Marketing Functions and their Classification

• Any single activity performed in carrying a product from the point of its production to the ultimate consumer may be termed as a marketing function.
• A marketing function may have anyone or combination of three dimensions, viz., time, space and form.
• The marketing functions may be classified in various ways. For example, Thomsen has classified the marketing functions into three broad groups
• Primary Functions
  • Assembling or Procurement
  • Processing
  • Dispersion or Distribution
• Secondary Functions
  • Packing or Packaging
  • Transportation
  • Grading, Standardization and Quality Control, Storage and Warehousing Determination or Discovery of Prices
  • Risk Taking
  • Financing
  • Buying and Selling
  • Demand Creation
  • Dissemination of Market Information
• Tertiary Functions
  • Banking
  • Insurance
  • Communications— Posts & Telecommunication
  • Supply of Energy — Electricity

Kohls and Uhl have classified marketing functions as follows:

• Physical Functions
  • Storage and Warehousing
  • Grading
  • Processing
  • Transportation
• Exchange Functions
  • Buying
  • Selling
• Facilitative Functions
  • Standardization of Grades
  • Financing
  • Risk Taking
  • Dissemination of Market Information

Producers Surplus

• In any developing economy, the producer’s surplus of agricultural product plays a significant role. This is the quantity which is actually made available to the non-producing population of the country.

Meaning and Types of Producer’s Surplus

• The producer’s surplus is the quantity of produce which is, or can be, made available by the farmers to the non-farm population. The producer’s surplus is of two types:

1. Marketable Surplus

• The marketable surplus is that quantity of the produce which can be made available to the non-farm population of the country.
• It is a theoretical concept of surplus.
• The marketable surplus is the residual left with the producer-farmer after meeting his requirements for family consumption, farm needs for seeds and feed for cattle, payment to labour in kind, payment to artisans — carpenter, blacksmith, potter and mechanic — payment to landlord as rent, and social and religious payments.
• This may be expressed as follows:

MS = P — C

• Where
  • MS = Marketable surplus
  • P = Total production, and
  • C = Total requirements (family consumption, farm needs, payment to labour, artisans, landlord and payments for social and religious work).

2. Marketed Surplus

• Marketed surplus is that quantity of the produce which the producer-farmer actually sells in the market, irrespective of his requirements for family consumption, farm needs and other payments.
• The marketed surplus may be more, less or equal to the marketable surplus.
• Whether the marketed surplus increases with the increase in production has been under continual theoretical scrutiny.
• It has been argued that poor and subsistence farmers sell that part of the produce which is necessary to enable them to meet their cash obligations.
• This results in distress sale on some farms. In such a situation, any increase in the production of marginal and small farms should first result in increased on-farm consumption.

Relationship between marketed surplus and marketable surplus

• The marketed surplus may be more, less or equal to the marketable surplus, depending upon the condition of the farmer and type of the crop.
• The relationship between the two terms may be stated as follows:
  • The marketed surplus is more than the marketable surplus when the farmer retains a smaller quantity of the crop than his actual requirements for family and farm needs. This is true especially for small and marginal farmers, whose need for cash is more pressing and immediate. This situation of selling more than the marketable surplus is termed as distress or forced sale. Such farmers generally buy the produce from the market in a later period to meet their family and/or farm requirements. The quantity of distress sale increases with the fall in the price of the product. A lower price means that a larger quantity will be sold to meet some fixed cash requirements.
  • The marketed surplus is less than the marketable surplus when the farmer retains some of the surplus produce.
  • This situation holds true under the following conditions: Large farmers generally sell less than the marketable surplus because of their better retention capacity. They retain extra produce in the hope that they would get a higher price in the later period. Sometimes, farmers retain the produce even up to the next production season. Farmers may substitute one crop for another crop either for family consumption purpose or for feeding their livestock because of the variation in prices. With the fall in the price of the crop relative to a competing crop, the farmers may consume more of the first and less of the second crop.
  • The marketed surplus may be equal to the marketable surplus when the farmer neither retains more nor less than his requirement. This holds true for perishable commodities and of the average farmer.

Market Information

• Market information is an important marketing function which ensures the smooth and efficient operation of the marketing system.
• Accurate, adequate and timely availability of market information facilitates decision about when and where to market products.
• Market information creates a competitive market process and checks the growth of monopoly or profiteering by individuals. It is the lifeblood of a market.

Meaning

Market information may be broadly defined as a communication or reception of knowledge or intelligence. It includes all the facts, estimates, opinions and other information which affect the marketing of goods and services.

Importance

• Market information is useful for all sections of society which are concerned with marketing.
• Its importance may be judged from the point of view of individual groups. These groups are:

a) Farmer-Producers

• Market information helps in improving the decision-making power of the farmer.
• A farmer is required to decide when, where and through whom he should sell his produce and buy his inputs.
• Price information helps him to take these decisions.

b) Market Middlemen

• Market middlemen need market information to plan the purchase, storage and sale of goods.
• On the basis of this information, they are able to know the pulse of the market, i.e., whether the market is active or sluggish, the temperature of the market (whether prices are rising or falling), and market pressure (whether supply is adequate, scarce or abundant).
• On the basis of these data, they project their estimates and take decisions about whether to sell immediately or to stock goods for some time, whether to sell into the local market or to go in for import or export, whether to sell in their original form or process them and then sell, and so on.
• The failure of a business may partly be attributed to either the non-availability of market information or its inadequate availability and interpretation.
• Co-operative marketing societies operating as commission agents make use of market information for advising their members so that they may take decisions about when to sell their product.
• Processors make use of market information to plan their purchases so that they may run their plant continuously and profitably.

c) General Economy

• Market information is also beneficial for the economy as a whole.
• In a developed economy, there is need for a competitive market process for a commodity, which regulates the prices of the product.
• The competitive process contributes to the operational efficiency of the industry.
• However, a perfectly competitive system is difficult to obtain; but the availability of market information leads towards the competitive situation.
• In the absence of this system, different prices will prevail, leading to the profiteering by specialized agencies.
• The business of forward trading is based on the availability of market information.

d) Government

• Market information is essential for the government in framing its agricultural policy relating to the regulation of markets, buffer stocking, import-export, and administered prices.

Types of Market Information

👉🏻 Market information is of two types

a) Market Intelligence

• This includes information relating to such facts as the prices that prevailed in the past and market arrivals over time.
• These are essentially a record of what has happened in the past.
• Market intelligence is therefore, of historical nature.
• An analysis of the past helps us to take decision about the future.

b) Market News

• This term refers to current information about prices, arrivals and changes in market conditions.
• This information helps the farmer in taking decisions about when and where to sell his produce.
• The availability of market news in time and with speed is of the utmost value.
• Sometimes, a person who gets the first market news gains a substantial advantage over his fellow-traders who receive it late.
• Market news quickly becomes obsolete and requires frequent updating.

Criteria for Good Market Information

👉🏻 Good market information must meet the following criteria so that it may be of maximum advantage to the users:

• Comprehensive
• Accuracy
• Relevance
• Confidentiality
• Trustworthiness
• Equal and Easy Accessibility
• Timeliness

Marketing Channels

• The course taken in the transfer of the title of a commodity constitutes its channel of distribution. (or) It is the route taken by a product in its passage from its first owner i.e. producer to the last owner, the ultimate consumer.

Important channels of distribution

• Producer or Manufacturer ➡ Retailer ➡ Consumer
• Producer or Manufacturer ➡ Consumer
• Producer or Manufacturer ➡ Wholesaler ➡ Retailer ➡ Consumer
• Producer ➡ Commission agent.
• Wholesaler is most important functionary in the chain of distribution of goods.

Definitions of Marketing Channels

• According to Moore et al.

“The chain of intermediaries through whom the various food grains pass from producers to consumers constitutes their marketing channels”.

• Kohls and Uhl have defined marketing channels as alternative routes of product flows from producers to consumers.

Factors considered while choosing a Channel

• Nature of the product
• Price of the product
• No. of units of sale
• Characteristics of the user
• Buyers and their buying units
• Low priced articles with small units of sale are distributed through retailers.
• High price special items like radios, sewing machines etc, are sold by manufactures and then agents.
• Public services like gas, electricity and transport are usually sold directly to the consumer.

Marketing Efficiency

• Marketing efficiency is essentially the degree of market performance. It is a broad and dynamic concept.
• If is the ratio of market output (satisfaction) to marketing input (cost of resources).
• An increase in ratio represents improved efficiency and vice versa.

Components of marketing efficiency

• Effectiveness with which a marketing service is performed.
• The cost at which the service is provided.
• The effect of this cost and the method of performing the service as production and consumption. i.e. effect of (1) & (2), last two are more important.

Assessment of marketing efficiency

• Technical or Physical or Operational efficiency:
  • It pertains to the cost of performing a function; Efficiency is increased when the cost of performing a function per unit of output is reduced.
  • Eg: Storage, processing, handling etc.
• Pricing / Allocative efficiency:
  • System is able to allocate farm products either over time, across the space or among the traders, processors and consumers at a point of time in such a way that no other allocation would make producers and consumers better off.
  • This is achieved via pricing the product at different stages, places, times among different users.
  • Pricing efficiency refers to the structural characteristics of the marketing system, when the sellers are able to get the true value of their produce and the consumers receive true worth of their money. The above two types are mutually reinforcing in the long run.

Emperical Assessment of Marketing Efficiency

Khols and Uhl.

• 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.

  

• E = Level of efficiency
• O = Value added to the marketing system
• I = Real cost of marketing

Shepherd’s formula of marketing efficiency

• ME = Index of marketing efficiency
• V = Value of the goods sold or price paid by the consumer (Retail price)
• I = Total marketing cost or input of marketing.
• This method eliminates the problem of measurement of value added.

Marketing Costs

• The movement of products from the producers to the ultimate consumers involves costs, taxes, and cess which are called marketing costs.
• These costs vary with the channels through which a particular commodity passes through.
• Eg: Cost of packing, transport, weighment, loading, unloading, losses and spoilages.

Marketing costs would normally include

• Handling charges at local point
• Assembling charges
• Transport and storage costs
• Handling by wholesaler and retailer charges to customers
• Expenses on secondary service like financing, risk taking and market intelligence
• Profit margins taken out by different agencies.
• Producer’s share in consumer’s rupee

• Where,
  • Ps = Producer’s share
  • PF = Price received by the farmer
  • Pr = Retail price paid by the consumer

Market Margins

• Margin refers to the difference between the price paid and received by a specific marketing agency, such as a single retailer, or by any type of marketing agency such as retailers or assemblers or by any combination of marketing agencies such as the marketing system as a whole.
• Absolute margin is expressed in rupees.
• Percentage margin is the absolute difference in price (absolute margin) divided by the selling price.
• Mark-up is the absolute margin divided by the buying price or price paid.

Concepts of Marketing Margins

• Complex because it is difficult to follow the path of the channel for a given quantity of the channel for a given quantity of the commodity.
• It is still difficult to estimate in respect of commodities subjected to processing.
• Two methods are identified:

Concurrent margin method

• This method stresses on the difference in price that prevails for a commodity at successive stages of marketing at a given point of time.

Lagged Margin Method

• This method takes into account the time that elapses between buying and selling of a commodity by the intermediaries and also between the farmer and the ultimate consumer.
• Lagged margin indicates the difference of price received by an agency and the one paid by the same agency in purchasing in equivalent quantity of commodity.

Price Spread

• The difference between the price paid by the consumer and price received by the farmer.
• It involves various costs incurred by various intermediaries and their margins.
• Marketing costs are the actual expenses required in bringing goods and services from the producer to the consumer.

Marketing Functions and their Classification

• Any single activity performed in carrying a product from the point of its production to the ultimate consumer may be termed as a marketing function.
• A marketing function may have anyone or combination of three dimensions, viz., time, space and form.
• The marketing functions may be classified in various ways. For example, Thomsen has classified the marketing functions into three broad groups
• Primary Functions
  • Assembling or Procurement
  • Processing
  • Dispersion or Distribution
• Secondary Functions
  • Packing or Packaging
  • Transportation
  • Grading, Standardization and Quality Control, Storage and Warehousing Determination or Discovery of Prices
  • Risk Taking
  • Financing
  • Buying and Selling
  • Demand Creation
  • Dissemination of Market Information
• Tertiary …

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