Agricultural Marketing PPT PDF

AGRICULTUR AL MARKETING BASIC CONCEPTS OF MARKETING Agricultural marketing – includes all those services (activities/functions) involved in moving farm products from the point of production (farm) to the point of consumption (market) to meet market needs.  According to Thomsen, the study of...

AGRICULTUR AL MARKETING BASIC CONCEPTS OF MARKETING Agricultural marketing – includes all those services (activities/functions) involved in moving farm products from the point of production (farm) to the point of consumption (market) to meet market needs.  According to Thomsen, the study of agricultural marketing, comprises all the operations, and the agencies conducting them, involved in the movement of farm- produced foods, raw materials and their derivatives, such as textiles, from the farms to the final consumers, and the effects of such operations on farmers, middlemen and consumers. This definition does not include the input side of agriculture.  Agricultural marketing is the study of all the activities, agencies and policies involved in the procurement of farm inputs by the farmers and the movement of agricultural products from the farms to the consumers. The agricultural marketing system is a link between the farm and the non – farm sectors. It includes the organization of agricultural raw materials supply to processing industries, the assessment of demand for farm inputs and raw materials, and the policy relating to the marketing of farm products and inputs. According to the National Commission on Agriculture (XII Report), agricultural marketing is a process which starts with a decision to produce a saleable farm commodity, and it involves all the aspects of market structure or system, both functional and institutional, based on technical and economic considerations, and includes pre- and post-harvest operations, assembling, grading, storage, transportation and distribution.  Three terms that need clarification in the definition 1. Services – are any function or activity performed on or for the product that alters its form, time, place and possession characteristics. They add value to the product and someone has to pay for the services rendered. The services are generally performed on or for the product in order to meet existing consumer demands. a) Transactional Functions – include finding buyers, buying and selling and risk-taking. b) Logistical Functions – include grading, assembling, packaging, storage, transportation and presentation to customers; and c) Facilitating Functions – include dissemination of market information, marketing research and financing. 2) Point of Production – it is taken as the point of usual first sale by the farmer, typically at the farm or at the farmer’s home. At this point, a transaction occurs and a bonafide price (i.e. Farm price) is established. Approaches to the study of agricultural 1. Commodity Approach – is product-oriented marketing rather than marketing function-oriented. The study may cover the characteristics of the product, the market demand and supply situation at the domestic and international levels, the behavior of the consumers in relation to a specific product, and prices at the farm either wholesale or retail level. 2. Institutional Approach – involves the study of the various agencies and business structures that perform the marketing process. It attempts to answer the question “who?”. It considers the nature and character of the various middlemen and related agencies and also the arrangement and organization of the marketing machinery. In this approach, the human element receives primary emphasis. Middlemen – are those individuals or business concerns who specialize in performing the sale of goods as they are moved from producers to consumers. They are classified into: 1. Merchant middlemen – they take title to and therefore own the products they handle. They buy and sell for their own gain. Ex., contract buyers, grain millers, wholesalers and retailers and processors and manufacturers. 2. Agent middlemen – act only as representatives of their clients. They do not take title to and therefore do not own the products they handle. Agent middlemen receive their income in the form of fees and commissions. Types of agent middlemen a.) Commission men who are usually granted broad powers by those who consign goods to them. b.) Brokers who usually do not have physical control of the product. 3. Functional Approach – a method of classifying activities in the marketing process by breaking processes into functions. A marketing function may be defined as a major specialized activity performed in accomplishing the marketing process. The functional approach attempts to answer “what” in the question “who does what”? Functions are classified as follows: A.) Exchange Functions – are the activities involved in the transfer of the title of goods. They represent the point at which price determination enters into the study of marketing. A.1) Buying function – is largely one of seeking out the sources of supply, assembling of products, and the activities associated with purchase. A.2) Selling function – covers all the various activities that are sometimes called merchandising. Most of the physical arrangements of the display of food advertising and promotional devices to influence or create demands are also part of the selling function. B.) Physical Functions – are those activities that involve handling movements and physical change of the actual commodity itself. They are involved in solving the problems of when, what and where in marketing. B.1) Storage function – primarily concerned with making goods available at the desired time. It maybe an activity of holding supplies of finished products such as inventories of processors, wholesalers and retailers.  B.2) Transportation function – primarily concerned with making goods available at the proper place and the adequate performance of alternative rout and types of transportation costs. B.3) Processing function – includes all essential manufacturing activities that change the basic form of the product such as converting a live animal into meat, fresh pineapple into canned pineapple. It is a form- changing activity. C. Facilitating Function – makes possible the smooth performance of exchange and physical functions. C.1) Standardization function – establishment and maintenance of uniform measurements of both quality and quantity. This function simplifies buying and selling, since it makes possible the sale of products by samples and descriptions.  C.2) Financing function – the advancing of money to carry on the various aspects of marketing. C.3) Risk-bearing function – is the acceptance of the possibility of loss in the marketing of a product. Risk can be classified into physical risks and market risks. Physical risks arise from destruction or deterioration of the product through fire, accident, wind, earthquakes, cold and heat. Market risks occur because of the changes in the value of a product being marketed. C.4) Market intelligence function – is the job of collecting, interpreting, and disseminating the large variety of data which are necessary to the smooth operation of the marketing process. C.5) Market Research – is being undertaken to evaluate the possible alternative marketing channels that may be used in the different ways of performing other functions and the market potentials for new products. C.6) Demand Creation – is usually achieved through effective advertising of the product and other promotional devices using either the media or a house-to-house campaign. D. Market Structure-Conduct-Performance Approach D.1) Market Structure – refers to how a market is organized with particular emphasis on the characteristics that determine the relationships among the various sellers in a market, among the various buyers, and between the various buyers and sellers in a market. In other words, market structure deals with the organization of a market as it influences the nature of competition and pricing within the marketing system. D.2) Market conduct – refers to the way firms adjust to the markets in which they are engaged as buyers and sellers. In other words, it is the behaviour or pattern that the firms exhibit in the market. When translated into action, this behavior is generally termed as marketing practices. D.3) Market performance – is the appraisal of how much the economic resources of the industry’s market behaviour or conduct deviate from the best possible contribution they can make to achieve relevant socio-economic goals. MARKETING MARGIN AND COST MARKETING MARGIN the difference between prices at different levels of the marketing system. the difference between what the consumer pays and what the producer receives for his agricultural produce. it is also known as the price spread Misconception of Marketing Margin A general misconception about marketing margin concerns it size. It is alleged that a wide margin means high prices to consumers and low prices and incomes to producers. In other words, a wide margin implies an inefficient marketing system. Components of Marketing Margin Marketing Costs - one way of subdividing this margin is in terms of its returns to the factor of production used in providing the processing and marketing services rendered between the farmers and consumers. - this include wages as a return to labor, interest as a return to borrowed capital, rent as a return to land and buildings, and profit as a return to entrepreneurship and risk capital  Marketing Charges - another way of subdividing marketing margin is to categorize returns according to the various agencies or institutions involved in the marketing of products such as: a.) return to retailers for their services b.) wholesalers for their activities c.) processors for their manufacturing act. d.) assemblers for the work they perform Types of margins 1. Absolute Constant Margin – are expressed in terms of pesos and are constant over all quantity ranges. In other words, regardless of the volume marketed, the absolute peso difference between prices at various levels remains constant. Absolute Margin = selling price – buying price 2. Percentage Margin – is the absolute difference in price divided by the selling price. Absolute Margin %Margin = ----------------------- x 100 Selling price Ex. If the retailer purchased a kilo of ampalaya for P15/kilo and sold it at P17/kilo, the absolute margin is P2 and the percentage margin would be 12% Difference between Percentage Margin and Percentage Mark-Up: Absolute Margin % Mark-UP = ---------------------------------- x 100 buying price(price paid) Absolute Margin % Margin = -------------------------------x100 Selling price  Breakdown of the Consumer’s Peso The breakdown of the consumer’s peso is a phrase popularly applied to a series of figures representing the absolute margins of different types of middlemen or assignable to different marketing functions, divided by the retail price. Mathematically, this can be expressed as: Absolute margin at any two levels AM ------------------------------------- = ------------ Final retail price or consumer’s price PR Where: final retail price = Farm price + Marketing Sample Computation: Given the following: Farmer’s Selling Price: P15.00/kg Contract Buyer’s Selling Price: P20.00/kg Wholesaler’s Selling Price: P28.00/kg Retailer’s Price: P45.00/kg Compute for the farmer and middlemen’s share. Solution: Farmer’s Share= 15/45 x 100 = 33.33% Middlemen’s Share Contract Buyer=5/45 x 100 = 11.11% Wholesaler= 8/45x 100 = 17.78% Retailer’s Share = 17/45 x 100 = 37.78% MARKETING MIX 4P’s of marketing: Product, Price, Place, Promotion STRATEGIES Product – anything offered for sale, attention, and acquisition. Categories of Agribusiness products: 1. Raw or fresh agricultural products – these are newly harvested food/fiber products from the farms which are devoid of any transformation. These are either consumed directly or used as raw materials by agro-industries, e.g. Fresh eggs, livestock, poultry, cabbage, potatoes, etc 2. Semi-processed agricultural products – these are end products of some more complicated levels of transformation. These underwent primary processing and are not usually intended for human consumption but for further processing, e.g., dehydrated ginger, buntal fiber, flour, leather, etc. 3. Processed products – these are finished products which underwent several levels of transformation. These require no further processing and are ready for final consumption. A. Product Strategies 1. Product Mix – refers to the number of products a firm is handling. In farming, product mix may also be termed as crop mix/livestock mix. A farmer may produce a single crop (monocrop), or two or more crops (intercrops, multiple crops). Processors on the other hand may produce crop-based and livestock-based food and non-food products. Product Mix may be described as: a.) wide if there are a lot of product lines - a farmer’s product is wide if he is practicing integrated farming, that is, he has a combination of crops, livestock, fish and feedmill support one another. b.) deep if there are several products within each line- if within a line such as crops, a farmer produces a different kind. He may be producing fruits, plantation crops, staples, vegetables, etc. c.) consistent if the products being produced are related 2. Branding – a brand is a letter, word or symbol used to identify products. It has three parts: a.) The name – part of the brand which is utterable or which can be vocalized. ex. “Purefoods Hotdogs” b.) The mark – part of the brand which is not utterable but is distinctive enough to be easily associated with a product or with a company. ex. The four-leaf clover of the San Miguel Corp c.) The trademark – part of the brand which is given legal protection. ex. Products of McDonalds which use Mc or Mac as part of the brand name. These are given legal protection and only McDonalds can use these brands  3. Packaging – is the total presentation of the product, known as the silent salesman. Benefits of Packaging: a.) It protects the goods in storage and transit. b.) It makes handling convenient. c.) It promotes the product. d.) It enhances the product. Characteristics of a Good Package 1. Attractive – an aesthetically designed package is not only pleasing to the eye but it also makes a product stand out in the shelf. 2. Recognizable – the package ideally must have positive association with the product. 3. Informative – it must talk about the product. 4. Immediate – it must answer what the consumer is asking. 5. Textural – the consumer’s reaction upon touching the package must support initial impressions about the product. 6. Functional – the package serves its basic purpose of making the product readily available, convenient for use and complementary to the product advertising it promises. 7. Dependable – the package sustains the product’s quality and shelf life and at the same time upholds the product claims and complies with package laws. 8. Labeling – label is a part of a package which carries information about the product. It shows the brand, manufacturer, expiry date and other information about the B. Pricing Strategies Steps in Price Setting: 1) Set pricing objectives – an entrepreneur may not want to maximize profit, penetrate the market or increase market share or he may just maintain the market position. For each of the pricing objectives there are corresponding pricing strategies. 2) Determine demand – demand is very important consideration in pricing. If the demand is low, prices are usually set low. It the demand is high, prices are usually high. Marketers must also know how customers respond to price changes, thus knowledge of demand elasticity is important.  3) Determine Cost – determination of cost would help a marketer a lot in price setting especially if his objective is to maximize profit. Its usefulness is that a businessman will prevent the risk of error in pricing if costs are determined earlier. 4) Analyze competitor’s prices – competitors are always eager to take away market shares of other firms in the industry. They can easily do this if they offer similar products at a lower price. To avoid this, a businessman must keep track of the pricing policies and strategies in competing brands. Pricing Methods 1. Manufacturer’s Pricing Strategies a.) Skimming the market – this is usually used when the manufacturer wants to get the highest possible price for the product in a short run. This is done through holding prices at relatively high level and promoting the product’s distinctiveness and value. b.) Moving down the demand curve – prices are set at relatively high point and held there until the market available at that point is pretty well saturated. Then prices are moved to a lower level and whenever the market is saturated, they are moved to successively lower levels. This will result in selling to the various market levels at the highest possible prices. c.) Penetration pricing – this type of pricing is widely used for products with a high degree of price elasticity of demand and a production schedule that is quite subject to major reductions with the increases in volume. This essentially assumes that the marginal customers are at or near the bottom of the demand curve. Thus, the price is set low enough for the marginal buyers and all above them to become customers. This procedure aims at getting an immediate mass market. Through volume sales, production cost would be held low. This would discourage competitors from marketing a comparable item, thus enabling the firm to hold a substantial portion of the total market. d.) Pre-emptive pricing – the basic idea in preemptive pricing is to set the price of a product so low that the market is unattractive to competitors. In this manner the firm essentially preempts the market for itself. The price, of course, must be established close to the cost of production. With a low price, a large volume is anticipated to result in satisfactory profits in the long run. This strategy is appropriate for relatively small markets and where competitors would incur substantially higher production costs. e.) Extension pricing – there are firms which price a product or products on the basis of variable costs in order to force the firms in weak financial or marketwise positions to discontinue their production. This often leads to price wars that can be extremely damaging to many firms. However, in the long run, after the shake- out of weak firms, those remaining are in a stronger market position f.) Formula pricing – this type of pricing is usually used by wholesalers. In this strategy, a formula pricing agreement is negotiated with the buyer. For example, all deliveries during a period will be made on the basis of a wholesale market quotation plus a margin of a given amount per unit. This procedure permits sale and delivery of the product to the buyer at regular intervals without further price negotiations. The selling firm simply refers to the wholesale market quotation, adds the agreed-upon margin, and bills the buyer accordingly g.) Tie-in pricing – wholesalers use this procedure whenever they have a large supply of less desirable varieties or classes of products together with a limited but more desirable ones. They negotiate a sale that provides for the inclusion in purchase of a sought-for product and a quantity of an unwanted product. Buyers are forced to accept this situation or go without the wanted product. 2. Retailer’s Pricing Strategies a.) Competitive pricing – retailers usually set prices to be near or equal to those in other stores for products bought on a regular. However, for products which are purchased infrequently, much leeway is exercised. This is because a customer will not shop from a store to buy that infrequently purchased product in order to get the lowest price, rather, he will buy it in a store where he regularly does his shopping in bulk. The retailers use larger margins on the infrequently purchased product to offset the relatively low margin in the regular necessity item. This is the most common pricing method used in agricultural products and is applicable only in a certain area brought about by differences in transportation and communication facilities. b.) Psychological pricing – to gain more customers while holding the present ones, retailers resort to a number of psychological pricing practices. One practice is the use of odd- centavo to prolong or give the appearance of having cut prices to the base minimum. Thus, products are generally prices on ones, fives, and sevens (e.g., P4.91, P4.95, P4.97), if the nines are not appropriate. c.) Unit pricing – one of the effective ways of pricing to gain volume is through pricing items in units of two or more. This is specially significant for low-priced items which the average customer needs or can use more than once within a reasonable time. The technique capitalizes on the established fact that most customers will according to the units on which the product is priced. Quoting a product as 2 for P3.99 not only usually results in larger purchases but it also gives the merchant a half- centavo price advantage which he does not get when single units are sold. d.) Price Lining – a pricing method of offering two or more classes of the same product at different prices. With products like onions, eggs or melons, there are some units better in size, color, quality, or appearance than others. By separating these products into two or more groups and placing a high price on the better lots, even though the cost is the same, profits can be increased. e.) Special prices – a major aspect of retail pricing is the determination of prices of the items to be offered as specials each week. This includes the selection of appropriate items that will have broad appeal as well as reasonable extent of price reductions. Many of the “hot” specials are loss leaders designed to attract customers to the store. The assumption, which is generally true, is that once in the store, the customer will buy other items at regular prices and thus help offset the loss of margins on the specials. C. Distribution Strategies Distribution means making the right products available at the right place and at the right time. It is a very important component of the marketing mix because it links the firm to the market. Distribution Channel – is the route along which a product and its title or rights or ownership flow from production to consumption. A channel is composed of the producer and the consumer (zero-level channel) and often times the intermediaries or middlemen (one or more channel levels) who are involved in the transfer of commodity and ownership. D. PROMOTION STRATEGIES Promotion – is the personal and/or impersonal process of assisting a prospective customer to buy a commodity or to act favorably upon an idea that has commercial significance to the seller. Importance of Promotion: It makes the buyers (consumers and industries) aware of the alternative goods and services that exist. Promotions shorten the distance between the market and the manufacturers by keeping buyers well-informed about the different products. It also help regulate the level and timing of demand. Promotional Methods 1) Advertising – is any paid form of non-personal presentation or promotion of the products. 2) Personal Selling – is the oral presentation of a product. The marketer sometimes goes from house to house to influence prospective customers to buy his products 3) Sales Promotion – is another marketing scheme except advertisement, publicity, and personal selling which influence purchase. Examples of this are price off, bonuses, lotteries, and premiums. 4) Publicity – is a non-personal form of promotion which aims to attract buyers by publishing commercially significant news about the product in different media such as radio, television, etc. This is not being paid for by the sponsoring agency.