Marketing efficiency, Market margin and Marketing cost

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Marketing efficiency
• Marketing efficiency 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.
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Efficient Marketing
• Increase in 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.
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Approaches to the Assessment of Marketing
Efficiency
• Technical or physical or operational efficiency
• Pricing or Allocative efficiency
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Technical or physical or 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.
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Pricing or Allocative efficiency
• 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.
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Assessment of Marketing efficiency
Ratio of Output to Input
• Where,
• E – Index of marketing efficiency
• O – Value added by the marketing system
• I – real cost of marketing.
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Shephered Approach
• The ratio of the total value of goods marketed
to the marketing cost.
• To eliminate the problem of measurement of
value added.
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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
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Acharya Approach
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Marketing Costs
• Market functionaries 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.
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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.
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Price spread and Marketing 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.
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Price spread and Marketing 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.
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Concepts of Marketing Margins
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.
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Concepts of Marketing Margins
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.
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Estimation of Marketing Margins and Costs
• Chasing of lot method
• Sum of average gross margin method
• Comparison of prices at successive stages of
marketing
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Chasing of lot method
• 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.
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Sum of average gross 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.
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Sum of average gross 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
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Comparison of prices at 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
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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
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Other concepts
Producer’s share in the Consumer’s price:
PS = (PF ÷ Pr) × 100
• PS – Producer’s share in the Consumer’s price
• PF - Producer price
• Pr - Retail price
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Other concepts
Marketing margin of 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)
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Other concepts
Marketing margin of 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

Factors affecting the cost 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

Reasons for Higher Marketing 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
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How to Reduce Marketing Costs
1. Increase the efficiency of marketing
• Increasing the volume of business
• Improved handling methods
• Managerial control
• Change in marketing practices and technology
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How to Reduce Marketing 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
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Marketing efficiency, Market margin and Marketing cost

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