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Marketing

- A series of services involved in moving a product from the point of

production to the point of consumption.

Point of production

- The point of usual first sale by the farmer

Point of consumption

- The point of last purchase or sale

Services

- A function performed on or for a product that alters its form, time, place,
possession characteristics

Exchange function

- Activities involved in the transfer of title of goods

Physical function

- Those activities that involve handling, movement and physical change of

the actual commodity itself

Facilitating function

-acts as the grease of the agricultural marketing machinery

Standardization

- The establishment and maintenance of uniform measurements

Financing

- The advancing of money to carry on the various aspect of marketing

Risk-bearing

- The acceptance of the possibility of loss in the marketing of the product

Packaging

- To preserve the product and to protect it from contamination, to make it

easier to handle, and to make the product more attractive to the buyer

Market intelligence
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- The job of collecting, interpreting, and disseminating the large variety of

data which are necessary to the smooth operation of the marketing
processes

Market research

- Alternative marketing channels, routes, marketing functions, market

potential of new products, policies, etc.

Demand creation

- Effective advertising and use of promotional devices

Market

- A group of buyers and sellers with facilities for trading with each other

Marketing system

- Also known as agricultural marketing machinery

- An inter-organizational system made up of a set of interdependent
activities aimed at expanding agricultural production

Components of agricultural marketing system

1. Producer subsystem initiators of production

2. Channel subsystem the actors often branded as necessary evil
3. Flow subsystem product, financial and information flows
4. Functional subsystem marketing processes and marketing functions
5. Environmental subsystem
6. Consumer subsystem

Approaches to the study of agricultural marketing

- Commodity approach
- Institutional approach
- Functional approach
- Industrial organization or market structure, conduct, performance
approach
- Market efficiency or analytical approach

Commodity approach

- Studying the commodity concerned

Institutional approach

- Studying the various agencies and business structures involved in the

marketing processes
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Types of middlemen

- Merchant middlemen take the title to and therefore own products they
handle
- Agent middlemen act as a representative of their clients
- Processors and manufacturers
- Facilitative organizations
- Market associations

Merchant middlemen

- Contract buyers
- Grain millers
- Wholesalers
-assembler wholesale or viajeros
-financer wholesaler or bodegeros/cuartajera
-shippers
-wholesalers
-wholesaler/retailer
-retailer

Agent middlemen

Commission agent normally takes over the physical handling of the product,
arranges for the terms of sale, collects, deducts his fees and remits the
balance to the principal

Broker usually does not have physical control of the product, ordinarily
follows the instruction of his principal closely and has less discretionary
power in price negotiations than the cmmisiion agent.

Functional approach attempts to answer what in the question who does what

Marketing function a major specialized activity performed in accomplishing the

marketing process

Types of marketing function

1. Exchange function
2. Physical function
3. Facilitating function

Use of the functional approach

Consider the jobs that must be done

Demand the various quantities of a product which consumers will buy at all
probable prices
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Effective demand consists of both the desire for the product and the ability to pay
for it

Market demand summation of all individual demands

Types of demand

Consumer demand- demand for the final or finished product

Producer demand demand for the intermediate products used in producing

the final or finished product

Demand for social services a special type of consumer demand where the
governments ability to provide for the services and not the consumers
income determines demand

The law of demand

Inverse relationship between price and quantity demanded

Explained by

Substitution effect consumers shift their purchases towards the relatively

cheaper products as price changes

Income effect a change in the price of one commodity, all other factors
affecting demand held constant, changes on the consumers real income

Price determinants

Own price gives rise to change in quantity demanded

Demand shifters gives rise to change in demand

Income

Prices of related products

Population

Taste and preferences

Expectation of future prices and income

Price elasticity of demand the responsiveness of quantity demanded to a change

in the price of the commodity

Measured by

Total revenue approach

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Mathematical approach

Arc elasticity method

Point elasticity method

Factors affecting the price elasticity of demand

Given the demand curve

Price

Substitution effect of a price change

Factors affecting the price elasticity of demand

Given the demand curves

-product characteristics

Availability of substitutes

Uses of the commodity

Length of time product has been marketed

Quality

Necessity

Perishability

Price

-consumer characteristic

Income high income consumers are more income and price inelastic
than lower ones

Age young consumers are price elastic; older consumers are income
elastic

-characteristics of the marketing system

Importance of the elasticity

-price elasticity of demands indicates consumers response to changing price

condition

-income elasticity is useful in evaluating the effect of the changing

consumers income
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-useful in determining what products may be most profitably advertised,

graded, packaged, or may have other additional marketing services

-government policies aimed at increasing farm prices

Supply- the various quantities of a product offered for sale at various prices holding
all other factors constant

Law of supply-the direct relationship between the price and quantity supplied

Supply determinants

Own price (change in quantity supplied

Supply shifters (change in supply)

Changes in price of resource inputs

Prices of competing products/profitability of competing commodities

Technology

Institutional factors

Weather

Sellers expectation

Price elasticity of supply

Measure of the responsiveness of quantity to price changes

Cases of supply elasticity

Elastic

Unitary elastic

Inelastic

Perfectly elastic

Factors affecting elasticity

Changes in cost incurred by firms when they alter the quantity of their input

Ease with which resources are shifted from the production of one good to
another

Adjustment time or time it takes to expand or contract

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Use of elasticity of supply

Describes that a given price change will tend to have and greater effect on
quantity supplied in

the long run

empirical estimates useful to policy makers

with an elastic supply, a modest reduction in the support price may be

sufficient to solve

a surplus problem

Price the amount of money which is indeed to acquire in exchange some

combined assortment of a product and its accompanying services

The role of price

Tells producers what and how much to produce

Allocate productive resources to the production of goods and services that

consumers demand

Guides good through the channels of trade so they end where consumers
want them, when they want them and in the form where they want them

Ration the goods and services to those who demand them most urgently and
in proportions that will all be consumed

Price determination

In perfect market, price serves the dual role of

Informing producer or consumer wants

Informing consumers of the varying conditions of production

Price is determined by supply and demand

Price differentials caused by differences in

Time, location, and form of the product

Demand and supply application

The instability of farm prices

Incentives to restrict farm output

Who benefits from a larger than expected crop?

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Who benefits from the cost of reducing technologies

How do export affect food prices?

What is the effect of food price ceilings and floors?

Price determination in imperfectly competitive markets

Monopoly sellers will attempt to set a price that will maximize his profit

Price behavior over time

Fluctuations in market occur because of

Fluctuations in demand

Fluctuations in supply

Experimentation in the price discovery process

Types of price fluctuations

Seasonal price variation

Annual price variation

Secular or long term trend

Cyclical price movement

Irregular or random price movement

Seasonal price variation

These are price fluctuations that tend to follow a more or less uniform pattern
within the year and are observed to conform to this pattern over a period of years

Climate and seasonal demand

Seasonality of production

Perishability

Short harvest or marketing season

Storage, credit and risk changes involved in holding product over time

Annual price variation

Methods of price determination under pure competition can be applied

directly to explain year to year price variation
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Trend associated with general inflation and deflation in the economy

Cyclical price variation

- Prices fluctuate in regular patterns

- Explained by the cobweb model
Prices and quantities are viewed as linked recursively in a casual chain
A high price leads to large production, the large supply results in low
prices, which in turn result in smaller production and so forth

Factors that would give rise to a cobweb model

A time lag must exist between the decision to produce and the actual
realization of production

Producers base their production plan on current or recent prices. Hence,

realized production because of the time lag, is a function of past prices

Current prices are mainly a function of current supply, which in turn is mainly
determined by current production

Random or irregular price movements

Price that just happen

Unexpected and unpredictable price shift caused by unanticipated forces

Inventions

Strikes

Physical destructions from typhoons, floods or earthquakes

Operational aspects of the pricing process

Mechanism of price discovery

How are prices determined by supply and demand forces actually

translated into transactions and prices in real market situations

Categories

Individual negotiations

Organized markets

Administered prices

Group of collective bargaining

Formula prices
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Individual negotiations

A simple bargaining process between individual buyers and sellers for each
transactions

Organized markets

Became popular because haggling between buyers and sellers become too
cumbersome, too time consuming and too costly

Types of organized markets

Commodity exchanges

Auction markets

Terminal livestock exchanges

Commodity exchanges

Provides site for trading to take place under specified rules

Types of trading

spol or cash market trading in actual commodities normally on the

basis of samples

Future trading trading in the form of future contacts which specify

the minimum

grade or particular grades of a commodity which must be

delivered in fulfillment of

the contract at some future date.

Auction market used for commodities which are difficult to standardize

Terminal livestock exchanges livestock producers consign their animals to a

commission firm at the

Terminals

Prices will approximate equilibrium prices if:

Large number of transactions

Quality of product is broadly representative of total production

Large number of buyers and sellers with no single participant able to

manipulate price
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Availability of complete and unbiased information

No government intervention

Administered prices

Almost exclusively a government function with the following objectives

To provide a floor price so as to minimize price fluctuation where there

is a large crop

To provide incentives to increase production

To assure farmers of a fair or equitable price

Collective bargaining bargaining associations through which farmers can negotiate

for higher prices

Marketing channels an inter-organizational system made up of a set of

interdependent agencies institutions involved in the task of moving products from
the point of consumption

Nature of marketing channels

Vary according to the type of commodity handled, time and location

Producer retailer consumer

To ensure viability of the channel system

Mutual understanding of channel members on

Type of channel served

Territory served

Functions of activities performed

Follows explicit rules to ensure the viability of the system

Emergence of marketing channels

Product delivery is the major channel

Economic reasons

Increasing the efficiency of the process

Adjusting the discrepancy of assortments

Organization of the transaction

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Facilitation of the sorting and searching process

Structure of marketing channels

Determined by the performance of the various marketing functions given in

each term of service

Output

Service output

Market decentralization

Lot size

Delivery time

Product variety

Choice of marketing channel

Choosing the most efficient channel at the lowest cost is influenced by the

Nature of the product

Nature of the market

Nature of the product

Perishability

Unit value

Newness of the product in the market

Nature of the market

Consumer buying habits

Size of the average sale

Total sales volume

Concentration of the purchases

Seasonality of sales

Marketing margins

Refer to the difference between prices at different levels of the marketing

system
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Components of marketing margins

Marketing costs

Returns to the factors of production used in providing and processing

and marketing

Services rendered between the farmers and consumers

Marketing charges

Returns according to the various agencies or institution involved in the

marketing of products

Net return or the profit component

Types of marketing margins

Absolute constant margin

The absolute peso difference between prices at various market levels

Percentage margin

The absolute difference in price divided by the selling price

Breakdown of consumers peso

A series of figures representing the absolute margins of different types of

middlemen assignable to different marketing functions divided by the retail price

Ways of estimating margins

Selecting specific loads of a given commodity and tracing them through the
marketing system

No assurance of the representatives of the products that pass through

different channels

Some products lose their identity when processed and it would be

difficult to assign to individuals lots of the raw materials, portions of
the varying returns on the finished products made from them

Compare prices at different levels of marketing

Price quotations used may not be representative of the general level of prices
they are supposed to represent
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Prices used may not be cover products of comparable description or quality

processing and handling involve waste and spoilage thus adjustment has to
be made for any by-product content

Time lag between the marketing operations

Gross sales less purchase by the number of units handled

Necessitates adjustment for differences between qualities purchased and sold

because of waste and other losses of the product handling

Marketing efficiency

Maximization of the input-output ratio

Output-consumers satisfaction derived from the goods and services

made available in the market

Input-various resources of land, labor, capital and management used in

moving the products from the point of production to the point of
consumption

A more efficient marketing system provides goods and services at a lower

costs or better services or products at existing costs

Types of marketing efficiency

Operational/technological efficiency

Focuses more on reducing the cost of inputs assuming that the

eesential nature of output of good and services remain constant

Pricing/economic efficiency

Concerned with improving the buying, selling, and pricing aspects of

the marketing process so that it will remain responsive to consumer
direction

Measuring market efficiency

Evaluation of marketing margins and costs

Input-output measurement

Evaluation of product loss and waste in the market

Load factors efficiency

Areas where efficiency may be developed

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Elaborate and comprehensively organized marketing system

Volume of business

Improved physical handling

Location of the business

Changes in the marketing agencies

Integration of marketing agencies

Integration

Vertical integration one concern handles the product through two or more
steps in processing or marketing

Horizontal integration one organization controls a number of several units of

business

Forward integration relationship with the outlets

Backward integration relationship with the suppliers

Transportation place dimension

Major purpose is to make food products useful by transporting them from the
farm or processor to the consumer

Primary concerns are

The cost land

Time it takes to move them from the farm to the processing and
consuming cnters

Effects of transportation cost

Location of the production centers

The market area served

The qualities and sizes of products shipped to market

The form in which they are marketed

The kind and type of transportation serviced used

Who pays the transport cost?

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Short run most changes in transportation cost will be borne by the

producers

Long run consumers to bear any increase in transportation cost

Storage-time dimension

Objectives of storage-to balance S and D

Seasonal nature of production

Demand for the different products throughout the year

Time required to perform the various marketing services pipeline of

product

The need to carry-over into the following year

Types of storage operations

One that equalizes seasonal production to the pattern of demand

The storage at all times within trade channels

Extent of storage

Most important for crops that are harvested and marketed within a short time

Less important for products marketed throughout the year are more plentiful
at certain times than at other times

Cost of storage

1. Provision and maintenance of the physical facilities for storage and for
moving products into and out of storage
Repairs, depreciation, insurance, handling fee electricity
2. Interest on the amount of capital invested-in-stored products
3. Costs of quality deterioration, shrinkage, insect and rodent damage, etc.

Risk in storage

Risks of physical loss

Loss from fire, theft, and natural causes

Natural product deterioration, insect and pest damage

Market risk due to price changes

Time of storage
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Demand should be inelastic

Store perishable price inelastic products when there is a short crop than
when there is a heavy crop

Store grain products which are used mainly for feed, when there is a large
crop

Advertising

Purpose of advertising farm products

To inform consumer what is available for purchase

To change the demand for the product

Demand may be changed through advertising by:

Increasing demand

Customers buying product at the same or higher price

Customers paying a higher for the same or large quantity of products

Decreasing the price elasticity of demand

Product depreciation

Increasing the price elasticity of demand

Problems in advertising food products

Difficulty in recognizing the basic food product that have undergone

processing

Wide variation in quality- uniform quality at all levels

Perishability difficulty of standardizing and marketing large volumes of

uniform products

Problems in advertising

Inelastic demand for most products

Food products already consumed in volume and not many people are
interested in eating more of the same items

Competition among food products is primarily in price, not in emotional or

other appeals

Difficulty of getting funds for advertising

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Criteria for effectively advertising farm products

Products should be highly differentiated with substitutes

Production and marketing of the product should be in the hands of organized

groups of our

farmers

Advertising must be closely coordinated with other marketing activities

Need for substantial amount of money

Market information

Provided to producers and those involved in marketing agricultural products

so that all will be informed of market conditions and prices

Market Intelligence

Organizing data effectively means considering the risks that the lack of
information brings and considering the timing and cost of acquiring that
information

Basic questions in organizing data:

Primary data

Industry participants

Participants in related industry

Suppliers to the industry

Industry observers and analyst

Be prepared to share the information

Must be done prior to research

Secondary data

Institutions

Other aspects of marketing intelligence

Geographic flow of trade

Centers of trade

Origin of trade
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Destination of trade

Forms of the products

Raw, bundled, stored, packaged lot size

Processed liquid, solid, grains

Losses due to wastage in process, transport

Standard and grades of the product

Transport and freight considerations

Freight costs

Mode of transport and cargo handling, travel time

Market specifics

Purchase cycle

End user purchase behavior

Product

Anything that can be offered to the market for attention , acquisition, use of
consumption that satisfies a want or need

Product classifications

Consumption and tangibility

Effort and risk

Levels of product

Product (via consumption and tangibility)

Durables have long internal between repeat purchase

Ex. Floor polishers, cars, TV

Non-durables which have stronger repeat purchase

Ex. Detergents, ice cream, cassette tapes

Services which are essentially intangible because there are no physical

products involved

Ex. Auto service center, beauty parlor

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Effort and Risk (consumer satisfaction -= benefit cost)

The cost

Effort the amount of money, time and energy the buyer is willing to
spend to purchase a given product

Risk- the buyers subjective feeling about the consequences of making

a purchasing mistake

Type of product using effort and risk

Convenience products

Shopping products

Specialty products

Convenience products

Lowest risk and lowest effort products

None or very small decision making is made before buying the products

Consumers will not spend a lot of time of money in buying

No perceived high levels of risk in decision making

Types of convenience products

Usually brought frequently, immediately and with a minimum of comparison

and buying effort

Staple goods sugar, rice

Impulse goods candies, snack food

Shopping products

Products which consumer feel are worth the time and effort to compare with
other competing products

Type of consumer good that the customer in the process of selection and
purchase characteristically compares on such basis as quality, suitability,
price and style

Ex. Furniture, clothing, used cars, major appliances

Preference products
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The distinction between convenience and preference products is mainly the

perceived risk of consumers (branding and advertising)

Strategy to minimize risk

Ex. Known brands like colgate, close-up or aqua fresh are perceived to
be less risky than buying unknown brands

Specialty products

A consumer product with unique characteristic or brand identification for

which a significant group of buyers is willing to make a special purchase effort

Customized, with no substitutes, with highest level of risk and effort in buying

Ex. Rolls Royce, custom made suits, photographic equipment, painting

by Legaspi and Amorsolo

Three levels of products

1. Core product the problem solving benefits that consumers are really
buying
The generic benefit each product gives
Ex. AMC cookware better health
Sun life in Canada financial security against uncertainty of
death
2. Augmented product the offering of additional services and benefits such
as warranty and parts, toll fee telephone numbers to call if customers
have problems or questions
The extras built-in to the formal product
AMC cookware credit availability, lifetime warranty, free cooking
lessons, free delivery, home demo service
3. Formal product refers to the product parts, quality level, features,
design, brand name, packaging and other attributes that combine to
deliver the core product benefits

Quality the ability of the product to perform its functions

quality can be achieved by :

delivering the right product

satisfying the customers needs

Attributes that signal quality

Intrinsic cues involve the physical composition of the product such as flavor,
color and sweetness in an orange drink
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Extrinsic cues are product related but not part of the physical product itself
such as brand name, price warrant, product form and level of advertising

Product quality covers

Durability and reliability

Precision

Care of the operation and repair

ISO 9000

A series of quality management and assurance standards which define the

elements required to achieve a quality system regardless of the product
manufactured or the technology used

Enables a company to establish its reliability as a supplier that conforms with

international standards

ISO certification

Valid only for the plant that was assessed; other plants assessed separately

Brand name, term, sign, symbol, or design or a combination intended to identify

the goods or services of one seller or group or sellers and to differentiate them from
competitors

Packaging the activities of designing and producing the container wrapper for a
product

Label a part of package that identifies the product or brand; who made it where it
was made, its content, how to use it, etc.

Sustainable development

Development which meets the needs of the present without compromising

the ability of future generations to meet their own needs

Improving the quality of life for all the earths citizens without increasing the
use of natural resources beyond the capacity of the environment to supply

Intensive agriculture

System of cultivation using large amounts of labor and capital relative to land
area

Extensive agriculture

Using small amount of labor and capital in relation to land area farmed
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Economic growth

The steady process by which the productive capacity of the economy is

increased over time to bring about rising level of national income

Emphasis is now shifting to problems of income inequality, poverty and

unemployment

Economic development

The process of improving the quality of human lives

Has three equally important aspects

1. Raising the peoples living level i.e. their incomes and

consumption levels of food, medical services, education, etc.
through relevant economic growth processes
2. Creating conditions conductive to the growth of peoples self
esteem through the establishment of social, political, and economic
systems and institutions which promote human dignity and respect
3. Increasing the peoples freedom to choose by enlarging the range
of their choice variable e.g. increasing varieties of consumer
goods and services