Unified branding and marketing centralization in Farm Credit System institutions

¶ … E-Mail Survey Sent to Farm Credit

Systems Institutions

Figure 2 Results from Received Questionnaires

Figure 3 Questionnaire Response Institution #1

Figure 4 Questionnaire Response Institution #2

Figure 5 Questionnaire Response Institution #3

This research was conducted to address a serious problem in the Farm Credit System industry. Currently, due to the diversity of the institutions that make up the System, there are numerous disparate marketing messages being conveyed to the consumer. This is neither efficient nor effective for all parties involved.

In addition, institutions currently must utilize a variety of vendors to fulfill their marketing and advertising needs. Again, this is neither efficient nor effective. As such, three hypotheses are proven. 1) That most associations do not have an in-house, centralized service to accommodate these needs for the use by others. 2) That the institutions would benefit from a single source for all of their advertising and marketing needs. and, 3) that a 'national brand' advertising campaign, unifying the System associations holds value.

In the end, it is recommended that a single-source resource for advertising and marketing needs be established. It is also recommended that a unified campaign be developed as well. Both must take into consideration all of the unique needs of the different associations to be successful, and further research is needed to confirm these findings.

Finding Common Ground

Can Farm Credit benefit from a single source provider for advertising and marketing services to clearly refine its message and develop a national brand?

Background Information:

The Farm Credit System is the oldest Government-sponsored enterprise. It was created by an act of Congress in 1916. Today, the System is a "nationwide network of borrower-owned lending institutions and affiliated service entities that lends to agricultural and rural America" ("Overview"). The system's primary mission has not changed since its founding nearly nine decades ago, to ensure agricultural producers, cooperatives, and farm-related businesses would continue to have access to sound and dependable funding.

The System is currently comprised of approximately 102 financial institutions. The 102 institutions are comprised of 5 banks and approximately 97 associations. As of December 31, 2003, the five System banks included: AgFirst FCB in Columbia, SC; AgriBank, FCB in St. Paul, MN; CoBank, ACB in Denver, CO; FCB of Texas in Austin, TX; and U.S. AgBank, FCB in Wichita, KS. The borrowers themselves cooperatively own these banks and associations, either directly or indirectly. Each institution is governed by a board of directors, which is elected by its borrower/stockholders ("Banks").

These institutions service all 50 states and Puerto Rico as they provide a continuous stream of capital.

Typical products and services offered by System institutions include real estate loans, operating loans, rural home mortgage loans, leases, credit-related life insurance and crop insurance, and various financial services, such as farm record-keeping and financial planning ("Banks").

It is estimated that more than 30% of real estate and non-real estate lending is fulfilled by the System ("Overview").

Financing is used for a variety of purposes. The purchase or improvement of real estate is one of the most common, as is the refinancing of debt on real estate, typically serviced through long-term loans. In addition, short -- and intermediate-term loans are provided to finance processing and marketing the production of food and fiber, and purchasing equipment and livestock ("Banks").

The institutions that make up the System are chartered under the Farm Credit Act. The Farm Credit Administration is the independent Federal agency, in the Executive Branch of the Government, that regulates the System. The joint and several obligations of the System are the Farm Credit Debt Securities ("Overview").

An added layer of protection was created in the late 1980s, with the creation of the Farm Credit System Insurance Corporation. Its primary obligation is to insure that timely payment of principal and interest on the Farm Credit Debt Securities is made. By the end of 2003, the Farm Credit Insurance Fund had more than $2 billion in assets for this purpose ("Overview").

The primary difference between traditional lending institutions and the financial institutions of the System is that System institutions do not take deposits. Instead the funds for lending are obtained through the issuance of global Farm Credit Debt Securities. At the end of 2003, the System reported a net income exceeding $1 billion, as it had reported for each year for the past decade, and had approximately $117 billion in assets. These funds are used to help finance "operations that provide America with high quality agricultural products and services" ("Overview").

A secondary difference, between traditional and System financial institutions, is the limited clientele System institutions service. Marketing is typically aimed at thousands of potential consumers, as opposed to millions. As previously described, the Farm Credit System was established to service agricultural producers, cooperatives, and farm-related businesses. These two differences equate to the need for more targeted marketing, more effective marketing, and more efficient marketing, for System institutions.

Organization of the Study:

The main elements of this study are organized so that the reader is first given a basic understanding of the Farm Credit System, which is foreign to many who are outside of the agricultural community. The next element is the statement of the problem that has been observed by the researcher, which primarily includes the lack of a singular marketing message for the Farm Credit System. As it is comprised of 102 unique banks and associations, this lack of consistency in marketing efforts is ineffective and inefficient.

The scope of this research is the next element described. As noted, the primary research is a qualitative study, focusing on how the System institutions currently acquire their marketing and advertising programs and materials, as well as the value they would place on a singular, one-stop organization for this material, and a unified theme for the Farm Credit System as a whole. Secondary research includes review of literature on the Internet regarding the benefits of utilizing a single source for marketing and advertising materials. This information is then related to the Farm Credit System segment.

The next elements of this research are the limitations of the research itself. There are two primary limitations noted that affect the scope of the research as well as the conclusions that are obtained. With these limitations in mind, the three hypotheses, of this study, are then overviewed. and, this is followed by the secondary research that is comprised of a complimentary literature review.

Data collection and the methodology utilized are next covered in this paper. And then, given the specialized nature of the topic of the Farm Credit System, several key definitions. This not only enhances the reader's understanding of specific terms, but also gives them a clearer overview of what the Farm Credit System is comprised of and their mission.

The purpose of use of the study is detailed next. This includes the general need for research, as none has been specifically undertaken regarding the Farm Credit System and single-source marketing, as well as the more specific use of this study to confirm AgFirst's decision to initiate an in-house marketing and advertising service for the other association's to utilize. Again, the aim is to show that there is value in the use of a single-source entity for this purpose, as well as the development and implementation of a unified and consistent marketing message from Farm Credit institutions across the board.

The next element to be covered is the questionnaires that were utilized for this study. This section gives detail to not only who received questionnaires but also what questions were asked and why. As the reader will discover, the questions presented were asked in order to validate the hypotheses of this study.

The final section of this study includes the results, conclusions and recommendations for this research. The results that were received from the institutions will be detailed, and the conclusions that can be made, due to their consistency will be covered. and, then, recommendations for action for System institutions, as well as future research, will be discussed at length.

Statement of the Problem:

There are 102 institutions comprising the Farm Credit System. Each of these institutions is cooperatively owned and governed, either directly or indirectly, by the participating members of the agricultural community. As such, each institution is unique.

It is their unique voices that have given rise to a disparate conglomeration of messages being given to the agricultural community. and, it is this dissimilarity that causes discord in the System as a whole, and may be impeding its growth and development. Although each institution is individualistic by nature, they are all part of a larger family, the Farm Credit System, which needs to operate as effectively and efficiently as possible in order to ensure its survival.

Scope of Research:

With the growth in importance of marketing in business today, it should come as little surprise that there is increased interest on the part of the researcher. Upon initial researching of the topic, it was discovered that little to no research had been performed in the past regarding the efficacy and efficiency of a cooperative marketing effort in the Farm Credit industry. Although many studies have been performed regarding marketing effectiveness and efficiency, and although some have covered the benefits of cooperative marketing, none were found specific to the unique Farm Credit segment.

The research conducted in this paper was designed to fill this void. A statistical sampling was taken, utilizing e-mail surveys, to discover as much as possible about each institution's advertising needs. The research conducted was exploratory in nature, rather than specific, and was used to quantify the need for a centralized advertising and marketing service for the Farm Credit System.

Open-ended questions were utilized in order to solicit detailed answers from the small group of respondents. The researcher focused on how each institution was now acquiring their advertising materials, if they were through their own organization or through advertising agencies. In addition, gaps in the resources they had available were identified (See Figure 1).

Secondary research was conducted through the use of the Internet. This research focused on the gathering of related information about the use of in-house, single source marketing agencies. This research was then applied to the Farm Credit System industry, to uncover how it may be of use to their segment.

Limitations:

The researcher discovered that there was limited access to the Farm Credit System institutions' marketing and advertising budget information. This information would have been useful in comparing an in-house (AgFirst) single source of marketing materials, as a cost effective solution. However, without these numbers, this aspect of the topic could not be studied.

For this reason, this research focused on the convenience factor of using an in-house single source for the institution's marketing and advertising needs. In addition, whether or not a resulting unified message and consistent look would occur, if an in-house single source, such as AgFirst, were utilized for their advertising materials, was explored. These topics were examined in length, rather than the cost saving issues that still may result.

In addition, the sample size of this survey was inadequate to draw any firm conclusions. 3 System institutions responded to the e-mail questionnaires, out of 97 total associations, for a response rate of 3.09%. However, despite this small sample size, the consistency of the answers from the respondents, suggests that the researcher's theories are correct and support further future research on this topic.

The final limitation of this study may lie in the essay format of the questionnaire itself. Although the open-ended questions allowed for respondents to expound upon the issues presented, they were not useful in quantifying subjective material. As such, a Likert-type scale, giving a numerical range of choices to the respondents such as: on a scale of 1 to 10, with 10 being the highest likelihood of the effectiveness of a unified Farm Credit marketing approach, rate your opinion, may have been more appropriate for some questions. This would have allowed for a quantitative analysis of the response received for some of the questions, as opposed to the qualitative analysis that follows, that may be prone to subjectivity.

Hypotheses:

As the institutions comprising the Farm Credit System are made up of a group of diverse, cooperatively owned members, each institution is unique. However, each of these institutions is a part of the larger Farm Credit System family. As such, it is hypothesized:

Many institutions do not have an in-house advertising and marketing service

System institutions would benefit from a single source for the attainment of their marketing and advertising needs.

And, a unified message for the Farm Credit System is a preference that System institutions have.

Furthermore, this paper will discuss why so many disparate messages being conveyed to the consumers are having a negative effect on the Farm Credit System and its institutions. In addition, what drawbacks there may be to a 'national brand' will be discussed, as will any roadblocks to the success of such an advertising campaign.

Literature Review:

In Sullivan's article, Farm Credit Banks Turn up Heat in Agriculture Lending, the author describes the late 1990s push for System institutions to become competitive with the rest of the mainstream lending industry. As of 1998, Sullivan notes that the Farm Credit System only held 25% of the agricultural lending market. Clearly, more aggressive, more efficient, and more effective marketing is needed to gain valuable market share in an industry that should be dominated by the specialized System.

This aggressive, efficient and effective marketing can be presented as a unified message for the entire Farm Credit System. Lewczak and Starr point out just how effective this type of cohesive industry wide advertising can be, in another agricultural industry, the dairy industry. The 'Got Milk?' campaign, complete with milk mustaches, of the Dairy Council has been very successful in the promotion of milk products, as was the 'Beef: It's What's for Dinner' and 'Pork, the Other White Meat' campaigns. However, the challenge, of these campaigns, lies in the mandatory nature of the industry wide advertising, where farmers were actually forced to pay for this advertisement. For this reason, institutions, so as not to infringe on First Amendment rights, should voluntarily undertake any System unified advertising.

Lastly, the agricultural lending industry is a natural fit for cooperative pooling of advertising and marketing needs, given the nature of the customers they service. Dempsey, Ashish, Loyd, and Loula noted that nearly 20% of agricultural business uses agricultural cooperatives. With these cooperatives, farmers across the nation are able to increase their market power in both buying and selling. These co-ops have traditionally offered farmers a very valuable service, it is only logical that an industry that serves solely the agricultural community could cooperatively find that same value in a centralized source for advertising and marketing.

Data Collection & Methodology:

The research conducted in this paper was designed to fill this void in research regarding the use of a single source marketing entity for the Farm Credit System. E-mail surveys were sent to all of the Farm Credit System institutions (See Figure 1). These surveys included 7 questions regarding their current marketing and advertising programs, as well as their thoughts and opinions about the development of a national brand for the System and the benefits of having a one-stop source for all of their advertising and marketing needs.

97 System associations were approached with the e-mail survey regarding their current marketing and advertising programs and their opinions on a centralized source for advertising needs. Of these institutions, only 3 responded. Due to the fact that such a small sample size was recovered, the researcher is unable to put forth any firm conclusions about the industry as a whole. However, as the responses were extremely consistent in their answers, these responses suggest that the conclusions that are drawn, later in this paper, are correct, and, in fact, support the need for further and future research.

Secondary research was conducted through the use of the Internet. This research focused on the gathering of related, contemporary research that has been previously completed about the use of in-house, single source marketing agencies. This research was then applied to the Farm Credit System industry, to uncover how a similar program may be of benefit to their segment.

Definitions:

Due to the nature of the Farm Credit System, and its lending institutions, this is an exceedingly specialized topic. In addition, in order to have a better understanding of the System as a whole, a detailed definitions section follows.

Agricultural Credit Association

The Agricultural Credit Associations make both long-term loans for the purchase or improvement of real estate or refinancing of debt on real estate and short- and intermediate-term loans to finance expenses related to the production processing and marketing of our nation's food and fiber, as well as for equipment, facilities and livestock ("Banks").

Farm Credit Administration

The FCA is an independent agency in the Executive Branch of the United States Government. System institutions are required to be examined periodically by the FCA. These examinations may include, but are not limited to, analyses of credit and collateral quality, capitalization, the effectiveness of management, and the application of policies in carrying out the Farm Credit Act, in adhering to FCA regulations, and in servicing eligible borrowers ("Federal").

Farm Credit System is a nationwide network of cooperatively owned banks and lending associations established by acts of Congress to assure farmers and ranchers with a reliable source of credit at reasonable cost. The original legislation establishing the System was passed in 1916 ("Frequently").

Farm Credit Debt Securities

The Farm Credit Debt Securities are the joint and several obligations of the System Banks. The System, unlike commercial banks and other depository institutions, obtains funds for its lending operations primarily from the sale of Farm Credit Debt Securities. The System Banks, through the Funding Corporation, currently issue the following types of Farm Credit Debt Securities:

Discount Notes

Designated Bonds

Bonds

Master Notes

Farm Credit System Financial Assistance Corporation

In the late 1980s, the Farm Credit System Financial Assistance Corporation (FAC) was chartered as an institution of the System to provide funds to financially stressed System institutions through the issuance of bonds. The FAC funded its activities through the issuance of $1.261 billion of FAC bonds, guaranteed as to the payment of principal and interest by the Secretary of the Treasury and backed by the full faith and credit of the United States ("Financial").

Farm Credit System Insurance Corporation

The Farm Credit System Insurance Corporation is an independent U.S. Government-controlled corporation that insures, to the extent that funds are available, the timely payment of principal of and interest on the Farm Credit Debt Securities. As of year-end 2003, the Farm Credit Insurance Fund had more than $2.0 billion in assets ("Overview").

Farmer Mac

The Federal Agricultural Mortgage Corporation (Farmer Mac) was established to attract new capital for the financing of agricultural real estate and to provide liquidity to agricultural lenders ("Farmer").

Federal Land Credit Association

The Federal Land Credit Associations make long-term loans for the purchase or improvement of real estate or refinancing of debt on real estate ("Banks")

7) Success Stories for the newspaper, the radio or TV news

In addition, by pooling together all of the 97 associations' needs, cost savings are a realistic projection as well, as the centralized source is able to take advantage of economies of scale. Instead of each individual association negotiating with a vendor, the centralized source can negotiate on the behalf of all of the associations. This centralized source will have the bargaining power of bulk business that is attractive to vendors and should afford lower pricing. As the first respondent noted, there are a variety of areas, a centralized source should be able to realize cost savings. These include:

1) Advertising for trade magazines, Yellow Pages and newspapers

2) Marketing collateral (flyers, direct mail inserts, brochures, etc.)

3) on-hold or after-hours messaging

4) Promotional giveaway items

5) Customer needs surveys and focus groups

6) Customer satisfaction surveys and focus groups

Currently, some associations have pooled their advertising and marketing needs, understanding the power of this solution, therefore, they should see the added value in a national pooling of needs to offer even more savings of both time and capital.

Secondly, it is recommended that with the creation of this single, centralized source for advertising and marketing needs, a unified message be created for use across the Farm Credit System, across the country. Currently the advertising and marketing messages being communicated are as unique as the institutions that create them. These multitudes of disparate messages dilute the advertising's effectiveness. By creating a unified, consistent message, the Farm Credit System can begin to build a 'national brand'.

A cohesive message espoused by every institution would turn the Farm Credit System brand into a household name. Due to the current practice of promoting a particular institution's own name, the name recognition of the System is rather weak. By unifying the message, it can be built into a strong, national name, that will serve to further promote the System as a whole, and individual associations will profit from this increased strength.

However, as one respondent noted, if a centralized source was developed, and a national brand campaign undertaken there are several challenges that must be overcome. First, the advertising must be appropriate for all of the associations involved. The larger associations may have different advertising and marketing needs than the smaller ones. Also, the messages and materials must be diverse enough to address different demographics of agricultural businesses. Some associations deal primarily with larger row crop farmers, while others may deal with primarily contract poultry. These disparate needs must be addresses and fulfilled for any program to be successful. A common ground must be found.

In addition, the unique budgetary constraints of System institutions must be taken into account. For this reason, an in-System institution, such as AgFirst, has the upper hand in developing a program that is financially feasible for the associations. AgFirst knows the unique position System institutions are in, and how best that limited capital should be spent.

Which brings up the third obstacle. Whoever the centralized source is, they must also understand the different marketing mix needs of the individual associations. Depending on the specific community, certain combinations may be more effective and efficient then others. In the end, although a unified message is sought, the individual and unique needs of the associations must be taken into account and the source must understand and be dedicated to the unique needs of the agricultural lending industry, or the strategy will fail to be accepted widely across the System, and come to an untimely end.

The fourth and final obstacle may lie in some associations' unwillingness to change. They may feel that a unified effort undermines their own individual profit centers. However, as they see the positive effects from those who do participate in the centralized source, they are certain to have a change of heart.

Further research is needed on this topic. First, more associations needed to be surveyed regarding these three important hypotheses, to verify that the trend shown in this study is consistent with the remainder of the industry. In addition, it would be useful to further explore exactly what advertising and marketing efforts each association undertakes, and their typical annual budget for these items. This way, when a centralized source strategy is implemented, specific cost savings data can be disseminated to the associations, which is certain to alleviate most fears, and motivate the associations to join in pooling their needs.