Target Customer Segment Dilemma

From a bottom-line perspective, clearly identifying a target customer segment is a critical step to defining and executing a strong market position and achieving financial sustainability.  From a social impact perspective, targeting different customer segments can dramatically alter a venture's social impact.  We're taking the class to build a better yacht and improve the social life of billionaires...

I'm pursuing an urban farming venture that uses an emerging technology (aquaponics) to drive economic development in low-income urban neighborhoods.  The intended social impacts we hope to catalyze include:

• Transforming vacant land from community liabilities to community/economic assets
• Diverting food waste from landfills into agricultural inputs for our business
• Mitigating food deserts (growing food within them)
• Creating jobs that are accessible to our neighbors but also decently well-paying and with upward career mobility and opportunities for employees to grow within or without our business
• Improved neighborhood quality of life and improved perception of the neighborhood

As I best understand it now, a tension exists between our goal of financial sustainability and our goal of producing food that is affordable for our (lower-income) neighbors.  I have yet to come across a successful urban or family-scale-rural farming business model that does not rely primarily on driving high margins through direct sales and marketing to the fresh/local/organic consumer market.  Selling to high-end restaurants and farmers' market shoppers is a critical success factor. 

My current assumption is that low-income urban segment is not able to completely support an economic sustainable urban farm.  While farmers' market prices are not necessarily higher than grocery store prices when you account for quality/organic/local/freshness, low-income customers by necessity are more focused on price.  Since we eliminate the overhead of transporting our product 50 miles into the city to sell it, we can lower our prices slightly below typical rural-farmer-at-city-market prices. 

In addition to price, the problem of brand awareness creates a challenge to cultivating customers from within our neighborhood.  At farmers' markets, we can immediately access customers who buy into our value proposition (hyper-local, environmentally sustainable, supports economic development, etc.)  They also patronize these markets for other goods (bundling effect.)  While I think our neighbors will buy into much of our value proposition (especially if we can pull off being excellent neighbors,) will they shift shopping habits just for one head of lettuce?  If we aren't bundling our product with other products, it will be more difficult to break into our neighbor's shopping routine.  I myself settle for crappy Giant Eagle lettuce because it's better than a more crappy driving experience to Whole Foods and back. 

So the tension is this:

1. Focus on "conventional" urban/local/organic farm customer segment, drive higher margins and settle for growing food within food deserts that is mostly sold to food oases.  higher margins, lower social impact
2. Focus on selling food in a way that appeals to neighbors on price and otherwise and settle for lower margins.  lower margins, higher social impact

My current "plan" to navigate this tension is start out by driving the highest price I can command.  If it isn't profitable at the highest price, then there is no point going further.  If it is profitable AND achieving the other desired social impacts, experiment with how to incorporate sales to low-income customers.  Some ideas for this are:

• Form a separate non-profit.  
• Partner with another organization whose mission is to address food deserts and who can help penetrate the market and/or provide subsidy/grant funding.
• Pursue a barter pricing model.  If we can calculate the value of food waste to our composting/aquaponic system, give a per pound discount to neighbors who bring their food waste and want to purchase food.

The ultimate goal is to break the tension here.  I think some of the assumptions supporting it can be overcome--namely that low-income consumers don't value fresh healthy food as much as middle and upper income consumers.  The problem may be access to, not preference for, healthy food.  Particularly when transportation costs across Pittsburgh's rivers and hills are factored in for those who don't own a car.