Effects of Pricing Influences and Selling Characteristics on Plant Sales in the Green Industry

Data from the 2004 National Nursery Survey conducted by the USDA-CSREES S-1021 Multistate Research Committee (referred to as the Green Industry Research Consortium) were used to evaluate the effect of pricing influences and selling characteristics on total gross firm sales and gross sales of several plant categories (trees, roses, shrubs/azaleas, herbaceous perennials, bedding plants, foliage, and potted flowering plants) for commercial nurseries and greenhouses. As expected, the firm’s selling characteristics play a large role in whether a firm sells a specific plant category. Demand factors also play a role in affecting plant category sales with income, population, and race tending to be the only significant variables, except for the potted flowering plants category. In regard to sales, our results show that certain factors affecting pricing decisions play a critical role in both plant category sales and total sales. Furthermore, demand and business characteristics play a limited role as well, but not as big a role as selling characteristics. Of note is that firms with an increased percentage of sales through wholesale channels (of most plant categories and overall) result in increased sales. By understanding the nursery and greenhouse industry environment and how decisions affect overall and categorical sales, firms can implement strategies that capitalize on factors that have the potential to generate increased sales. The U.S. nursery and greenhouse industry (often referred to as the Green Industry) had $16.8 billion in total grower cash receipts during 2005 (Jerardo, 2007). Although the Green Industry is a multibillion dollar industry that is still expanding (albeit at a slower rate), U.S. nursery and greenhouse owner/operators face numerous challenges in their struggle to have and/or maintain a successful business. Given that the industry is maturing (Hall, 2007), the competitive rivalry among firms is intensifying. With the increased competition that comes along with slower growth, firms compete by finding alternative markets or through capturing market share from other firms. Firms failing to adapt and implement new strategies during the transition from a rapidly growing to a mature market will face problems most likely resulting in their elimination from the marketplace. Given the transition from a rapidly growing to a mature market, owner/operators should be taking an in-depth look at their business practices and determining if there are ways to increase sales and profitability. Increased sales may often come as a result of subtle changes in pricing behavior and vice versa. For instance, an operator that uses last year’s prices as an important indicator of how to price this year may fail to incorporate key information regarding the present market conditions, thereby potentially lowering sales. Recent research has addressed changes associated with marketing practices within the Green Industry. Behe et al. (2008) found that regional differences among nursery growers exist in various marketing practices, including sales management, selling practices, pricing, and advertising, whereas Hodges et al. (2008) found regional differences in various nursery production practices, including temporary labor force levels, growing systems, contracting, and use of integrated pest management systems. Campbell et al. (2009) compared industry practices in 1988 versus 2003 and found numerous changes have occurred in production, marketing, and advertising practices with some regions experiencing more structural change than others. Yue and Behe (2008) found that the purchase of specific plant products affects consumer choice of outlet. Finally, Andrade and Hinson (2009) evaluated factors affecting choice of rewholesalers and other nursery marketing channels and found that diversified growers, in regard to their marketing strategies, were more likely to use a mass merchandiser and garden center channel and that plant group also affected the choice of mass merchandiser and landscaper channels. Based on the varying practices noted within previous research, our objective was to evaluate the effect of pricing influences (i.e., cost of production, other grower prices, plant quality, market demand, product uniqueness, product inventory, and last year’s prices) and selling characteristics (e.g., total advertising, tradeshow attendance, and percentage of: repeat customers, negotiated sales, native plant sales, wholesale sales, exports, and precommitted sales) on total gross firm sales as well as gross sales associated with several plant categories (trees, roses, shrubs and azaleas, herbaceous perennials, bedding plants, foliage, and potted flowering plants) for commercial nurseries and greenhouses. By understanding the effects of pricing influences and selling characteristics, we can identify which factors play the largest role in increasing/decreasing sales, thereby offering valuable insights to commercial nursery and greenhouse owner/operators. To control for other factors that may contribute to a firm’s sales, we use other variables associated with business characteristics and local demand factors as control variables. By understanding the impacts of pricing and selling characteristics, owner/operators will be able to better evaluate their business-specific practices and more accurately determine where changes can be made to increase sales. Materials and Methods Data from the 2004 National Nursery Survey (NNS04), conducted by the USDACSREES Multistate Research Committee S-1021 (referred to as the Green Industry Research Consortium), were used as the primary data source for this study. The survey used a standard sampling methodology with surveys being sent to nursery and greenhouse firms in 44 states representing 93% of total grower cash receipts (Brooker et al., 2005). An in-depth discussion of the survey procedures and descriptive statistics for each question along with a copy of the survey instrument can be found in Brooker et al. (2005). The national survey resulted in a total of 2485 surveys being returned; however, given the nature of the survey in relation to how responding firms were asked to detail gross sales, only 460 completed surveys were available that provided total gross sales in dollars with the rest of the surveys using the alternately available categorical number scale to define their sales. The categorical scale had 11 gross sales categories, but the categories could not be linked back to an actual dollar amount, thereby causing problems for any regressionbased analysis in which sales are the dependent variable. Furthermore, given that the purpose of this article was to examine commercial (as opposed to hobby farms) operations, we adopted the USDA definition, as described by Andrade and Hinson (2009), in which a commercial firm has total gross sales equal to or in excess of $10,000. After eliminating incomplete surveys and noncommercial firms, a total of 342 firms met our Received for publication 22 Sept. 2009. Accepted for publication 4 Jan. 2010. To whom reprint requests should be addressed; e-mail [email protected]. HORTSCIENCE VOL. 45(4) APRIL 2010 575 MARKETING AND ECONOMICS