sales

Sales & Purchase Management

The case of Dairyland Seed Company

Task

Read carefully the text and answer the questions:

PARTNERING STRATEGIES IN A BIOTECH WORLD: THE CASE OF DAIRYLAND SEED COMPANY

The morning sun was shining brightly as Tom Strachota, Chief Executive Officer for Dairyland Seed, drove up Highway 45 in southeast Wisconsin in late February 1999. Because of the snow cover on either side of the road, it was not immediately apparent that these fields were the sites of research plots that have generated some of the most cutting-edge biotechnologies in the seed industry. Tom couldn’t help but smile as he reflected on the past few years’ accomplishments. He was particularly pleased with the success of their line of soybean varieties tolerant to the DuPont Chemical Company’s Sulfonylurea herbicides. Dairyland had pioneered the technology—a credit to Dairyland’s long-standing commitment to research and development.

However, a lot had happened in the soybean market since the introduction of the Sulfonylurea Tolerant Soybean (STS) varieties five years ago. Competition in the STS seed market had intensified as competitors developed and promoted their own varieties. While Tom believed Dairyland still enjoyed some advantage in the expanding enhanced trait soybean seed business, other seed companies were making rapid progress in many of the same markets.

The market share growth of Round-Up® tolerant soybean varieties was one of the newest challenges. These new varieties enabled Monsanto, manufacturer of the well-known Round-Up® herbicide, to compete directly with DuPont’s STS. Initially, limited amounts of Round-Up® tolerant seeds constrained growth, but Monsanto has taken major steps to ensure greater supplies in each of the past two years. As a result, Round-Up® tolerant seeds captured between 35–40 percent market share in 1998 and projections are that Round-Up® tolerant seeds will command as much as 50 percent of the market this year.

Dairyland had not been caught off guard by the Round-Up® tolerant technology, of course. In fact, Dairyland had acquired a license to develop its own Round-Up® tolerant soybean varieties. Dairyland researchers have been successful in developing several varieties that have fared extremely well in state yield trials and in the marketplace this year.

Combined, Dairyland’s STS and Round-Up® tolerant varieties account for over 60 percent of Dairyland’s soybean sales. This is remarkable given that STS traits entered the market in 1993, and Round-Up® in 1996. However, the growing importance of these varieties brings with it new challenges for Dairyland. By marketing both STS and Round-Up® tolerant varieties, Dairyland is in a position where Tom must manage business relationships with competitors in the chemical and biotechnology market, namely DuPont and Monsanto. With the market demands for Round-Up® tolerant technology, how closely should he establish his business relationship with Monsanto? He wondered what the impact of partnering with Monsanto might be on his carefully developed alliance with DuPont.

Adding to Tom’s new challenges, agricultural chemical and biotechnology companies have chosen to become further committed to the seed industry by acquiring or establishing joint ventures with larger seed firms. Of particular interest to Tom were DuPont’s 20 percent ownership position in Pioneer, and Monsanto’s recent acquisitions of Asgrow and DEKALB—two major seed companies. These mergers have caused these two major technology suppliers to become more tightly allied with Dairyland’s direct competitors. What might this mean to Dairyland’s access to future technologies? Success had certainly brought a new set of problems, and positioning was going to be especially important for Dairyland to ensure continuity of its role as a cutting-edge seed producer.

Company Background

Simon and Andrew Strachota founded the Dairyland Seed Company in 1907. In 1920, Andrew retired, leaving his brother Simon to head the company. When Simon died unexpectedly in 1940, his son Orville left college and returned home to run the company. At 79, Orville Strachota continues to be active in the business and serves as Chairman of Dairyland’s Board. However, his three sons, Steve, Tom, and John Strachota have managed day-to-day operations of the company for over 10 years.

Dairyland began as Strachota Seeds. The company operated out of the Strachota family’s general store in eastern Wisconsin. White Dutch Clover Seed was their primary product. But when the market for White Dutch Clover suddenly dropped off in 1955, Orville shifted to the production of alfalfa seed— a product with rapidly growing demand driven by Wisconsin dairy farmers searching for better forages for their cows. Dairy continued to grow in importance in their region. In 1963, Orville decided to change the name of the company to Dairyland Seed Company to reflect its commitment to the market.

Dairyland continued to respond to challenges and opportunities in the seed industry as they arose. They began to produce and market seed corn on a large scale in 1961. As soybeans began to develop in the United States in the 1960s, Dairyland also added soybean seed to their product line.

Today, Orville Strachota’s three sons, Steve (President), Tom (Chief Executive Officer), and John (Vice President) jointly manage Dairyland Seed. The company is privately held, with majority stock owned by the Strachota family. Of the over 800 companies listed by the American Seed Trade Association, Dairyland is the only American family owned seed company with proprietary research in alfalfa, corn, and soybeans. Dairyland’s board of directors, which includes family stockholders and outside directors, meets quarterly to review business strategy and plans.

The company is divided into seven functional operating areas: management, finance, research, production, distribution, marketing, and sales. Dairyland employs approximately 100 people plus seasonal help. Executive management is located at Dairyland’s headquarters in West Bend, Wisconsin, while research, sales, and production employees are located throughout the company’s market and production area. Dairyland’s production/processing plants are in Mt. Hope and West Bend, Wisconsin. In addition, five research stations are located in Otterbein, Indiana; Sloughhouse, California; Gibson City, Illinois; Clinton, Wisconsin; and Gilbert, Iowa.

Dairyland has built its image around new product development and is well known in the upper Midwest for innovation. Orville Strachota established a commitment to research early in the company’s history. Today, over 40 percent of the company’s employees work in research and development, making it the largest department in the company. Management believes Dairyland has a competitive advantage in certain markets with its continued commitment to research and development.

The Marketing Mix at Dairyland

Product

Dairyland has worked hard to build its image around quality products, its high standards of business ethics, and as a successful family-run business. This message is intentionally promoted in a myriad of ways including a highly visible commitment to research, maintaining a first-class physical plant, demonstrating employee pride in the organization, and the active involvement of Orville and three third-generation principals. Tom Strachota believes the positioning effort over the years has resulted in a positive and consistent image of Dairyland among customers and competitors alike. Tom believes that this image is very important and valuable.

The focus of Dairyland has been on high-yielding genetics rather than on specific traits. This commitment to high-performance genetics is captured in their statement of values:

1. Dairyland has a responsibility to its customers to deliver consistently high-performing products.

2. New traits are of value only if they add to the consistency of performance or bring more profit to the farmer.

3. No single genetic trait is of value by itself.

Tom Strachota puts it this way; “It is better to have high-yielding genetics with no specialty traits, than to have specialty traits with poor genetics.” Guided by these values, researchers at Dairyland have developed a product mix that consists of varieties of alfalfa, corn, and soybean seed.

Alfalfa

Dairyland is especially proud of its success with alfalfa varieties. According to company executives, Dairyland has the world’s largest alfalfa breeding program. Dairyland’s alfalfa lineup includes several specialty alfalfa varieties from which the farmer can choose to match their particular needs (e.g., varieties suited for wet soil conditions, other varieties for high traffic fields, etc.). Strachota is quick to mention recent successful innovations Dairyland has made in the release of patented Sequential Maturity Alfalfa™ products that provide farmers with more high-quality forage.

Corn

Dairyland’s seed corn business has grown steadily since hybrid corn was first introduced into their product line in 1961. Seed corn now plays an important role in their overall strategy. Dairyland currently offers over 40 corn varieties that have been bred to meet the unique needs of the upper Midwestern states. The company’s “Stealth” hybrid corn breeding program (which emphasizes consistency in performance) has been a major emphasis in their rapidly growing research program. Dairyland’s current lineup includes both insect resistant (i.e., Bt Hybrids) as well as herbicide tolerant (i.e., Round-Up®) hybrids.

Soybeans

Dairyland entered the soybean market in the early 70s. In the late 70s, Dairyland purchased an aggressive research program—the oldest private breeding program in the country, according to Dairyland executives. Varieties developed by the Dairyland Soybean Research (DSR) program have performed well in yield trials across the Midwest. Dairyland boasts a series of firsts in introducing varieties tolerant to the soybean cyst nematode, brown stem rot, phytophthora root rot, and iron chlorosis—all significant problems for many soybean producers, especially in specific local market areas that Dairyland refers to as “niche” markets. Dairyland executives believe that despite Dairyland’s research and development of alfalfa and corn seed, the company is best known in the Corn Belt for its soybean research and the soybean varieties it has developed for the upper Midwest market area.

An important part of the DSR effort has focused on introducing herbicide resistance into its high yielding soybean varieties. This technology involves genetically enhancing a variety of soybeans to be resilient to a specific herbicide. Thus, producers can use herbicides for weed control in their fields without killing their soybean crops. An example of this technology is DuPont’s STS. DuPont’s Liberty herbicide, which is usually detrimental to soybean plants, can be used to control weeds on STS soybean crops. Another example is Monsanto’s Round-Up® Ready technology. Monsanto’s Round-Up® herbicide can be used on Round-Up® Ready soybeans. Thus, producers can choose soybean seed that has been engineered with specific traits that allow them to use safer, easier, and more environmentally friendly herbicides.

Dairyland initially began to breed STS seeds in the belief that new technology products would attract new seed corn buyers. They believed that their cutting-edge soybean technology would help them gain access to different customers and create new opportunities for additional, profitable corn sales. Furthermore, the company wanted to increase volume of product sales and revenue, as well as enhance the company’s image with the launch of traditionally bred herbicide tolerant soybean seed. This boost in the company’s image was expected to create the opportunity to sell high-tech, high-yielding products to the more sophisticated, larger producer.

Distribution

Dairyland annually provides seed for more than 1 million acres of farmland in the United States, Canada, South America, Europe, and Asia. However, their primary market area is concentrated in the upper-Midwest with a focus on Michigan, Minnesota, Wisconsin, South Dakota, Iowa, northern Illinois, Indiana, and Ohio. The area is highly diverse agriculturally—dairy, hogs, corn, soybeans, and forages are the primary crops. The relative importance of each depends on local soil and climatic factors.

Dairyland pursues two primary forms of distribution to reach its farmer customers. The first is a farmer-dealer network that had evolved to be primarily a direct channel with sales managers calling on farmer “dealers” who may or may not sell seed to other farmers. The second is farm retail stores. This second channel allows Dairyland to reach markets where direct methods are not in place or do not make economic sense.

Dairyland’s Director of Sales, John Froelich, heads the sales department and works closely with Tom Strachota. There are two regional managers and 28 district sales managers (DSMs). In addition, there are three assistant district managers working in the largest territories and three part-time district managers in less concentrated areas. DSMs are responsible for sales of all three seed product lines through their farmer-dealer distribution system. Each DSM is responsible for approximately 15 counties in his or her state.

Many seed companies in the Midwest rely heavily on a farmer dealer distribution system. Farmers buy seed at a discount and are authorized to resell seed to other farmers. However, many “farmer-dealers” do not aggressively resell seed. Instead, they become “dealers” primarily to obtain the discounted wholesale price, better credit terms, and special programs, and to have more direct access to their supplier’s best/newest varieties and technical assistance. Dairyland is no exception to this system.

Dairyland’s farmer distribution system has grown to approximately 4,000 farmer dealers. But approximately 80 percent of these dealers are end users and resell little seed. In fact, Dairyland no longer refers to these customers as “dealers” but merely “partners.” In recent years there have been attempts toward attracting more and more large farmers into their “dealer/partner” system. In total, however, the number of dealers has not grown appreciably in recent years.

A second form of distribution is the retail farm supply stores. Dairyland has had relatively good success at reaching the farmer through this distribution channel. The advent of biotechnology has required growers to make increasingly more complex decisions about inputs (seed, chemicals, and fertilizer), and the spectrum of knowledge required has grown prohibitively large. Many farmers favor retailers that can provide more technical advice to growers and maintain superior service standards. As such, a growing percentage of Dairyland’s business flows through these intermediaries, and Dairyland is continuing to look for appropriate resale partners with which to license.

Promotion

Dairyland uses a wide variety of promotional programs to communicate the benefits of its soybean seed to farmers. The Dairyland Soybean Management Guide provides farmers with technical and practical advice on the best soybean production methods. Each year, the company produces a pocket-sized Dairyland seed reference guide and calendar. There is a quarterly newsletter called “The Leader” that communicates a variety of information to the customer. Other promotional efforts include tours of research and production facilities, crop management clinics, field days at Dairyland test plots, and maintenance of “show case” quality facilities.

Most of Dairyland’s advertising is direct mail from an extensive database maintained on all dealers and customers. The internal database is supplemented by mailing lists from other sources. In addition, the company includes ads in state farm publications, magazines (especially Soybean Digest), agricultural newspapers, etc. Occasionally DSMs will prepare brief ads or radio announcements for local areas to promote a field day or educational program in that area.

Dealers are offered a wide range of individual and customer incentives intended to promote sales. Traditional caps, jackets, etc. are all available to dealers and their customers. In addition, dealers may work toward larger value gifts (e.g., television sets or trips to Florida are common, and even a car in the case of Dairyland’s Stealth seed corn program). District sales managers are also offered sales incentives and bonus awards for achievement in increasing the sales of Dairyland’s three product lines. Individual award programs depend on the specific activities that Dairyland is attempting to promote throughout the year.

Pricing

Dairyland’s seed is priced slightly above the market average in all product lines (see Table 1). “This is a strategy designed to encourage the premium quality image that is the core of our marketing strategy, and to generate margins necessary to support an aggressive research and development program,” says Tom Strachota. “We believe farmers are willing to pay a little higher price when we deliver high quality seed, consistent performance, dependability, and cutting-edge technology.” Although Dairyland seeds may not be the highest priced alternative in the market, this philosophy generally places Dairyland’s average prices at 5–10 percent above the average in market. “The idea is to realize that we can’t price like the market leader, but we can deliver the best overall value,” Tom argues.

Tom Strachota believes that this premium value strategy is highly successful. Dairyland has enjoyed an increase in its soybean sales for the last five years. This includes an increase in 1997 despite not having Round-Up® Ready soybeans; STS accounted for over one-third of Dairyland’s soybean sales in 1997.

Channel Partners

Chemical companies like DuPont and Monsanto are using seed companies to bring their products to market. The developers of the biotechnology have sought to use a combination of seed production and distribution companies as well as licensing agreements with distributors and small seed companies in order to achieve access to growers with a high level of service. Dairyland has among its channel partners two main providers of biotechnology: DuPont and Monsanto. Among these partners, Dairyland has worked most closely in the past with DuPont. Through this relationship with DuPont, Dairyland has marketed its seed varieties of STS soybeans.

DuPont

DuPont began licensing with several larger seed companies over five years ago, giving them the right to sublicense to other smaller seed firms. While Dairyland was one of the first seed companies licensed to produce and sell STS seed, there are now nearly 100 seed companies who have been licensed to sell the STS technology. These companies have developed more than 170 varieties of STS seeds. The more aggressive companies include Dairyland Seeds, Asgrow (recently purchased by Monsanto), Pioneer, Stine Seed, Countrymark and GROWMARK, and Novartis Seed. Even though Asgrow is owned by Monsanto, it still maintains a licensing contract with DuPont.

Discussions between DuPont and Dairyland were opened in the mid-80s. Acquisition of the Sulfonylureas germplasm by Dairyland occurred in the late 80s. DuPont selected Dairyland for its strong reputation in soybean development and its independent research capability. The relationship is not exclusive, however. Other companies received the germplasm and have had the opportunity to develop their own tolerant varieties.

The agreement between Dairyland and DuPont stipulates formation of a “joint-commercialization” team to review the marketing strategies for STS. Dairyland and DuPont agreed that in marketing the product, DuPont would sell herbicides and help farmers understand the benefits of STS, while Dairyland would sell seed and talk about the benefits of STS as they relate to seed selection. The joint marketing strategy was a tremendous success as the salesforces of each company were able to establish mutually supportive professional relationships. As the STS technology represents important market potential for DuPont, Dairyland anticipates continued marketing support. DuPont’s efforts have clearly helped position Dairyland as one of the leading developers of Sulfonylurea Tolerant Soybeans.

DuPont has basically maintained their aggressive marketing strategy to promote the use of STS seed varieties in the market through programs that include sizable advertising and incentive programs. They have executed major herbicide launches that include TV in major markets and heavy print media advertising. DuPont sales representatives will support local agricultural chemical dealers and seed companies with educational programs in local markets and support plot tours to demonstrate the new technology. DuPont has elected not to place any premium on the Sulfonylurea herbicides.

DuPont has relied heavily on media campaigns to successfully increase its brand name and product awareness among users. However, they have recently been forced to recognize the rapid growth of RoundUp® technology, and the potential cost savings and ease of the Round-Up® system to the farmer. While most industry experts have predicted the increase of Round-Up® soybeans, almost no one expected acceptance to be as rapid as it developed in the 1997 and 1998 markets (see Table 2).

DuPont has responded by increasing commitment with the seed industry substantially with the recent purchase of 20 percent of Pioneer Hybrid International stock and the holding of two seats on Pioneer’s board of directors in 1997. Pioneer and DuPont also have announced the formation of a new joint venture called Optimum whose purpose is to bringing new value-added crops to market, such as high-oil corn, etc. It is clear that DuPont will be working more closely with Pioneer than with any other seed company. However, Dairyland feels that DuPont has not abandoned its STS technology or its initial seed industry partners. DuPont’s relationship with other seed companies has remained the same. Time will tell whether DuPont’s new relationship with Pioneer will have an impact on other seed industry firms. In addition, DuPont made a substantial change in its pricing strategy—announcing a 75 percent price cut in August 1997 on its STSrelated herbicides. This price reduction was a clear attempt to level the economics of the farmer’s decision process in choosing which herbicide resistant technology to embrace. On an average basis, the farmer would pay approximately $28 per acre for Round-Up® tolerant seeds (including a $6.50 technology fee). The herbicide would cost about $15 per acre per application. With the new lower price, DuPont claims it can offer the farmer superior protection (longer weed control) for basically the same price. Dairyland believes that its STS seeds outperform most competitors’ Round-Up® varieties and so it continues to be committed to the STS technology.

Monsanto and Round-Up® Ready

Monsanto’s Round-Up® Ready technology has been under development for sometime. From its introduction, market growth has been limited only by supply. In 1994 and 1995, Round-Up® tolerant soybeans hit the market with limited quantity and sold out. In 1996, they sold out with a 3 percent market share. In 1997, supplies sold out, this time with approximately 20 percent market share. In 1998 Round-Up® soybeans did not sell out, but did capture nearly 40 percent of the market.

Dairyland did not have Round-Up® technology initially. In fact, Dairyland was not licensed to market Round-Up® soybeans in 1997, but it did enter into an arrangement with Monsanto in 1998. Tom attributes Dairyland’s ability to license with Monsanto to Dairyland’s commitment to quality, and the recognition that Dairyland receives for being the first to market with STS herbicide-resistant soybeans.

Recently Monsanto has escalated its activity in the seed industry. Through its acquisitions, partnerships, and incentive programs, Monsanto has effectively elevated its position in the seed supply chain (see Figure 1). These acquisitions and partnerships are part of a continuing effort of Monsanto to strengthen its position in the market for new biotechnological products. This is consistent with Monsanto’s strategic vision, “to create cutting-edge environmental solutions in order to assure sustainable growth for our company,” says Monsanto’s CEO Robert Shapiro (Monsanto Press Release, 1998).

In 1996, Monsanto Company acquired Asgrow Agronomics. Asgrow is a major U.S. soybean seed company with international operations. According to Monsanto’s executive vice president, Hendrik A. Verfaillie: “Asgrow’s strength in soybeans is particularly important to us as we accelerate the sales of our Round-Up® soybeans and other new soybean products to farmers worldwide. The acquisition of Asgrow Agronomics strengthens our ability to quickly move our innovations into the marketplace” (Monsanto Press Release, 1998). Other examples of recent Monsanto acquisitions and alliances include:

· In December 1997, Monsanto Company, Asgrow Seed Company, and Stine Seed Company announced a collaboration agreement. This research agreement was reportedly designed to further improve and develop soybean genetics and related technologies.

· On December 4, 1998, DEKALB Genetics became a wholly-owned subsidiary of Monsanto.

· Monsanto also bought Holdens in early 1997. Holdens is a major supplier of corn genetics to both large and independent seed companies.

· In June 1998 Monsanto signed an agreement to purchase Cargill’s international seed operations in Latin America, Asia, Africa, and parts of Europe. This acquisition includes seed research, production, and testing facilities in 21 countries and distribution systems in 51 countries.

Through these partnerships, Monsanto has acquired a solid distribution network that should facilitate rapid seed product introduction. Also, through gearing research to complement one another, these new alliances will achieve synergies in new product development. Thus, at the same time Dairyland’s initial soybean technology partner (i.e., DuPont) has become more tightly allied with one of Dairyland’s key competitors (i.e., Pioneer), Monsanto has been managing its relationships with several other Dairyland competitors.

Another way that Monsanto is managing the supply-chain of its Round-Up® Ready technology is through incentive programs. Monsanto has established an incentive structure for seed manufactures, for agricultural retailing, and for growers. For example, growers who use both Round-Up® Ready soybeans and Monsanto’s YieldGard Bt corn on a high percentage of acres are given a rebate.

Given the demand for Round-Up® Ready soybeans, Monsanto has been able to charge a technology fee to growers. This fee was originally $5 per 50-pound bag, but was increased to $6 for spring 1999 (the price increase was coupled with a price reduction of Round-Up® Ready herbicide so that the overall cost to a customer was essentially the same).

One incentive that Monsanto provides to seed suppliers is a special handling fee. For suppliers, Monsanto provides 10 percent of this fee back to the supplier (i.e., $0.60). In addition, if a supplier meets certain share-of-business requirements, Monsanto will rebate another 10 percent (i.e., $0.60) to the supplier. These requirements include having 90 percent of herbicide-resistant soybeans sold be Round-Up® Ready soybeans, 85 percent of herbicide-resistant corn be Round-Up® Ready corn, and 90 percent of corn borer insect-protected corn be YieldGard Bt corn. In order to obtain the additional 10 percent, all three share-of-business requirements must be met. Together, these two rebates can more than double the retail profit on a bag of seed.

For any seed company, this program can generate a lot of money. For a firm selling 100,000 bags of soybeans, meeting these requirements would mean receiving $60,000. Likewise, for a firm selling 500,000 units, this means an additional $300,000 in revenue. Given, the relatively low profit margin on a bag of soybeans, this provides substantial incentive for suppliers to sell products with Monsanto technologies.

However, for companies like Dairyland who are allied with other biotechnology channel partners, Monsanto’s incentive structure raises several issues. First of all, with such an attractive inducement to sell Round-Up® tolerant soybeans, should Dairyland continue to develop its relationship with DuPont? Furthermore, because this offer will shape decisions made by other genetic companies, a result may be the decrease in the number of companies providing STS technologies. Will DuPont continue to aggressively market STS even when they foresee markets becoming less attainable? Is this an opportunity for Dairyland, or a threat to its position in the market?

Another concern for Dairyland is that not all of Monsanto’s business partners operate under the same set of restrictions. Due to prior contractual arrangements, neither Novartis nor Pioneer is required to pay Monsanto the $6.50/bag technology fee. However, each of these firms charges this fee to customers. This raises concerns of the equity of Monsanto business relationships, as this money may provide a source of funds for research and development that is not available to most RoundUp® tolerant soybean suppliers, or allow a significant disparity in dealer or retail pricing.

Danny Kennedy, Co-President of Asgrow Seed, believes Monsanto’s success stems from its ability to add value to the farmer by capitalizing on the synergies from its portfolio of companies and technologies representing several sectors in agriculture. He states that Monsanto considers its involvement in agricultural business to be a core part of the overall technology platform. This view is consistent with the strategic actions of Monsanto. Since heading up the company in 1995, Robert Shapiro has spun off the core chemical business to focus on being the “main provider of the agricultural biotechnology . . .” (Monsanto Press Release, 1998).

With regard to herbicide-resistance technology, Monsanto executives see both seed and biotechnology as key ingredients to their long-term strategy. Danny Kennedy realizes that seed is the distribution system by which Monsanto technologies reach the farmer. He believes that seed will drive farmers’ decisions in the future, and states that, “farmers will buy seed that is specialized genetically to suit their own feed stock needs, grain market needs, consumer needs, etc.” Asgrow and DEKALB have competitive advantages in some regions, however, because small firms can have a strong presence in certain regions and market niches, he believes that Monsanto cannot afford not to license other seed firms with its new technologies. As an example of the commitment of Monsanto to licensing its technology to the broad market (family and small firms), as of February 1999 Monsanto has already agreed to licensing its technology to more than 200 seed firms.

Other Providers of Herbicide-Tolerant Soybean Technology

Although Dairyland has business partnerships with DuPont and Monsanto, there are several other chemical and biotechnical firms that operate in this market. AgrEvo, is the third player in the herbicide-resistant seed market. AgrEvo’s herbicide, Liberty, targets a broad spectrum of broad leaf weeds. The Liberty technology was late to enter the market. Early efforts of AgrEvo to bring its herbicide-resistance technology to the seed market were through Asgrow and Holdens. This strategy has proven to be problematic, especially since Monsanto now owns both. AgrEvo has been licensing its technology to other seed companies, though it has been less successful than Monsanto and DuPont to bring its technology to the market. While pricing of the AgrEvo product is not yet clear, it appears that AgrEvo may choose a premium price strategy rather than a licensing fee as Monsanto has chosen. Liberty is faster-acting than Round-Up® but has about the same kill spectrum for weeds and grasses as Round-Up®.

American Cyanamid has maintained a significant share of the soybean herbicide market with Pursuit®, which is used with nonherbicide-tolerant soybean varieties. Recently, they have cut prices approximately 40 percent so that its use is competitively priced with Round-Up® Ultra and Dupont’s Symphony. Thus, American Cyanamid continues to represent a major market challenge for DuPont/STS and Monsanto Round-Up® products. If DuPont is to be successful, it will be necessary to demonstrate a significant advantage over this and other traditional herbicide alternatives. Another relatively new release is Flexstar® by Zeneca, a formulation intended for broadleaf weed control in soybeans.

Competitive Environment in the Soybean Seed Industry

Dairyland faces a wide range of competitors in their diverse market area (see Table 3). Some competitors are large international companies such as Pioneer, DEKALB, and Novartis Seeds that have broad product lines that parallel Dairyland’s. Furthermore, there are a large number of regional and local seed companies who offer all or part of the seed products sold by Dairyland. Some of Dairyland’s competitors develop and sell proprietary products, while others sell public varieties that are genetically identical to each other, but carry the producer’s own label. Many of these smaller companies are aggressive and have strong loyalties within their own local market areas.

Competition is intense in all three product lines. Pioneer is the clear industry leader in the seed corn market with an estimated market share of about 42 percent. There is no dominant supplier in alfalfa although alfalfa has always been one of Dairyland’s strengths. Pioneer has become aggressive in the soybean market with an estimated 14 percent share. Asgrow recently announced that it was the leader in soybean share with 16 percent. Accurate market share information is difficult to obtain and to interpret since many seed companies are privately held and the market is so geographically fractured. Aggregate market share information is also often misleading because it varies dramatically among local market areas. For example, while Dairyland Seed does not have a large market share on a national basis (i.e., less than 2 percent), in some core market areas, their market share may run as high as 30 percent.

Most soybean seed companies are marketing some STS varieties. However, these companies differ basically in their enthusiasm and commitment to the technology. Among the major players, a few of them are worth mentioning. Asgrow has had STS products developed since 1993. Asgrow has not priced their STS varieties at a premium relative to their non-STS varieties. Cenex, a major cooperative in the upper-Midwest, has introduced an STS product, and DEKALB has STS products in the market. Other seed companies, such as Stine, have introduced STS varieties but lack breadth in this product line.

A major new player in the STS market is Pioneer. Consistent with Pioneer’s general pricing strategy, it is pricing its STS products at a premium relative to its non- STS products. Many in the industry expect the new relationship of DuPont and Pioneer will result in additional introductions of enhanced trait seeds.

John Froelich feels that one of Dairyland’s competitive advantages continues to be their lead in the development of STS varieties. While some companies are still working to improve the performance of their STS varieties, Dairyland executives feel that their “commanding lead” allows them to concentrate on introducing enhanced traits into varieties that have already proven to be strong performers. Pursuing this strategy, Dairyland researchers have successfully bred additional traits into the STS product line. New Dairyland varieties have demonstrated resistance to a series of plant diseases, such as white mold, brown stem rot, and phytophtora. Dairyland believes these new traits will be particularly important in “niche” markets where these diseases are problematic.

Dairyland has responded to the growing market demand for Round-Up® Ready soybeans by introducing several new varieties for the ’98 and ’99 selling seasons. So far, over 30 percent of Dairyland’s sales today come from Round-Up® Ready products. John Froelich expects this trend to continue to the end of the 1999 selling season. Research is currently underway to introduce still more Round-Up® Ready varieties in the future.

Asgrow is expected to continue the aggressive introduction of new soybean varieties. This Monsanto- affiliate is marketing a new “stacked traits” variety—one that has resistance to both STS and Round-Up® herbicides. Monsanto has not given other seed companies the legal right to offer “stacked trait” varieties. On the other hand, DuPont has announced that it will allow companies already licensed to sell (STSs) to develop and market stacked trait soybean varieties. It is unclear what Monsanto’s intentions are for the future.

Dairyland’s Customer Focus

Putting the customer first has always been the core of Dairyland’s business philosophy. As Orville Strachota puts it, Dairyland’s objective has always been to treat farmers fairly and understand their needs. If you have a good product at a fair price with good service and hold true to your word, you’ve got a customer and a friend for life.

However, customer buying behavior is changing. On today’s large farms, more people influence decisions, and farmers are more business oriented. Tom Matya, Director of Strategic Marketing for DEKALB Genetics Corporation, finds customers today to be more economically focused, more highly educated in germplasm and herbicides, and less brand loyal than 10 years ago. Although there is still a strong sense of loyalty, he attributes the increase in brand switching by customers today to the rapid acceleration of product innovation, and the leapfrogging of technologies.

Farmers today have been characterized as being value-driven. Farmers must justify the economics of the variety that is being purchased, and understand the mix of products that work together to provide optimal solutions. This may be one reason for the increase in sales through agricultural retailers. Through their ability to provide customers bundled packages and product expertise on everything from seeds to chemicals, agricultural retailers are providing farmers with added value through expertise, convenience, and often through creative discounting.

Farmer customers have a high level of risk aversion. Both John Froelich from Dairyland Seed and Tom Matya from DEKALB agree that farmers will be more inclined to test new technologies themselves before converting large numbers of acres to a new product. However, if the product works, adoption moves quickly.

Similarly, Tom Strachota foresees that farmers will become more focused on high-quality genetics and less driven by new specialty traits until they have been proven in the field. However, the growth of herbicide-tolerant varieties of soybean in general and Round-Up® Ready soybeans in particular, provides evidence that specialty traits are highly desired by today’s farmers. At Dairyland, herbicide-tolerant soybeans accounted for 62 percent of total soybean sales in 1998 and are expected to increase to 73 percent in 1999 (see Table 4).3

Dairyland has been encouraged by experiences reported by many of their key accounts who have been aggressively testing the STS and Round-Up® Ready seed on their farms. The net result has been an increase in their purchases of Dairyland STS. John Froelich believes that the sales increases further demonstrate that performance continues to be the major factor for many business-minded farmers. Yet John is quick to recognize that the differences in performance may not be enough for many farmers who simply like the convenience of Round-Up®.

John relates a Monsanto study showing approximately 95 percent of the farmers using the Round-Up® Ready system experienced “satisfaction” with the product. “That is, they got what they thought they would get with their product,” John says. “I believe this means these farmers did not expect to have higher yields, but were focusing on a wider span of weed control. On the other hand,” John continues, “I believe the initial impact of Round-Up® Ready will be dimmed by performance of the Round-Up® Ready varieties as farmers have more data and experience to really evaluate the results.”

Dairyland believes that in many regions the STS varieties will continue to show a performance advantage over the newer Round-Up® tolerant beans. However, they believe their current advantage is temporary and the Round-Up® tolerant beans will soon equal STS varieties in performance. Further, because of all the variables involved, this performance advantage is increasingly difficult to prove. John Froelich expects that most independent seed companies will continue to work with both Monsanto and DuPont in order to cover all the bases. Yet the appeal of Round-Up® Ready soybeans is unmistakable. Many farmers have had much experience with Round-Up® and are very comfortable with its use.

However, some of the economic appeal of the Round-Up® system has been reduced by recent competitive actions. Prices on both DuPont’s Synchrony and American Cyanamid’s Pursuit have been cut substantially, making purchase decisions less dependent on price. Dairyland believes that much of the customer demand for the Round-Up® system was the up-front cost savings that the system provided for farmer customers. If this was a major purchase motive, the virtual elimination of Round-Up® Ready’s cost savings advantage may reduce the demand for Round-Up® tolerant varieties (see Table 5).

A lot has changed in the soybean market in the few years since Dairyland introduced that first line of herbicide-tolerant soybean varieties. The excitement created by the advent of biotechnology has led to a rapidly changing environment where Dairyland’s biotechnology suppliers are becoming more closely aligned with its competitors and where soybean seed customers are demanding the inclusion of biotechnological traits in addition to high-yielding genetics. As Tom puzzles over his current situation, and how to best manage his relationships with his technology suppliers and his customers, he is also keenly aware that herbicide tolerance is just the tip of the proverbial biotech iceberg. What will that next market-changing trait be, and when will it be developed? Will he have access to develop varieties with that trait? What types of relationships will he be managing in the future? Tom sits back from his desk and smiles. Yes, there hasn’t been a more interesting time to be in the seed industry.

“Partnering Strategies in the BioTech World: The Case of Dairyland Seed Company” by Mark P. Leach, Luiz Mesquita, and W. David Downey in Journal of Business and Industrial Marketing, 2002.

Republished with permission of the Publisher, Emerald. Copyright © 2002 MCB UP Ltd. Dr. Mark P. Leach is Assistant Professor of Marketing, Loyola Marymount University; Mr. Luiz Mesquita is a

Doctoral Student of Management, Purdue University; and Dr. W. David Downey is Professor and Director, Center for Agricultural Business, Purdue University. The authors would like to thank Dairyland Seed for permission to develop this case around issues facing their organization. The generous contributions of information and time by Tom Strachota (CEO), John Froelich (Director of Sales), and the many others at Dairyland Seed are gratefully acknowledged. In addition, they would like to recognize the contributions of Danny Kennedy (Co-Leader for North American Markets, Monsanto Global Seed Group as of February 1999), and Tom Matya (Director of Strategic Marketing, DEKALB Genetics Corporation). Note: This case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Dairyland Case Questions

Three alternative product strategies that Tom Strachota might take with Dairyland Seed are:

1. Attempt to associate more strongly with Monsanto and sell over 90 percent Round-Up® Ready herbicide-resistant seed.

2. Continue with the status quo and produce both Round-Up® Ready and STS beans letting the market dictate the level of each.

3. Attempt to associate more strongly with DuPont and focus on STS herbicide-resistant beans.

For EACH of these alternatives answer the following questions: (2.000 – 2.500 words)

1. What are the pros and cons of the 3 possible company strategies?

2. What would you recommend Dairyland do in the immediate future and why?

· Individual task

· Upload the pdf file into Blackboard

Formalities:

· Wordcount: 2.000 – 2.500 words

· Cover, Table of Contents, References and Appendix are excluded of the total wordcount.

· Font: Arial 12,5 pts.

· Text alignment: Justified.

It assesses the following learning outcomes:

· Outcome 1: Introduction to selling and sales management

· Outcome 2: Personal selling

· Outcome 3: The personal selling process

· Outcome 4: Account Relationship Management

· Outcome 5: Strategic role of sales management

· Outcome 6: Sales Organization Structure and Salesforce Deployment

· Outcome 7: Salespeople management: directing sales force operations

Rubrics

Learning Descriptors	Fail Below 60%	Marginal Fail 60-69%	Fair 70-79 %	Good 80-89%	Exceptional 90-100%
Content KNOWLEDGE & UNDERSTANDING Set 10%	Content is unclear, inaccurate and/or incomplete. Brief and irrelevant. Descriptive. Only personal views offered. Unsubstantiated and does not support the purpose, argument or goals of the project. Reader gains no insight through the content of the project.	Limited content that does not really support the purpose of the report. Very poor coverage. Displays only rudimentary knowledge of the content area. Reader gains few if any insights	Presents some information that adequately supports the central purpose, arguments, goals, or research questions of the project. Although parts missing, it demonstrates a level of partially proficient knowledge of the content area. Reader gains some insights.	Presents clear and appropriate information that adequately supports the central purpose, arguments, goals or research questions of the project. Demonstrates satisfactory knowledge of the content area. Reader gains proficient insights.	Presents balanced, significant and valid information that clearly and convincingly supports the central purpose, arguments, research questions or goals of the project. Demonstrates indepth and specialised knowledge of the content area. The reader gains important insights.
Organization COMMUNICATION Set 10%	Information/content is not logically organized or presented. Topics/paragraphs are frequently disjointed and fail to make sense together. Reader cannot identify a line of reasoning and loses interest.	Information/content is not, at times, logically organized or presented. Topics/paragraphs are frequently disjointed which makes the content hard to follow. The reader finds it hard to understand the flow of the report.	Information/content is presented in a reasonable sequence. Topic/paragraph transition is unclear in places with linkages for the most part. Reader can generally understand and follow the line of reasoning, although work needed to be proficiently organized.	Information/content is presented in a clear and understandable sequence. Topic/paragraph transition is good with clear linkages between sections and arguments. Reader can understand and follow the line of reasoning.	Information/content is presented in a logical, interesting and effective sequence. Topics and arguments flow smoothly and coherently from one to another and are clearly linked. Reader can easily follow the line of reasoning and enjoyed reading the report.
Use of References COMMUNICATION Set 5%	Little or no evidence of reference sources in the report. Content not supported and based on unsubstantiated views.	Most references are from sources that are not peer- reviewed or professional, and have uncertain reliability. Few if any appropriate citations are provided. Reader doubts the validity of much of the material.	Professionally legitimate references are generally used. Fair citations are presented in most cases. Some of the information/content/evidence comes from sources that are reliable, but more academic sources needed to be convincing.	Professionally and academically legitimate references are used. Clear and accurate citations are presented in most cases. The majority of the information/content/evidenc e comes from sources that are reliable.	Presents compelling evidence from professionally and academically legitimate sources. Attribution is clear and accurate. References are 75% from primarily peerreviewed professional journals or other approved sources.

Written Communication Skills COMMUNICATION Set 5%	The written project exhibits multiple errors in grammar, sentence structure and/or spelling. Inadequate writing skills (e.g., weaknesses in language facility and mechanics) hinder readability and contribute to an ineffective research project.	The written project exhibits errors in grammar, punctuation and spelling. The written project comes across as untidy and not properly checked for mistakes. Errors present in written communication make readability frustrating.	Written research project displays good word choice, language conventions and mechanics with a few minor errors in spelling, grammar, sentence structure and/or punctuation. Errors do not represent a major distraction or obscure meaning.	Readability of the project is good due to the clarity of language used. Grammar, spelling and punctuation is without error. Spelling and grammar thoroughly checked.	Readability of the project is enhanced by facility in language use/word choice. Excellent mechanics and syntactic variety. Uses language conventions effectively (e.g., spelling, punctuation, sentence structure, paragraphing, grammar, etc.).
Analytical / Critical Thinking Skills CRITICAL THINKING Set 35%	Research problem, concept or idea is not clearly articulated, or its component elements are not identified or described. Research information is poorly organized, categorized and/or not examined; research information is often inaccurate or incomplete. Presents little if any analysis or interpretation; inaccurately and/or inappropriately applies research methods, techniques, models, frameworks and/or theories to the analysis. Presents few solutions or conclusions; solutions or conclusions are often not well supported, are inaccurate and/or inconsistent, and are presented in a vague or rudimentary manner.	Research problem, concept or idea is not clearly articulated at times and confusing. Research information is badly organized, categorized, and/or only superficially examined; research information is often incomplete. Presents limited analysis or interpretation; inaccurately and/or inappropriately applies research methods, techniques, models, frameworks and/or theories to the analysis. Presents some solutions or conclusions but they are often not well supported, or logical.	Adequately identifies and describes (or sketches out) the research problem, concept or idea and its components. Gathers and examines information relating to the research problem, concept or idea; presents and appraises research information with some minor inconsistencies, irrelevancies or omissions. Generally applies appropriate research methods, techniques, models, frameworks and/or theories although with inaccuracies. Outlines solutions or conclusions that are somewhat logical and consistent with the analysis and evidence; identifies and/or lists solutions or conclusions although not always clearly.	Formulates a clear description of the research problem, concept or idea, and specifies major elements to be examined. Selects information appropriate to addressing the research problem, concept or idea; accurately and appropriately analyses and interprets relevant research information. Effectively applies appropriate research methods, techniques, models, frameworks and/or theories in developing and justifying multiple solutions or conclusions; solutions or conclusions are coherent, well supported and complete.	Effectively formulates a clear description of the research problem, concept or idea, and specifies major elements to be examined. Selects and prioritizes information appropriate to addressing the research problem, concept, or idea; accurately and appropriately analyzes and interprets relevant research information. Precisely and effectively applies appropriate research methods, employs advanced skills to conduct research. Uses techniques, models, frameworks and/or theories in developing and justifying multiple solutions or conclusions; solutions or conclusions are insightful, coherent, well supported, logically consistent and complete. Displays a mastery of complex and specialized areas.
Integration Skills APPLICATION & EVALUATION Set 35%	Shows little ability to employ theory and practice across the functional areas of business in the assessment of issues relating to the research problem, concept, or idea. Does not recognize or correctly identify crossfunctional organizational issues relevant to the research problem, concept or idea. Does not adequately evaluate the research problem, concept or idea in light of relevant principles, theories and practices across the business functional areas. Few if any solutions, recommendations for action, or conclusions are presented, and/or they are not appropriately justified or supported.	Shows some ability to employ theory and practice across the functional areas of business in the assessment of issues relating to the research problem, concept or idea. Recognizes organizational issues relevant to the research problem, concept or idea but does not show understanding. Does not adequately evaluate the research problem, concept or idea in light of relevant principles, theories and practices across the business functional areas. Some solutions offered but difficult to understand. Recommendations for action, or conclusions are presented, but they are often not well supported, or logical.	Exhibits application of principles, theories and practices across the functional areas of business to the analysis of the research problem, concept or idea. With some exceptions, outlines and describes (or sketches out) some cross- functional organizational issues that are relevant to the research problem, concept or idea. Adequately identifies and describes (or summarizes) solutions, recommendations for action, or conclusions that are, for the most part, appropriate, but which need to be more aligned with principles and concepts in the functional areas of business.	Demonstrates an ability to integrate and apply principles, theories and practices across the functional areas of business to the analysis of the research problem, concept or idea. Identifies, examines and critically evaluates important cross- functional organizational issues associated with the research problem, concept or idea. Clearly justifies solutions, recommendations for action, or conclusions based on analytics and an insightful synthesis of crossdisciplinary principles and concepts in the functional areas of business.	Demonstrates welldeveloped ability to integrate and apply principles, theories and practices across the functional areas of business to the analysis of the research problem, concept or idea. Effectively identifies, examines and critically evaluates important crossfunctional organizational issues associated with the research problem, concept, or idea. Clearly and effectively justifies solutions, recommendations for action, or conclusions based on strong analytics and an insightful synthesis of crossdisciplinary principles and concepts in the functional areas of business. Can link thinking across disciplines and contexts.

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