Lately, there has been a great deal of discussion regarding March 2013 when dairy breeders will be able to genomically test their own bulls. (Read – How Genomics Is Killing the Dairy Industry) One thing for sure is that it is forcing many Artificial Insemination companies to re-think their corporate strategy.
Probably one of the greatest areas for executives at the AI companies to look at for examples on how to position their companies is the retail industry. There are many similarities between A.I. and retail, especially considering the need for product differentiation as well as being a service organization. Three great retail examples to look at are Wal-Mart, Apple, and Amazon.
If you look at the large artificial insemination companies, you can already see that many of them are heading toward the Wal-Mart model, where they try to offer the highest quality product at “always low prices.” Companies like Alta Genetics, ABS Global, Accelerated, and CRI have identified the largest portion of the marketplace, the commercial producer. This is where they can sell the highest volume semen and maximize profit not through the semen prices they charge but rather through how efficiently they can operate.
Similar to the Wal-Mart, one stop shopping model, many of these A.I. organizations now try to be a complete solution to their customers offering such services as, herd health, feed & nutrition in addition to their genetic and reproductive services.
When it comes to their genetic offerings, the key here is that they are selling shelf space. No longer is it as much about the product they are selling, as it is about the complete package they are trying to offer to the commercial breeder. That means that they are looking to provide a consistent product rather than seeking to have the #1 TPI or LPI sire. Therefore, they do not have to go out and source the top sires but, rather, they need to provide consistent reliable genetics that can help advance their commercial partner herds. This means they will not have to get as aggressive on their lease deals and can still focus on their efficiencies and volumes as opposed to the ultra-aggressive sourcing of top gPA TPI and gPA LPI sires.
Once the world’s most dominating retail entity, there is no question that the Wal-Mart model works, Although it was once believed that only one company could survive and thrive in the ultra-competitive big box store world. The recent performance of companies like Target does hold out some hope for the many A.I. companies looking to battle for this large market segment.
In contrast to the Wal-Mart model is Apple. The most admired company in the world has built its market position through developing, marketing and direct selling their own unique product to what most would consider a niche market. They key part to this model is having a very clear vision who your marketplace is and developing an extremely differentiated product in the eyes of their customers. A.I. companies that seem to be emulating this model are GenerVations with their work with the Lylehaven Lila Z and Wabash-Way Evett families, JetStream Genetics with their work with Regancrest S Chassity, and Select Sires through their Aggressive Reproductive Technologies (ART) program, though to a much larger audience that the first two (Read – Select Sires vs Semex: A contrast in Cooperatives).
Similar to how Apple has received widespread criticism for some of their own business practices, companies like Select Sires have received criticism for owning females (Read –Should A.I. Companies Own Females ). Though as the Apple model demonstrates you need to have a distinctive product in order to survive. The biggest thing that all three of these companies have learned is that, in order to compete in this ultra-competitive marketplace, they need to cost effectively source their genetics. That means producing their own sires and accelerating their rate of genetic advancement so that they can have a product that is unique in the marketplace. (Read – The Genomic Advancement Rate – The Battle for Genetic Supremacy)
There are two main lessons I think many of these A.I. companies can learn. First always be innovative and at the front of the marketplace. If you are not pushing the front end of product development/sire sampling, you will fall behind your competitors and get lost in no man’s land. The second lesson is that you have to control the license to your product. Apple has never allowed other companies to come in and license their product. They also did not create the iPhone or iPad and then the next day let their competitors take their products and designs and create their own versions knock off versions. Companies that did allow this to happen, like Microsoft, have developed much larger market share, but have fallen on financial challenges. For A.I. companies that means you need to control your young sire sampling so that you have the next generation of genetics before your competitors do. While some would say that is not fair, in order for these companies to compete they have no option but to do so. While having negative sentiment in a small segment of the marketplace is not ideal, the risk of not having a differentiated product is a much bigger gamble.
More recently, I have seen the emergence of online semen retailers akin to the amazon.com model. Companies like DairyBullsOnline in North America and Dairy Daughters in the UK, are able to compete not on their size and scale, or their own distinctive product (though DairyBullsOnline does have a strong segment in the polled and red and white market) but rather through their efficiencies. These companies do not have large facilities with great numbers of staff, but rather they are extremely efficient in their operations and source their product direct from breeders or smaller A.I. organizations. Leveraging technology both on the web as well as for shipping semen internationally these companies are able to operate at much higher efficiency, passing benefits back to the producers and the breeders they source their genetics from. Despite what they lack in market share, they are able to attract unique genetics through offering seed stock breeders a much higher royalty percentage.
The interesting part about this model is that Amazon was able to stay competitive and fight off many competitors by developing private labels and exclusive marketing arrangements, including being the online e-tailer for many large retail companies. As many of the organizations are forced to get more efficient will they be able to reduce costs and develop their own platforms that will take away the advantage these companies have? You can already see it in the retail world with traditional companies like Wal-Mart and Best Buy committing significant resources to their web properties.
The Bullvine Bottom Line
The artificial insemination world is changing very rapidly. While many companies have already identified what part of the market segment they are going to try to occupy, others seem to be taking a sit and wait approach. The problem is, if they have not already identified whether they are going to be a Wal-Mart, Apple, or Amazon, it is too late, as many of the other companies already have a significant head start.