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Marketing efficiency, Market margin and Marketing cost
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- 2. Marketing efficiency • Marketingefficiency is the ratio of market output to market input. • An increase in this ratio represents improved efficiency and a decrease denotes reduced efficiency. • A reduction in the cost for the same level of satisfaction or an increase in the satisfaction at a given cost results in the improvement in efficiency. 10/14/2020 2
- 3. Efficient Marketing • Increasein the farm production is translated into a proportionate increase in the level of real income in the economy, thereby stimulating the emergence of additional surpluses. • Good production years do not coincide with low revenues to the producers achieved through effective storage, proper regional distribution and channelizing of latent demand and • Consumers derive the greatest possible satisfaction at the least possible cost. 10/14/2020 3
- 4. Approaches to theAssessment of Marketing Efficiency • Technical or physical or operational efficiency • Pricing or Allocative efficiency 10/14/2020 4
- 5. Technical or physicalor operational efficiency • Efficiency is said to have increased when cost of performing a function for each unit of output is reduced. • This can be brought about either by reducing physical losses or through change in the technology of a function viz., transportation, storage, handling and processing. 10/14/2020 5
- 6. Pricing or Allocativeefficiency • Pricing efficiency means that the system is able to allocate farm products either overtime, across the space or among the traders, processors and consumers in such a way that no other allocation would make producers and consumers better off. 10/14/2020 6
- 7. Assessment of Marketingefficiency Ratio of Output to Input • Where, • E – Index of marketing efficiency • O – Value added by the marketing system • I – real cost of marketing. 10/14/2020 7
- 8. Assessment of Marketingefficiency Shephered Approach • The ratio of the total value of goods marketed to the marketing cost. • To eliminate the problem of measurement of value added. 10/14/2020 8
- 9. Assessment of Marketingefficiency Acharya Approach • Higher the total marketing cost (MC) – lower the efficiency • Higher the Net marketing margin (MM) – lower the efficiency • Higher the Price received by the farmer (FP) – higher the efficiency • Higher the Prices paid by the consumer (RP) – lower the efficiency 10/14/2020 9
- 10. Assessment of Marketingefficiency Acharya Approach 10/14/2020 10
- 11. Marketing Costs • Marketfunctionaries or institutions move the commodities from the producers to consumers. • Every function or service involves cost. • The intermediaries or middlemen make some profit to remain in the trade after meeting the cost of the function performed. 10/14/2020 11
- 12. Marketing Costs C= Cf+Cm1+Cm2+………………+Cmi •C= Total cost of marketing of the commodity • Cf = Cost paid by the producer from the time the produce leaves till he sells it • Cmi= Cost incurred by the ith middlemen in the process of buying and selling the products. 10/14/2020 12
- 13. Price spread andMarketing margin • The difference between the price paid by consumer and the price received by the producer for an equivalent quantity of farm produce is often known as farm-retail spread or price spread. • The difference between the price paid by market intermediates and the price received by the producer for an equivalent quantity of farm produce is often known as farm-retail spread or price spread. 10/14/2020 13
- 14. Price spread andMarketing margin • The difference between the price paid by consumer and the price received by the producer for an equivalent quantity of farm produce is often known as farm-retail spread or price spread. • The difference between the price paid by market intermediates and the price received by the producer for an equivalent quantity of farm produce is often known as marketing margin. 10/14/2020 14
- 15. Concepts of MarketingMargins Concurrent margins • The difference between the prices prevailing at successive stages of marketing at a given point of time. • For example, the difference between the farmers selling price and retail price on a specific ate in the total concurrent margin. 10/14/2020 15
- 16. Concepts of MarketingMargins Lagged margin • The difference between the price received by a seller at a particular stage of marketing and the price paid by him at the preceding stage of marketing during an earlier period. 10/14/2020 16
- 17. Estimation of MarketingMargins and Costs • Chasing of lot method • Sum of average gross margin method • Comparison of prices at successive stages of marketing 10/14/2020 17
- 18. Chasing of lotmethod • A specific lot or consignment is selected and chased through the marketing system until it reaches the ultimate consumer. • The cost and margin involved at each stage are assessed. • This method is appropriate for such perishable farm commodities as fruits, vegetables, milk etc. 10/14/2020 18
- 19. Sum of averagegross margin method • The average gross margin at each successive level of marketing is worked out by dividing the difference of the money value of sales and purchase by the number of units of the commodity transacted by a particular agency. 10/14/2020 19
- 20. Sum of averagegross margin method • MT = Total marketing margin • Si = Sale value of a product for ith firm • Pi = value paid by the ith firm • Qi = Quantity of the product handled by ith firm 10/14/2020 20
- 21. Comparison of pricesat successive stages of marketing • Prices at successive stages of marketing at the producer’s, wholesaler’s and retailer’s levels are compared. • The difference is taken as gross margin. • This method is more appropriate when the objective is to study the movements of marketing costs and margins in relation to prices and cost indices. • Commodities not requiring processing before sale to consumers, such as wheat, maize, bajra, jowar 10/14/2020 21
- 22. Other concepts Producer’s price: PF= PA – CF • PF - Producer price • PA - Wholesale price in the primary assembling market • CF - Marjketing cost incurred by the farmer 10/14/2020 22
- 23. Other concepts Producer’s sharein the Consumer’s price: PS = (PF ÷ Pr) × 100 • PS – Producer’s share in the Consumer’s price • PF - Producer price • Pr - Retail price 10/14/2020 23
- 24. Other concepts Marketing marginof a middleman: • The difference between the total payments (cost + purchase price) and receipts (sale price) of the middleman (ith agency) • (a) Absolute margin of ith middlemen (Ami) = Pri ( PPi + Cmi) 10/14/2020 24
- 25. Other concepts Marketing marginof a middleman: (b) Percentage margin of ith middlemen (c) Mark-up of ith middleman Where, PRi = Total value of receipts per unit (sale price) Ppi = Purchase value of goods per unit (purchase price) Cmi = Cost incurred on marketing per unit.10/14/2020 25
- 26. Factors affecting thecost of marketing • Perishability of the product. • Extent of loss in storage and transportation. • Volume of the product handled • Regularity in the supply of the product • Extent of packaging • Extent of adopting grading • Necessity of demand creation • Bulkiness of the product • Extent of risk • Necessity of storage10/14/2020 26
- 27. Reasons for HigherMarketing costs of Agricultural Commodities • Widely dispersed farms and small output per farm • Bulkiness of agricultural products • Difficult grading • Irregular supply • Need for storage and processing • Large number of middlemen • Risk involved 10/14/2020 27
- 28. How to ReduceMarketing Costs 1. Increase the efficiency of marketing • Increasing the volume of business • Improved handling methods • Managerial control • Change in marketing practices and technology 10/14/2020 28
- 29. How to ReduceMarketing Costs 2. Reduce profits in marketing • The adoption of hedging operations, improvements in market news service, grading and standardisation and • Increasing the competition in the marketing of farm produce 10/14/2020 29
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