production/marketing environment, timelines and personalities involved are significantly different to those encountered in the average boardroom?
The specific objectives of the study were therefore: to identify the characteristics of viable small-scale agricultural niche markets in comparison to those of a viable niche market as presented in the literature, and secondly; to examine the planning practices of agricultural niche marketers to see if they differ from mainstream practices. This study was based on the premise that it is important for sustainable producers to understand how niche markets emerge and evolve; how the process of adaptive change is addressed through the adoption of niche marketing activities; how firms strategically manage the niche marketing process and how niche marketing can support stable sustainable practice in the agricultural sector. Recommendations that promote long-term sustainability could then be based upon this understanding.
The study hypotheses were:
H1 —The decision to enter a functional food and nutraceutical niche market based on an assessment of the attractiveness of this niche.
H2 —Agricultural niche marketers to understand the underlying characteristics of a niche market in terms of minimizing competition and reducing exposure to turbulence’.
H3 —‘Niche marketing firms to exhibit planning behavior’. Firms systematically develop strategic and operating plans that capitalize on their distinctive competencies.
Methods
Qualitative research methods were chosen for this study. The case-study method was adopted for data collection according to the procedures set out by Huberman and MilesReference Huberman and Miles67. A multiple-case-study design was chosen. Individual cases were selected from blackcurrant production enterprises with reference to predetermined criteria, the most important of which was that the cases chosen were allowed for the hypotheses to be tested. Case-study participants were drawn from an initial identified target population of approximately 50 producers within each country. The eventual sample was selected after initial study and approached the population so that it was stratified in a manner that was representative of the industry in terms of size, ownership, management structure and diversification. A total of 11 case-study participants were eventually selected for in-depth study: four from Alberta, Canada, and seven from New Zealand. Altogether 38 case-study interviews were conducted with owners and managers of the 11 producer cases over a 4-year period. Each individual was interviewed three or four times to develop a longitudinal case study (Table 1). A further 14 supporting interviews were conducted with seven processors, marketers, financial intermediaries and government agents who were closely aligned with the industry, each being interviewed twice over the 4-year period to provide data triangulation (Table 1). To enhance the reliability of interview data, additional data were gathered from written materials such as archival records and published sources.
Table 1. Interview subjects and patterns.
1 Interviews were conducted longitudinally over 4 years. Primary cases were interviewed every year, secondary cases at least three times.
2 Two interviews were conducted longitudinally over 4 years.
A focused interview technique was employed. Merton et al.Reference Merton, Fiske and Kendall68 set out the distinguishing characteristics of the focused interview as follows. First, the persons interviewed were known to have been involved in a particular situation. Second, the hypothetical significant elements of the situation were provisionally analyzed and a set of hypotheses developed. Third, an interview guide was developed; and, fourth, the interview was focused on the experiences of the persons involved in the target situation. The case-study participants interviewed for this study were all involved in the decision to adopt a niche marketing strategy.
The qualitative case-study research framework described by EisenhardtReference Eisenhardt69 was used as the basis for the interview guide. Interviews began with open-ended questions. This question format is particularly appropriate in the early stages of the interview, allowing the case-study participant to set the context of the interviewReference Merton, Fiske and Kendall68. An example of an introductory question is, ‘Please tell me about your farm.’ This could be followed by or replaced with further open-ended questions such as, ‘What is the history of your operation?’ or, ‘When (or Why) did you decide to come here?’
The interview was subsequently focused on issues of specific interest through the use of transition questions. The interviewer would focus the discussion either to elicit an explanation of the topic being discussed, to seek more in-depth commentary on an earlier discussion point, or to move to another aspect of the decision-making situation. Semi-open-ended questions such as, ‘Why did you decide on a particular course of action at that time?’ were used when the primary investigator wished to focus the interview on a particular aspect of the decision-making process. Flexibility in the interview process is an important tenet of Eisenhardt's interview techniqueReference Merton, Fiske and Kendall68.
Each interview was from 2 to 4 h in duration as this often included a tour of the production facility. The objective of the interview and the parameters of the case study were discussed at the outset of each session. The subjects being interviewed determined the number of participants at the interview. The role of each of the case participants was clarified. In each interview, the participants were decision makers (either strategic or operational) and were an integral part of the overall management of the firm.
A preliminary coding process of developing categories which became related activities was followed up by pattern coding, making connections between data items and, where required, forming new categories. The important categories were continually reviewed and a process of making connections within and among categories performed. The opportunity to use different sources of evidence assisted in the corroboration of evidence. Triangulation was assisted in some cases through access to a participant's business plan and in other cases through verification of data from third parties.
Linking the data to the hypotheses was accomplished through the technique of pattern-matching. A set of decision rules, identified by Miles and HubermanReference Miles and Huberman70 was employed for assessing the match between the observed pattern of strategic planning and the pattern predicted by the literature. Miles and Huberman stress that the selection of cases is an important aspect of building theory. They provide a set of decision rules that assist in assessing the relationships and patterns that link theoretical hypotheses and observations for each component of a case study of this typeReference Miles and Huberman70. Individual cases were selected on their capacity to supply rich detail and the related capacity to extract explanatory patterns through analysis using Miles and Hubermans’ technique. The principal analytical strategy used for this study was ‘explanation building’, a development of pattern matchingReference Huberman and Miles67, Reference Miles and Huberman70.
The blackcurrant industries in Canada and New Zealand were chosen as the specific study population. This sector offered several research advantages, such as a small population, but with sufficient diversification with respect to size, demographics (age, income), stage in the business cycle and geographic separation to contribute to external validity.
A primary case was selected in New Zealand and in Alberta, Canada as a representative specimen of each sector's niche blackcurrant industry. The primary cases were selected for their potential for initial theory building. Secondary cases were used to determine if the results obtained from the analysis of the primary cases could be replicated within the industries concernedReference Yin71. The goal was to obtain a selection of cases which, when taken together, contain a level of variation within key explanatory factors that was representative of the variation within the target population. The primary cases were selected on the basis of meeting the criteria identified by Yin of being both typical of the target population and capable of supplying a high level of detailReference Green and David72.
The secondary cases (Table 1) were selected according to size (small, medium and large) and relative diversification. Diversification refers to the number of product offerings generated by the firm overall. A diversified operation would be one selling blackcurrants (the niche crop of interest) and some other crops (field or horticulture) and/or livestock.
Division (stratification) of the results in terms of size was based on the number of hectares of blackcurrants in each operation. The reason for looking at the data in this way was to see if the decision-making process was the same when the niche enterprise was a larger part of the overall operation. The measure itself was chosen for two reasons. First, it is a convenient measure that is used in the industry when growers compare themselves to others, and second, it is an indication of the relative importance of blackcurrants within the farm's enterprise mix. The numeric aspect of the measure is country specific, since a large grower in Canada would be considered a small grower in New Zealand. The relative measures are consistent for within-country and cross-country analysis and comparison.
Findings
Hypothesis One
The applicability of Hypothesis One to the sample is not supported by the results. The expectation was that the firms in the sample would be actively engaged in scanning the environment for niche market opportunities. However, the research results indicate that the 11 small and medium-sized businesses studied are more apt to discover a niche market opportunity through serendipity than by design. They are either approached by a firm downstream in the value chain, or joined a network already selling into a niche market. These farms are not actively engaged in market research or environmental scanning. The larger firms also largely rely upon the market to present opportunities to them, to which they then react. Active scanning among these larger firms is usually restricted to short-term recovery programs after an adverse market movement.
A comparison of the decision-making process of the case-study participants with the processes that were expected, based on a review of the relevant literature for Hypothesis One, is presented in Table 2.
Table 2. Observations of the decision-making process derived from the literature compared to study-based observations for Proposition One.
The literature suggested that niche marketing relies on firms being engaged in environmental scanning to uncover a potential niche, and on market research to explore the opportunity more fully; with niche marketing as primarily a defensive strategy focused on limiting the competitionReference Dalgic and Leeuw25, Reference Hezar, Dalgic, Phelan, Knight and Dalgic33, Reference Kotler and McDougal37. However, in our study, the participants become niche marketers at some time after making the decision to plant blackcurrants. The literature views the introduction of an alternative farm enterprise as a form of farm diversificationReference Bowler73.
Results of our study are consistent with those reported by Barbieri and MahoneyReference Barbieri and Mahoney74, but this study found that the decision is often intuitive, based on the experience of the operator and guided by the knowledge that the risk to the overall operation is limited by the relative size of the investment in the niche crop. Also, the decision to grow an alternate crop is sometimes made to take strategic advantage of a government program, at the invitation of a processor or in an effort to enhance income diversification.
The participants grow blackcurrants for reasons other than those related to specific niche-seeking market research. Case 2 and Case 3 illustrate growers that essentially inherited orchards and chose to retain them and to learn the agronomic production skills specific to the new crop:
We purchased a neighboring farm. The farm had a blackcurrant orchard so we retained the previous owner to help us manage the new crop. [Case 2]
We wouldn't have considered blackcurrants if there had not been an orchard on the property when we moved in. [Case 3]
Although most of the participants seek to increase revenues while maintaining strategic flexibility in their choice of enterprise mix, in many instances niche products are developed in response to incentives from other members in the value chain who then assume the responsibility for sales and marketing. Case 10, for example, was solicited by other growers already under contract to a local processor:
A local grower group was looking for more growers. The idea was to build up enough volume to make some splash in the market. [Case 10]
For Canadian growers, the realization that they are part of a niche marketing scenario occurs when links in the value chain are broken and growers have to assume the role of marketing intermediary.
With regard to core competencies, this research provides evidence that farms at the grower level have an understanding of their core competencies and apply this knowledge to the strategic decision to develop a niche position. When confronted with a niche market opportunity, growers assess their core competencies and plan strategically according to their perception of the market potential and whether the opportunity is a fit for them. For example, Case 3 managers acknowledge their core competencies in production of horticultural crops and display confidence in the selection of blackcurrants as a niche crop:
The crop fits into our overall game plan. On our small acreage we decided to go with a couple of small enterprises and horticulture crops give us a good return. [Case 3]
Those growers with access to additional resources engage in innovation, whereas other, less-affluent growers attempt to support innovation through their participation in horizontal and vertical alliances. Horizontal alliances are either informal marketing groups (Canada), or more formal cooperatives (New Zealand). Vertical alliances are formed with the other members of the value chain, such as processors or exporters. Case 11 management, while demonstrating an understanding of the farm's core competencies, is a reluctant adopter of niche cropping, admitting the need to learn new production and marketing techniques for this new crop.
We started with a pig farm and supplemented our income by working in town, but when we were involved in a car accident we decided to plant blackcurrants to replace the lost income from our off-farm job. We thought that with the help of the other growers in the group we could learn the ropes. We already had built a successful pig operation but horticulture was new to us. [Case 11]
Farmers are open to exploring new business opportunities. Managers indicate that they were proactive by their willingness to take on the additional managerial responsibility of a new enterprise:
After we had been in business for three years we reevaluated our position. We looked at the costs and benefits of remaining in production. The risk analysis was positive if we purchased equipment that could be used for other crops if we changed our mind about blackcurrants later. [Case 4]
These growers are not concerned with the opinion of neighbors or the agronomic problems associated with a new cropping venture. At the same time they do not opt entirely for the niche market, but added the crop to an existing enterprise portfolio:
It was getting more difficult to hire labor to work in the fields. We were looking for a crop that was less labor intensive and that we could market ourselves. [Case 6]
Several managers have a history of developing alternative enterprises or utilizing unorthodox methods and demonstrate an opportunistic orientation. They demonstrate the qualities of autonomous behavior, innovativeness, competitive spirit and proactive action orientation that are associated with an opportunistic outlook. For example, Case 7 and Case 8 managers scan the market and take advantage of situations that arise in the market:
We are always looking at ways to improve the bottom line and a few years ago we had surplus fruit. We looked at markets overseas. [Case 7]
We have a small acreage and we thought about growing a crop that was not regulated by a marketing board so it seemed like a good fit when we heard about a processor wanting more growers of blackcurrants. [Case 8]
Hypothesis Two
This hypothesis relates to whether niche marketers understand the underlying characteristics of a niche market in terms of minimizing competition and reducing exposure to turbulence. The literature states that successful niche marketers innovate as a means of maintaining barriers to entryReference Hunt and Morgan38, Reference Kohli and Jaworski39. A commitment to innovation in the areas of product development, market development or service, as well as the firm's networking activities is subsumed under the category barriers to entry in Table 3. These activities contribute to establishing and maintaining a niche and discouraging potential competitors. With regard to strategic planning, the activities that relate to the farm's ability to implement a niche marketing strategy are summarized in Table 3.
Table 3. Comparison of the decision-making process derived from the literature and study-based observations for Proposition Two.
The applicability of Hypothesis Two to the sample is supported by the results of the research. Participants demonstrate a commitment in establishing and maintaining barriers to minimize competition. The farm managers recognize the characteristics of a niche market and participate in horizontal and vertical networks that support innovative practices. Strategic plans that acknowledge the threat from competitors include provision for maintaining barriers to entry. Managers are committed to product innovation and support plant breeding programs that develop seed stock specifically selected to suit the niche markets of functional foods and nutraceuticals.
These case-study participants stress the importance of adding value. For example, Case 3 management recognizes the significance of selling a value added product at a premium price:
We became part of a local marketing cooperative, selling to a regionally based processor. The prices were better than the commodity price and there was less work because the local processor supplied the containers. [Case 3]
Comments from Case 4 confirmed that the ability to charge premium prices is the result of establishing barriers to entry:
As the price offered for the commodity dropped we realized that to stay in business we had to access the market in powders and to do that meant going offshore. [Case 4]
Case 6 management recognizes that blackcurrants offered more of the characteristics of a niche market than traditional truck farming:
We started blackcurrants in the 1960s but really made the commitment in 2000 when we saw the potential for the nutraceutical market to take currants to a profit level not attainable by growing veggies. [Case 6]
Hypothesis Three
This hypothesis is related to the issue of whether strategic niche positions arise from a priori strategic planning or unplanned reactions to the environment. For this study a plan is considered strategic in nature if it is future oriented and covers one or more production periods. The applicability of Hypothesis Three to the sample is partially supported to the degree that plans exist, but these plans are fundamentally different from the formal, ‘before the event’ plans that are representative of the mainstream niche marketing literature. Plans develop alongside rather than before events. Participants develop, to varying degrees; operational marketing plans are subsumed within an overall strategic personal plan. Case 1, for example, adopts a contingency planning philosophy over the growing period that also fits the long-term strategic plan:
Most of our actions are based on the weather and markets during the year. We have a routine of replacing a certain amount of currant bushes each year and we try to manage the crop through the year to get the best yield. [Case 1]
The strategic plan is often not a formal written plan but rather an informal notion of the long-term direction of the business. For the study participants, the selection of niche activity is focused on a fit with current production resources and capabilities. Many individual farms adopt the strategy that is preferred by their grower association or other horizontal network to which the farm is tied. For these farms the ability to become a specialist in a niche market is predicated on the income stability of the commodity market that they are associated with. Individual farms are able to concentrate on a local market by capitalizing on the existence of regional processors. When this outlet is not available, individual growers shift their attention to the global marketplace and develop products for specific markets overseas. These are examples of farms acting either individually or in association with a network to maintain meaningful differentiation in terms of product development, and market served.
Some participants developed long-term (3–5 years) goals for their businesses and are committed to formal planning on an annual basis, while others discuss the necessity of retaining a commodity contract and the role of the niche market in their long-term plans. Case 2, for example, adapts their farm enterprise structure to maximize long-term profit goals:
[The] decision on whether we keep or get rid of an enterprise is based on cost and efficiency. Each operation has to pay its way. There is no room for sentiment. We look at the bottom line every year and what looks good down the road. [Case 2]
A synthesis of these results provides a picture of the strategic planning process of the study group which is reflected in the discussion of the archetypal blackcurrant niche marketer that follows.
Discussion
Profile of a small agricultural niche marketer
The strategic planning process of the small and medium-sized firm engaged in niche positioning is reflected in the behavior of the case-study participants compared to activities expected from the literature and is presented in Table 4.
Table 4. Model of the strategic planning process for 11 case-study participants.
Based on the results of this study the typical niche marketer possesses an often unwritten and unstated personal strategic plan. They engage in passive environmental/market opportunity scanning that is referenced to this plan. They are also open to opportunities presented by third parties and immediate events. Managers evaluate opportunities and related decisions with regard to their core competencies, the degree of fit of the new enterprise with the existing business and their comfort level with new skills required.
The manager will utilize option-limiting decisions to shorten and simplify the decision-making process. The typical niche marketer from this sample hedges their bets when it comes to the final decision by ensuring that the proposed niche product is one of a portfolio of products. They will also establish that the risks in terms of investment, engagement cost and potential disengagement costs that are represented by adopting any single market innovation are not too high with respect to the risk profile of the entire business portfolioReference Moreland and Hyland75. The decision to enter the niche market is re-evaluated regularly, usually at the end of a production cycle or when the price of the commodity and the niche product was known.
The primary difference between the niche planning and exploitation process displayed by this sample and the mainstream niche literature is that the sample's planning is abreast of, rather than ahead of events, and is highly iterative in nature. Big decisions and big risks are avoided, but a similar level of opportunity exploitation is achieved over time via a larger population of initiatives and decisions to these initiatives' events develop.
The characteristics of an attractive or ideal niche
Comparing the characteristics of an attractive niche in the literature with the findings of this research underscores the potential conflict between the desire to limit competition—maintaining a small but profitable segment—and the competing desire to grow the niche. A large majority of the sample considered that a high growth outcome of niche entry was very likely to attract the attention of competitors, resulting in a localized, within-niche oversupply, a breakdown of barriers to entry and the premature disintegration of the niche environment. This was widely perceived to be a dilemma for managers within this market when evaluating a potential niche investment.
Of the eight characteristics of a desirable niche identified in the literature review, the sample considered that six made a blackcurrant niche attractive because they provided the conditions that rendered an entry both profitable and sustainable. They were: (1) the niche should be of sufficient size and purchasing power to be profitable; (2) the niche should be of negligible interest to competitors; (3) the firm should have the required skills and resources to exploit the niche; (4) the firm should gain certain economies through specialization; (5) the niche should provide entry barriers for competitors; and (6) the customers in the niche should have a distinct set of needs.
The assessment of the remaining two characteristics, growth potential and price premium, was equivocal. The sample perceived that niches with these characteristics would demonstrate short-term profitability but usually at the expense of longer-term viability, as an outcome of subsequent entry by the other niche players. As a consequence, the level of investment required for entry formed an input to these decisions, with heavier investments being directed toward the development of ‘quieter’ niches with better prospects for long-term stability.
This sample was stratified by location (Canada/New Zealand), by size (small/medium/large) and by diversification. Perhaps one of the most striking aspects of this research was the lack of difference within the responses between these sample strata. Although the niche environments within Canada and New Zealand were significantly different, the approach to developing these niche markets was consistent in both countries. Likewise, the size of the concern made little difference to the planning processes related to niche portfolio development. Perhaps most surprisingly, production diversification beyond blackcurrants also made little difference to the niche targeting and planning process.
Conclusions
Although niche marketing is accepted as a planned strategy in the marketing literature, the research suggests that selecting the functional foods/nutraceutical niche market was not a planned strategy as studied by the agricultural niche marketers, but rather one that came about through serendipity. However, once it became clear that the farm was involved in a niche marketing activity, the management engaged in strategic planning to sustain an existing position. Furthermore, the sample did not commit to producing a single niche product but rather to a portfolio of products covering several markets.
The findings confirm that limiting competition by establishing and maintaining barriers to entry is considered to be important for an enduring niche market. Results indicate that among the strategies employed by the study group, the forming of alliances through membership in horizontal and vertical networks are among the most common and most important strategies. Horizontal alliances provide a means for these firms to share resources, whereas vertical alliances shorten the distance between the firm and the final consumer, and provide an economical means of market feedback and customer relations management.
The results of this research support six of the eight characteristics of an attractive niche derived from the literature. The remaining two, price premium and rapid growth, are regarded with some equivocation, as they are perceived to adversely impact upon the long-term stability of the niche.
A consistent trend within all of the research outcomes in New Zealand and in Canada was that farms were not wholly committed to a single niche. Farmers selected a nutraceutical or functional food niche product if it fitted with the existing portfolio of products and utilized at least some of the existing technology, production and management expertise. Also, managers continued to support a portfolio of products, including a commodity and one or more niche products, for a variety of markets as a means of spreading both production (natural) risk and market risk.
This research sought to test three hypotheses that are central to the ‘mainstream’ position of how niche marketing occurs. All the three hypotheses relied upon the assumption that management planning and commitment to a single course of action occurs in anticipation of events and related decisions. The outcome of this research was that, for small blackcurrant producers at least, this was not the case and that only one of the hypotheses H3 was supported. H1 was not supported and H2 only received partial support because before the event planning, decision and commitment simply did not occur. Producer decisions were reactive to niche-development events as they occurred. Commitment to any one course of action was avoided by iterative decision making and the development of portfolios of niche products. Although this behavior may not accord with mainstream niche marketing theory, it appeared to suit the circumstances, resources and mindsets of these small agricultural producers, and viable niche markets were developed and sustained in numbers through its application.
This iterative decision making, use of niche portfolios and the active avoidance of commitment to a single course of action differs from mainstream commercial practice. However, it is necessary to consider the role that the peculiar nature of agricultural production plays. A factory or shop can be shut down with a flick of a button, and can be reconfigured to produce a different product or service within a range of hours to weeks. This flexibility is simply not available to an agricultural producer, who may be committed to continue production whether they want to or not (e.g., dairy); may have a highly expensive plant that cannot be used for any other purpose (e.g., pigs); may face a gap of years before new production can be established (e.g., apples); or may face a situation where no other crop can be produced (e.g., sheep). When these issues are considered, along with the fundamentally unpredictable nature of agricultural production and the peculiarly high costs of a poor decision, the strategy of adopting a system that avoids before-the-event commitments to major decisions. such as large niche exploitation initiatives. makes perfect sense.
This result has significance to the development of sustainable agriculture, because sustainable agriculture requires viable and enduring markets to sustain its growth and development. At the present time and for the immediate future, these viable and enduring markets will also be niche markets. This research raises the possibility that mainstream corporate niche marketing theory and practice may not be applicable to the circumstances, structure, resources and psychology of the sustainable agricultural sector. It also raises the possibility that attempts to apply it unmodified to the sector may actually be counterproductive, and may increase rather than reduce the chances of failure in the market. It is feasible that non-corporate methods of marketing may have to be applied to sustainable agriculture in just the same way as non-corporate methods of agricultural production have already been applied.
Limitations and directions for further research
The results of this qualitative research cannot be extended directly to larger populations, and to the sustainable agriculture and food sector as a whole.
Further development of this research should involve replications within other industry populations, and replications within populations that are wholly dedicated to sustainable agricultural production. One major objective should be to establish whether successful niche development techniques are ‘generic’ to all sustainable agricultural industries, or if custom approaches have to be developed individually on an industry by industry basis.
Acknowledgements
The authors express their appreciation to The Consumer and Market Demand Agricultural Policy Research Network, Department of Rural Economy, University of Alberta, Edmonton, Alberta, Canada, for funding support.
