Having grown up working with the Canadian Association of Animal Breeders, to working directly with some of the largest A.I. centers in the world, to running our own genetic programs that had many top LPI cattle, I have had the opportunity to learn the semen sales and marketing world from a variety of perspectives. From this frontline view I have never seen as much change as the A. I. industry is now experiencing with Genomics. With all these changes, the question becomes “What does the future hold for the AI industry?”
Genetic Advantage
It used to be that every artificial insemination center could claim an advantage in a certain product offering. Semex would claim a type advantage that over the years converted to a longevity value, in order to appeal to the much larger commercial market, instead of just elite breeders looking for the next great show cattle. ABS global added product lines and partnerships such as Judges Choice to counter moves such as Semex’s and included strong type offering to their very commercial product line. Every AI center jockeyed back and forth to show how their genetic product offering was different. Even when they overlapped, they would claim greater reliability or stability based on the country or system of origin.
Then along came genomics and wiped all that out.
Today when you look at all the major A.I. centers products, you could take the name and stud code off and you would be hard pressed to notice any difference. They all try to offer a complete product line. Moreover, with the reliability, and ability to take the system or country of origin out of it, they all have pretty reliable product. This almost completely eliminates any genetic advantage that any A.I. center has.
It has been very interesting to watch companies like Select Sires take to owning top bloodlines in a big way (to read more check out Should A.I. Companies Own Females?). This may be the only way that A.I. companies can differentiate their genetic advantage. Buy owning the top females these genetics companies (at this point, they are no longer just an A.I. company), are able to develop distinct bloodlines that none of their competitors can have. This is only going to change more when breeders have full access to genomic information in 2013 and may start to sample and prove their own sires.
Think about it. I remember back when I was working with GenerVations, and Champion hit as #1 in Canada. We marketed the heck out of the fact that he was the best in Canada. We relied on the world’s confidence in the Canadian system to promote that this new, small A.I. center had a reliable product. We blasted that message around the world making sure everyone knew that GenerVations had the #1 in the world. Because we all knew that there was about a 2-3 year window before competitors would have their own Champion sons, or he would no longer be the top bull. Today we are looking at an even smaller window of opportunity. . With new genomics bulls coming out pretty much monthly, things can change in a heartbeat. The Select Sires program at least gives them 8 months advantage on the sires and total control over the dams (since they own them). This gives them the ability to offer their customers a distinct advantage by doing business with them. Some may look at it negatively and yet, from a purely business perspective, it makes total sense. In the end, it will look like a very shrewd investment in a market in which it so is hard to differentiate yourself.
Service vs. Price
Therefore, when you can no longer differentiate your company on product, it only leaves you two other options, service, and price. You are either going to become the Wal-Mart of the A.I. world or you are going to become Nordstroms’s. Both can exist in the same market place you just have to become extremely great at what makes you different.
If you want to become the Wal-Mart of the A.I. world, you are going to offer the lowest price for a very commercial product. This means you need to have your production facilities running super efficiently and your overhead at a bare minimum. This position plays extremely well to commercial producers who are looking for the lowest costs possible. For years, companies like ABS, Alta Genetics, and Select have battled very aggressively. Since most of these companies more or less were just selling a commodity, there really was not any brand loyalty. Since most large herds did their own insemination work, they eliminated the close link that is developed between producer and the A.I. center through the regular visits by the technicians doing the insemination work. While the major A.I. companies tried to lock in that connection again by offering mating programs and other services, since they all were pretty much the same and, often, not used by producers, they were only able to gain marginal difference. And like the Wal-Mart model, margins are tight and profits are slim.
Therefore, if you cannot compete on product and you cannot compete on price, that only leaves service. With the majority of the marketplace doing their own insemination, A.I. companies have to look outside the scope of traditional marketplace to provide services. While this has been the case for many years in the commercial marketplace, it is also fast becoming the case in the entire marketplace. While you may be able to get a slight premium when you have the #1 bull, otherwise you will live and die by the quality of service you offer your customers. We have already seen this happen. Many A.I. companies have gone to offering many non-genetic products in order to become a complete service organization, rather than just a supplier of genetics.
Also of interest, is how the roles of sales and sire analysts have also changed. While many have called the modern sire analyst a glorified tail hair puller, they are now becoming more of a breeding advisor mixed with a negotiation specialist. This is exactly what they have to do. They can provide insight to breeders about the daughters of the top mating sires and maybe a little insight that his proof will not tell you. Even more so, they are now the chief negotiator for their A.I. center. If I were a GM of an A.I. company, I would invest heavily in negotiation and relationship building training for these individuals. Realistically, unless you run a program like Select Sires, this will be your only way to get the top sires from many breeders.
The Bottom Line
Like most mature market places, there is little room for grey areas when it comes to the future of the A.I. industry and where the major A.I. companies position themselves. It will take strong action now either to develop very aggressive genetic programs like Select Sires has, or you will need to decide if you are going to be the lowest cost provider or offer the greatest service. And yes, I know there are many small micro A.I. companies that will be able to turn a profit. I get that, they are able to keep their overhead so low that they will be able to offer a niche product to small segments of the market place. However, when it comes to the big players, they need to ask themselves, “Am I going to get aggressive and develop distinct bloodlines?” “Are we going to be the lowest price provider?” Alternatively, “Are we going to become legendary for the quality of our service?” Anything that is a smorgasbord of these will only end in extinction in the end. Don’t think so? Look what happened to your local hardware store, when Home Depot moved in, or the independent grocer, when Wal-Mart put up one of their super centers in the same community. Where do you shop today? Who will be your provider tomorrow?
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Very well done article once again!