Small businesses looking for new models to help grow their business grow should be encouraged by a new study out of Penn State University.
The study, which centered on ten farmers selling their product to local markets, found that developing a local identity could be a highly profitable approach. While this may seem to contradict the trend of the “Go Global” concept, selling locally provides the base from which a broader reach can evolve.
According to one of the co-authors, Ann Sharma, an associate professor at Penn State, those who “made a conscious decision to sell local and made more of a commitment tended to do better than those just testing the waters…”
The study showed that even though local farmers had to assume new expenses (transportation, marketing, and delivery specifically), they were able to better absorb those costs when selling to local vendors such as restaurants and shops.
The study also found that those farmers who took steps to make themselves more visible and accessible to local customers, for example by creating a website, saw their profit margins improve due to this direct selling model. Costs such as web site development, advertising, packaging, and storage could be covered with higher prices. The study confirmed this research by showing that consumers are willing to pay more for local products.
Said Sharma, “…margins may be higher, when they sell locally…cutting out the middleman.”
Because of shorter supply chains and since product passes through fewer channels, the producer is now realizing the profits that once fell into the hands of others.
This study reinforces the growing realization that all business is, in fact, conducted on a local basis, and that small businesses can use this sense of place and location to their advantage by appealing to local loyalties.
Brooks, Chad, “Local Business Models Can Be Profitable,” Business News Daily, March 20, 2013.