Unit 5 Marketing of Forest Products.pptx

Marketing of Forest Products
Unit 5

Concept of Marketing
 It is the management process through which products
and services (forest products such as firewood, fodder,
timber, non-timber forest products) are moved from
concept to customers.
 The series of activities such as
 production,
 pricing,
 promotion and
 distribution
that provide products and services to meet customer need
and achieve organizational goals.

Approaches of Marketing
1. Product /CommodityApproach:
This approach undertakes the study of
marketing on the basis of a commodity.
The focus here is the product.
Everything about the product is studied in this
approach

Cont..
When studying the marketing of timber on the
basis of product approach, one will begin with
the examining
The sources of supply
Nature and volume of demand
The purpose for which it is required
How it is transported
The problem of storage, standardization,
packing, branding etc.

Cont..
2. InstitutionalApproach:
Under this approach,
manufacturers, wholesalers,
the institutions
retailers,
transportation organizations, warehouses and
so on engaged in the field of marketing
become the focal point.
The activities performed by each institution
from a part of the entire marketing process.

Cont..
3. FunctionalApproach:
in this approach the functions of marketing
become the target of the study.
Each of the functions of marketing namely
buying, assembling, selling, transport,
standardization,
warehousing,
grading,
fincincing, risk
storage and
taking and
in
marketing information Will be analyzed
detail.

Elements of Demand for forest products (timber,
fodder, fuel wood, Ntfps)
1. Desire to have the goods or services: the
first necessary condition to have a demand is
that the consumer should have desire to
purchase goods and services from the market
2. Willingness to pay: it means readiness to pay
and purchase the various amounts of the
products at various prices
3. Ability to pay: purchasing capacity of the
individual (financial ability)

Cont……..
3. Per period of time: Demand must be time
related such as hours, days, weeks, months etc
5. Other things being equal/ ceteris paribus:
There might various factors that can influence
demand other than price of the product such as
income, taste and preferences, price of related
goods, weather, customs and traditions etc which
are assumed to be unchanged during the period
of analysis

Meaning of Demand
• The quantity of a goods or services (firewood)
that a consumer (who purchases firewood) is
willing and able to purchase at various prices
for a period of time is called demand.

Determinants of Demand for Forest
Products
A range of factors affect the demand for forest
products. Some of the major determinants are as
follows
1.Price of the Forest Products:
Other things remaining the same, the demand for a
commodity is inversely/negatively related to its
price.
Quantity demanded is higher at lower price and it
is lower at higher price.
Higher the price, lower the demand and vice
versa

Cont..
2.Income of the Consumers: Goods are classified into superior
and inferior goods on the basis of income.
a. Inferior Goods: If demand for a commodity decreases as a result
of increase in income of the consumer, then such commodity is
called inferior goods and vice versa. For example: Inferior timber
such as Chilaune, Katus
b. Superior Goods: If demand for a commodity increases as a
result of increase in income of the consumer, then such commodity
is called superior goods and vice versa. For example, superior
timber such as Sal, Sisau etc.
 Demand for most forest products generally increases as countries
become richer and can afford to buy more of all goods and
services

Cont………………..
3.Size and composition
Population:
of the
Demand for a good will be higher in case of
larger population (increase in the size of
population means increase in number of
consumers, which will create new demand) and
vice-versa and
Population growth broadly acts to increase the
demand for forest products by increasing the
number of forest product consumers.

Cont..
4. End Market Indicator (survey of end-users of
products):
 This method is used to forecast the demand for
raw materials (timber) on the basis of production
plan of the firms producing final product
(furniture).
Producer of timber can collect the information
from the furniture industry.
If the furniture industries are planning to produce
more furniture in future then higher demand for
timber can be forecasted.

Cont..
5.Taste and Preference :
If the consumer has more taste and preference on
a particular goods, demand for a commodity
increases and vice versa.
If a new good comes in the market with new taste
than other products, the preference of people for
that product increases which ultimately increases
its demand.

CONT..
6. Price of Related Goods: If demand for one commodity (Coke,
petrol) changes due to change in price (Pepsi, car) of another one,
then such goods are called related goods. They are of two types:
a. Complementary goods:
 They (car and petrol) are those goods which are
consumed/demanded together/jointly to satisfy a particular
want (travel). They are jointly demanded. For example, ink
and pen. A fall in price of one commodity will cause the
demand for the other to rise, other things remaining the
same. For example, a rise in price of pen will cause a fall
in the demand for ink and vice versa.
 In case of complementary goods, price of one commodity
and demand for another one are negatively related/ as price
of one commodity goes up demand for another one goes
down and vice-versa.

Cont..
b. Substitute Goods:
They are those goods which can be used in place of
the other. For example, tea and coffee. A rise in price
of one commodity will cause the demand for the
other to rise, other things remaining the same. For
example, a rise in price of tea will cause a rise in the
demand for coffee and vice versa.
In case of substitute goods, price of one commodity
and demand for another one are positively related/ as
price of one commodity goes up demand for another
one also goes up and vice-versa.

Law of Demand
a. Statement
 Other things remaining the same/ceteris paribus (no
change in income, population size, price of related
goods), quantity demanded for a commodity (timber,
firewood, fodder, NTFP)increases with fall in its price
(timber, timber, NTFP) and vice versa. In other words,
when price of a commodity falls, quantity demanded for
the commodity will increase and vice versa, other things
remaining the same.
 “Higher the price, lower the demand , ceteris paribus”
 “Lower the price, higher the demand”

Cont……..
b. Mathematically,
Dtimber=f(Ptimber), other things remaining the
same
QX=a-bPx
Where Qx=quantity demanded for X good
f=function
Px=price of X good

c. Assumptions /Ceteris Paribus (other things
remaining the same)
No change in income of the consumers
No change in price of related goods
No change in taste and preference
No change in population size

d. Demand Schedule: the tabular presentation of
the law of demand
Price(Rs/kg) Quantity demanded(Kg)
5 10
4 20
3 30
2 40
1 50
In the above table, demand is 10 kg when price is 5Rs/Kg. the
demand has increased form 10 kg to 20 kg as price decreases
from 5 to 4 Rs/kg and so on.
It shows that price and demand are inversely / negatively
related (as price decreases demand increases and vice versa)

e. Demand curve: it is a graphical presentation of
demand schedule.
 In the
demand
obtained by plotting
figure, DD is a
curve which is
the
demand schedule in a graph.
 It slopes downward from left
to the right indicating an
inverse relationship
between price of a
commodity and its quantity
demanded
10 20 30 40

Measuring Elasticity of forest
Demand:
 It gives both direction and magnitude of change in
demand due to change in its determinants
 The law of demand shows the direction of change in the
demand with the change in price (As price increases
demand decreases). But this law does not explain what
percentage change in price leads to what percentage
change in demand (which can be explained by the
elasticity of demand).
 Thus to measure the degree (direction and magnitude) of
relationship between price and demand, we use the concept
of elasticity of demand.
 It gives the answer of by how much the demand changes as
price increases or decreases

• The elasticity of demand is the ratio of the
percentage
percentage
change in the demand to the
change in any quantitative
determinant of demand.
Ed= percentage ∆ in demand
percentage ∆ in any its determinants
(price, income and price of related goods)
• Types of elasticity of demand
1. Price elasticity of demand (Ep)
2. Income elasticity of demand(Ey)
3. Cross elasticity of demand(Exy)

1. Price Elasticity of Demand (Ep)
 Other things remaining the same, price elasticity of demand
is the ratio of the percentage change in the demand for a
commodity with the percentage change in price of the
same commodity.
Ep=- 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
 Ep =- 𝑄1
(𝑄2−𝑄1)𝑋100
(𝑃2−𝑃1)𝑋100
𝑃1

CONT………………
=- 𝑄2−𝑄1 𝑃1
𝑄1 𝑃2−𝑃1
Ep =- 𝑄2−𝑄1 𝑃1
𝑃2−𝑃1 𝑄1
Ep=-∆𝑄 𝑃1
∆𝑃 𝑄1
Where,
Q1 = initial demand
Q2= final demand
P1= initial price
P2= final price
Ep= coefficient of price elasticity of demand
∆Q= Change in demand
∆P= Change in price

Types of Price Elasticity of Demand

Graphically
Q2 Q3
Q1
 The demand curve is a horizontal
straight line and lies parallel to x-
axis.
 The demand curve shows the
change in price is insignificant,
however, the change in quantity
demand is infinitive.
 Every unit is sold at the same
price i.e. price cannot be
increased or decreased..
0
 Ep=- ∞
=∞
1. Perfectly Elastic Demand(EP =∞. ):
 If a very small (insignificant) change in price of a good leads an
infinitive change (huge change) in quantity demanded for that
good, then the demand is known as perfectly elastic demand.
 This is an imaginary situation and not found in real life (Extreme
case).
Graphically
P2
P3

 In the figure, DD represents
perfectly inelastic demand curve
which is parallel to vertical axis.
 Demand remains constant at OQ
as price increases from OP to OP2
or decreases from OP to OP1.
Ep=-
0
=0
Q
2. Perfectly Inelastic Demand(Ep=0)
 If the quantity demanded is totally irresponsive (no change in demand) to the
changed (increase or decrease ) in the price of a good , then the demand is known as
perfectly inelastic demand.
 This demand is found in case of basic necessary goods such as salt, medicines (low priced
items), firewood, grass etc.

Graphically
Q Q1
3. Relatively Elastic Demand (EP>1):
 If percentage change in quantity demanded is greater than the percentage change in
price of a good, then the demand is known as relatively elastic demand.
 Mathematically, relatively elastic demand is known as more than unit elastic demand
(Ep>1).
 For example, if the price of a product increases by 5% and the demand of the product
decreases by 8%, then the demand would be relatively elastic
 DD represents relatively elastic
demand curve which is flatter
 This type of demand is found in
case of luxurious goods such as
automobiles, gold and diamond etc..
 The percentage decrease in quantity
demanded is greater than the
percentage increased in price.
i.e. (Q1-Q)/Q>(P1-P)/P.
Where percentage change in demand is
greater than the percentage change in
price
+8%
-5%

graphically
Q Q1
+8%
-5%
4. Relatively Inelastic Demand(EP<1):
 If percentage change in quantity demanded is less than the percentage change in price
of a good, then the demand is known as relatively inelastic demand.
 Mathematically, relatively elastic demand is known as less than unit elastic demand (Ep<1).
 For example, if the price of a product increases by 8% and the demand of the product
decreases by 5%, then the demand would be relatively inelastic.
 DD represents relatively inelastic
demand curve which is steeper.
 This type of demand is found in case of
daily consumption goods such as food,
cloth and shelter..
 The percentage decrease in quantity
demanded is less than the percentage
increased in price
 i.e. ∆Q/Q<∆P/P.
 Q1-Q/Q <P1-P/P
 Percentage change in demand<
percentage change in price

Graphically
-5%
+5%
5. Unitary Elastic Demand(EP=1)
 If percentage change in quantity demanded is exactly equal to the percentage change in
price of a good, then the demand is known as unitary elastic demand.
 Mathematically, relatively elastic demand is known as unitary elastic demand (ep=1).
 For example, if the price of a product decreases by 5% and the demand of the product also
increases by 5%, then the demand would be unitary elastic.
 DD represents unitary elastic demand
curve which is flatter
 In the figure, percentage change in
quantity demand is = the percentage
change in price.
 i.e. ∆Q/Q=∆P/P.
 Q1-Q/Q =P1-P/P

Availability and Substitutes
Goods with close substitutes tend to have
more elastic demand than less or no close
substitutes because it is easier for consumer to
switch from that good to others.
Coca-cola and Pepsi are easily substitutable
but rice is food without close substitute.
The demand for rice is less elastic than the
demand for coke.

Derived Demand by a Firm
The demand for various kinds of labor and
material which go to make the final product is
called derived demand.
For example: demand for timber is derived
demand because it demand depends on the
demand for furniture.
Similarly, demand for steel (an intermediate
good) is derived from the demand for final
goods (e.g., automobiles).

Cont..
Timber market (derived
demand)
Furniture market
 If there is an increase in demand for furniture, then ultimately more furniture
need to be produced to meet the extra demand.
 However, more cars can only be made if more timber is made.
 therefore an increase in demand for furniture will lead to an increase in
demand for timber.
 Here demand for timber is a derived demand
e
e
e1
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Unit 5 Marketing of Forest Products.pptx

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Unit 5 Marketing of Forest Products.pptx