Farmer Identification and Commitment Responses to Institutional Change in Marketing Channel Structures
Creators: name: Gow, Hamish R.
name: Stevenson, Mark
name: Westgren, Randall E.
name: Sonka, Steven T.
name: Gow, Hamish R.
name: Stevenson, Mark
name: Westgren, Randall E.
name: Sonka, Steven T.
Publisher: name: Unknown
Year: 2005
Subjects: subject: Marketing
subject: FOS: Economics and business

description: The structure of the New Zealand merino industry has been through a period of rapid organizational change and marketing innovation over the past decade. This has seen it move away from a publicly regulated spot auction market structure characterised by undifferentiated product receiving pooled equilibrium commodity prices often at a discount to the international market price to a market structure composed of both privately controlled strongly vertically integrated marketing initiatives characterised by tight contractual relationships gaining substantial premiums over the international market place operating concurrently along side the traditional spot auction markets. The emergence of these new marketing structures has thus forced farmers to seriously re-evaluate the manner in which they identify with and commit to market channel partners. In the mid 1990's, the merino sector made an initial effort to move out from under the umbrella of the 'public' statutory control of the New Zealand Wool Board (NZWB) to grower control by establishing a merino-specific 'industry good' organization, Merino New Zealand Incorporated (MNZ Inc). MNZ Inc was established to focus on promotion and management of the merino sectors special characteristics and to maximise opportunities for improving returns to merino growers. MNZ Inc acted as a facilitator in the market, working along-side traditional merino grower servicing and broking companies. The new organization successfully undertook increased commercial responsibility under the NZWB, leading to the formation of Merino New Zealand Limited (MNZ Ltd) in 1998, which took over the majority of MNZ Inc's functions. Finally in 2001, MNZ Ltd and Wrightson Ltd's fine wool business entered into a commercial joint venture, which led to the privatization of the activities of MNZ Ltd. This merger established the New Zealand Merino Company (TNZMC), a privately held joint venture that leveraged MNZ Ltd's marketing expertise and supply chain knowledge, with Wrightson's grower relationships and selling expertise, and the NZWB owned New Zealand Merino brand. As a result of these changes, merino growers presently face a very different marketing landscape in which both traditional and new innovative firms offer a variety of marketing arrangements, ranging from direct auction (spot market) to highly vertically-integrated and relationship-intensive contractual arrangements that link growers to final retail brand partners. The evolving market landscape has forced growers to make a conscious decision about their merino wool marketing practices. They must decide whether to continue marketing their clip through their traditional wool brokers and channels, or to switch allegiances and market their clips through an alternative servicing company or broker. Complicating the growers' dilemma even further, successful initiatives and programs initially developed as an industry public good under MNZ Ltd were transferred to TNZMC, where they are now exclusively available to growers who market their clips through TNZMC. As a result, increased dissent and voice can be heard among some members of the New Zealand merino industry who are disgruntled with the organizational changes. These organizational changes have confronted growers with a number of challenges and questions about how closely they identify with and commit to their chosen servicing company and marketing channel. Merino growers responded to the changes in a number of ways: some have exited their usual servicing company and switched the marketing of their clip to an alternative, some have stayed with their usual servicing company but are unhappy, and some others have stayed with their usual servicing company and are happy. The purpose of this research was to determine how growers now identify with and commit to their respective merino wool servicing and broking companies. A mixed methods approach was implemented to effectively analyze large quantities of qualitative and quantitative data. Qualitative data collected in 16 unstructured and semi- structured interviews were synthesized into a case study analyzing changes that took place in the industry and the motivations for those changes. This was followed by an analysis of data collected in an enumerated and stratified survey of 131 New Zealand merino growers conducted in January and February 2004 designed specifically how growers identify with and commit to their merino wool servicing and broking company. Using structural equation modelling techniques, the initial results indicate strongly statistically different structures in the ways in which farmers identify and commit to their respective marketing channels. Farmers who remain within the traditional marketing channels do not identify or commit with the channel from a business stand point, only they only identify and commit on personal relationship basis with their broker/trader who markets their wool. They view all business services provided and market outcomes as equivalent and fair as they are operating in a highly competitive spot auction market and therefore neither their broker or themselves can affect outcomes. Alternatively, farmers whom have switch to the highly integrated and contract controlled channels strongly identify and commit to their marketing channel partners on both a business and personal relationship basis. Interestingly, these results show strong positive business commitment when things are going well, but the reverse when perceptions do not meet expectations. Thus these farmers expect their marketing channels out perform expectations and if they do not they become vocal and begin looking for alternatives. Similar, the way in which the commit differs, the new marketing channels provide a mechanism to learn about the marketing opportunities available but also provide the farmers an opportunity by pass the marketing channel if expectations not meet. This places the marketing channel in a precarious catch 22 position of being required to continuously provide up to date information about the market to ensure farmers maintain realistic expectations and thus ensure that they remain but at the same time not give away too much information thereby allowing them to operate by themselves.