AGRICULTURAL MARKETING

LECTURE NOTES

by
Beshadu Sh.(MSc)

Department of Agricultural Economics

Assosa University
 CHAPTER ONE
1. The Concepts of Markets
and Marketing
1.1 Definition, concepts of markets and marketing

What is market and marketing ?

 1.1 Definition, concepts of markets and marketing

 Market:- is a place or condition in which buyers and sellers meet

to exchange goods and services for the price they agree on.

 Components of a market. These are:

 The existence of buyers and sellers;
 The existence of Product and services for exchange;
 There should be business relationship between buyers and sellers
 Demarcation of area/place, region, country and or coverage.
 Cont’d..

• Marketing is a total system of business activities designed to plan,

price, promote and distribute want –satisfying products to target
markets.

• Marketing is the activity, set of institutions, and processes for

creating, communicating, delivering, and exchanging offerings
that have value for customers, clients, partners and society at large.

• Marketing is the process of satisfying human needs by bringing

products to people in proper form and at proper time and place.
 Cont’d…
 Marketing is a form of communication between a business house and
its customers with the goal of selling its products or services to them.
 Marketing: is the process of bringing products from producers to
ultimate customer at proper form and at proper time and place in
order to satisfying human needs.
 Marketing has economic value because it gives
 form utility, time utility, and place utility to products and
services.
 Marketing can be viewed in different ways from the viewpoints of
Farmers,
 middlemen, and
consumers.
 Cont’d…

1. Farmers definition of marketing

 may assume market as bringing farm products to the market
for sell.
2. Middlemen definition of marketing
 as a process of gaining competitive advantage over market
rivals, improving sales and profits, and satisfying consumers.

3. Consumer definition of marketing

 may refers to the weekly shopping trip to the market or super
market.
Summary of market and marketing
Relationship between marketing and selling
 What can be Marketed?
o Anything that can be of value to the buyer is termed a product in
marketing.
o A product is a bundle of utilities which satisfies the needs and wants of
humans. All the products, which are of some value to the people can be
marketed.
o Following are examples of all that can be marketed:
o Physical Products like TV, fridges, mobile phones, etc.
o Services like insurance, banking, warehousing, etc.
o Ideas like Covid Vaccination, family planning, etc.
o Persons for election of candidates
o Places like Visit Kashmir – the Heaven on Earth
o Experiences like trekking Mt Everest
o Events like food festivals, exhibitions, etc.
What can be need, wants and demand?
What can be need, wants and demand?
What can be need, wants and demand?
 1.2 Market classification and its Characterization
 There are various dimensions of a specified market on the basis of:-
1. Market classification based on location
i. Village market:

◦ transactions take place between buyers and sellers of the same village.
◦ Limited business activity, limited number of commodity, function also limited.
ii. Primary market
 Located in big villages or small towns near the centers of production of farm
commodities
 Transaction takes place between producer and traders
 Greater than 70% of perishable produces taken from this market.
iii. Secondary market also know as wholesale market
 These markets have well marketing facilities.
 Located in important trade centers, big towns or cities.
A bulk of commodities arrival in to 20 markets is from primary
market via traders.
 Producers contribution here is <10%.
 All business activates are taken place here.
 The major transaction takes place between traders and
wholesalers (transaction of commodities takes place normally
in bulk.
 iv. Terminal market – also known as ‘consuming centers.’

 These are markets which are usually located in large cities or sea
ports where the product is disposed to consumers or processed
and or assembled for export purposes.
 Transaction takes place between wholesalers or processors or
consumer’s or assembled for export.
 2. Classification based of area of coverage:-
 Domestic markets: The items are supplied for domestic
consumption only. Here transaction is performed with in a
single country.
 International markets: these are markets where items are sold
cross border or internationally.

3. Market classification based on time span

 Short-period Market: The products of short period markets are
perishable in nature such as milk, tomato, fish etc. here, the
price the of the product is influenced by demand rather than the
supply of a product in the market place
 Long period market
 These are held for a longer period of markets than short
period markets. Products which are dealt here are food grains
or oil seeds. Prices are governed by supply and demand forces

 Secular-Period market
 These are markets of a permanent nature. They are relatively
durable in nature.
 4. Market classification based on volume
 Wholesale Market:- These are markets where the products
handled in large lots/bulk.
 Transactions are takes place among traders/ link between
primary market and terminal markets.
 Retailer market:- These are markets where the product is
finally disposed to the final consumer. In these markets,
products are bought by consumers in small quantity as per
their requirements.
5. Classification based on competition
 On the basis of competition, markets can be classified into
perfect and imperfect.
 6. Market classification based on public intervention

 Regulated markets: these are markets where business activities

are carried in accordance with the rules and regulations.
 Unregulated market: without any set of rules and regulations.
Traders frame their own rules for the conduct of business.

7. Market classification based on the durability of goods

 Consumables markets: are those markets where products that
have shorter lifespan are sold.
 Durable markets: it has a relatively longer lifespan are sold.
They can serve for longer period and consumers can use
repeatedly.
 Disposable markets are people use them only once for a very
short period and then disposed them off.

8.Based on Nature of transaction

i) Spot or cash market

 These markets are markets in which goods are exchanged for
money immediately after the sale is called the spot market.

ii) Forward /Future market

 These markets are markets in which the purchase and sale of a
commodity is negotiated much before the actual physical
transactions of the commodity.
 1.4. Marketing and marketing system
A marketing system is a repeatable, predictable routine a
marketer uses to carry out their daily work.
 Marketing systems are often employed by marketers hoping to
replicate routines when communicating with clients, setting up
social media campaigns, working with influencers, or even
sending mailers to current clients.
 Each of these marketing activities can be improved by creating a
set of steps that the marketer can follow so that they aren't
starting from scratch every time they need to launch a campaign
or marketing activity.
1.4. Marketing and marketing system
1.4. Marketing and marketing system

o simple marketing system

 1.5 Features of Marketing
 Some of the most important features of marketing are as follows:
1. Customer focus:
 The marketing function of a business is customer-centred.
 It makes an attempt to study the customer needs, and goods are
produced accordingly.
 In a competitive market, the goods that are best suited to the
customer are the ones that are well-accepted.
2. Customer satisfaction:
 A customer expects some services or benefits from the product
for which payment is made.
 Customer satisfaction can be enhanced by providing value-added
services, which includes providing additional facilities at little or
no extra cost.
 1.5 Features of Marketing
3. Creating a market offering: Offering a product or service by specifying its
features, shape, size, colour, etc.,

4. Objective-oriented:
 All marketing activities are objective-oriented.
 Marketing activities undertaken by sellers make an attempt to find out the
weaknesses in the existing system, and measures are taken to improve the
shortfalls so that the objectives are achieved.

5. Marketing is both art and science:

 Art refers to a specific skill that is required in marketing activities of any type
of business.
 The concept of marketing includes a bunch of social sciences such as
economics, sociology, psychology and law.
 1.5 Features of Marketing
6. Continuous and regular activity:
 Marketing is an activity designed to plan, price, promote and distribute
products.

7. Exchange process:
 Marketing involves exchange of goods, services and ideas with the
medium of money.
 Exchange takes place between sellers and buyers.

8. Marketing environment:
 Economic policies, market conditions, and environmental factors, such
as political, technological, demographic and international, influence
marketing activities.
 1.5 Features of Marketing
9. Marketing mix:
 A combination of four inputs constitutes the core of a company’s marketing
system—product, price, place, and promotion.

10. Integrated approach:

 The marketing activities are integrated with the functions of production,
finance, research, purchasing, storekeeping and public relations

11. Precedes and follows production:

 Identifying consumer needs and wants is the primary task of a marketing
manager.
 Production activities are adapted to these consumer needs. Thus, marketing
precedes production. production and marketing activities are closely related to
each other.
1.6 Market philosophies
 Those companies who believe in this philosophy think that if the
goods/services are cheap and they can be made available at many
places, there cannot be any problem regarding sale.
• Those companies who believe in this philosophy
are of the opinion that if the quality of goods or
services is of good standard, the customers can be
easily attracted.
• This concept offers the idea that by repeated efforts one can
sell-anything to the customers.
• This may be right for some time, but you cannot do it for a
long-time.
• They do not sell what they can make but they make what they
can sell.
• Keeping in mind this idea, these companies direct their
marketing efforts to achieve consumer satisfaction.
• The drawback of this concept is that no attention is paid to social
welfare.
 This concept stresses not only the customer satisfaction but also gives
importance to Consumer Welfare/Societal Welfare.
 For example, if a company produces a vehicle which consumes less petrol
but spreads pollution, it will result in only consumer satisfaction and not
the social welfare.
 Therefore, the companies believing in this concept direct all their
marketing efforts towards the consumer satisfaction and social welfare.
 CHAPTER TWO

Agricultural Marketing and Marketing

Functions
 2. Definition of Agricultural Marketing

Agricultural marketing is the study of all the activities;

agencies & policies involved in the procurement of farm inputs
by the farmers & the movement of farm products from the
farms to the consumers.
Agricultural marketing system includes:
The assessment of demand for farm inputs & their supply;
Post harvest handling of farm products;
Performance of various activities required in transferring
farm products from farm gate to processing industry &/ or
ultimate consumers;
 Cont’d….
 Assessment of demand for farm products
 Public policies & programs relating to the pricing, handling,
purchase & sale of farm inputs and farm products.
 Thus, the agricultural marketing includes product marketing as
well as input marketing.
 In the context of agricultural marketing, product marketing is
largely the food marketing
 which is a connecting or the bridge b/n food producers
(farmers) and consumers.
 2.1.1 Importance of Agricultural and Food Marketing

 The food marketing is defined as the performance of all

business activities involved in the flow of food products &
services from the point of initial agricultural production until they
are in the hands of consumers.
 This food marketing system is composed of:

Alternative product flows ( called marketing channels);

A variety of firms ( middleman ); &
Numerous business activities (referred to as multi-functions).
 Agricultural marketing plays an important role not only in
stimulating production & consumption, but also in accelerating
the pace of economic development.
 Importance of Efficient Agricultural Marketing are:
1) Optimization of resource use & output management:
2) Increase in Farm Income
3) Expansion of markets
4) Growth of agro–based Industries
5) Price signals
6) Create employment
7) Increase National income & poverty reduction
8) Creation utility
9) Adoption & spread of new technology
 Cont’d…
1. Optimization of resource use & output management:
 An efficient marketing system leads to the optimization of
resource use & output management.
 An efficient marketing system contributes to an increase in the
marketable surplus by cutting down losses in the process of
storage, transportation, & processing.
 Efficient distribution & allocation of modern farm inputs
results in faster rate of growth in agricultural sector.
 Cont’d…
2.Increase in Farm Income:
 An efficient marketing system results in
 elimination of unnecessary market intermediaries, &
malpractices;
 rationalizing market margins, & there by increasing farmer’s
share in consumer price.
 The efficient input marketing system offers farm inputs at
reasonable prices which
 enhance higher utilization of farm inputs,
 resulting in increased productivity, increased production, &
thus increased marketable surplus.
 Both these dimensions contribute to improvement in farm
income.
 Cont’d…

3. Growth of agro–based Industries:

 an improved system of agricultural marketing stimulation the
development of
 input manufacturing &

 marketing organization, as well as

 the development of many industries using farm products as raw material.

 This phenomena in turn results in accelerated growth of the

economy.
 Cont’d…
4. Expansion of markets:
• a well - joined marketing system expands the market for the
products by taking them to remote corners i.e. to areas far-off the
production points.
5. Price signals:
 An efficient agricultural marketing system transmits price signal to
 farmers,
 input supply firms,
 consumers &
 processing industries to enable them to make rational decisions
in resource & budget allocation.
 Cont’d…

6. Employment creation:

 Agricultural marketing system provides employment to millions

of persons engaged in various activities such as packaging,
storage, transportation, & processing. Persons like
 commission agents & weigh men (evaluator men),
 Brokers & traders
 Wholesalers & retailers,
 packagers, & resulting staff are directly employed in the system.
 Cont’d…

7. National income & poverty reduction:

 market’s activities increases a demand value to the product &
there by contribute to increase in country’s
gross national product,
net national product, &
the pre capita income.
 An efficient agricultural market’s system aims at reducing
food prices, earning more foreign exchange, cutting economic
wastes, & there by increasing the purchasing power of people
or diminishing poverty.
 Cont’d…

8. Creation utility:
 Market’s is productive as it helps creating
1) form utility (via processing activities),
2) place utility (via transportation),
3) time utility (via storage & ware housing activities, &)
4) possession utility (via buying & selling or transfer of
ownership activities).

9. Adoption & spread of new technology:

 An efficient marketing system provides input to farmers to
adopt the new technology quickly.
 2.1.2. Link Between Agriculture and Food Industry

o Agriculture and the food industry are closely linked, as

agriculture is responsible for producing the raw materials that are
used to make food products.
o This includes crops like wheat and corn, as well as livestock like
cows and chickens.
o These raw materials are then processed and packaged by the food
industry to create the food products that we see on store shelves.
o Additionally, the food industry also relies on agricultural
practices for things like packaging materials (e.g. paper or
plastic) and fuel for transportation.
 Cont’d…

• The marketing of agricultural commodities is different from

the marketing of manufactured products
 because of the special characteristics of the agricultural sector
which has a bearing on marketing.
• Because of this special characteristics, the subject of
agricultural marketing of has been treated as a separate
discipline
• These special characteristics of the agricultural sector affect the
supply of and demand for agricultural products
 Cont’d…..

Special characteristics of the agricultural products are:

1. Perishability of the Products

2. Seasonality of production
3. Bulkiness of products
4. Variation in quality of Products
5. Small size of holding & Scattered production
6. Processing
 Cont’d…..

1. Perishability of the Product:

 most farm products are perishable in nature.
 The marketing processes of farm products must be completed
in a very short period, before their quality gets deteriorated or
else these products should quickly reach for processing
activity.
 Producers of farm products, thus, can not afford to fix reserve
price or make the supply regular.
 Producers of manufactured goods, on the other hand, can
regulate supply in tune with demand & can afford to fix
reserve price for their Products.
 Cont’d…

2. Seasonality of Production:
 the production of farm products is possible only in a particular
season, where as their demand is more or less equitably
distributed.
 This phenomenon is responsible for marketed fluctuation in
price. On the other hand,
 the production of non-farm goods is not season specific &
hence intra-year fluctuations in their prices are not to be seen.
 Cont’d……

3. Bulkiness of Products:
 most of the farm products are bulky in nature which makes their
storage & transportation difficult & expensive.
4. Variation in quality of Products
 The quality of farm products significantly varies due to various
agro-climatic, technological and managerial reasons.
• This feature of farm products makes their grading,
standardization & quality control very difficult.
• Non farms Products do not have any such problem.
 Cont’d…..

5. Small size of holding & Scattered production:

 farm products are produced through out the length & breadth
of the country & most of the producers are of small size.
This makes the estimation of supply difficult & creates
problems in marketing in terms of infrastructure requirement,
& price policy.
6. Needs processing:
 most of the farm Products are raw in nature & need to be
processed before consumption.
This increases the price spread of farm products.
 2.1.3 The Agricultural Marketing Problems

 Farmers have two basic marketing problems i.e.,

1. Low & unstable prices for their product.

2. Low and unstable income for their product.
 The farm problem is usually associated with unstable & relatively
low farm prices & incomes.
 A related set of farms problems can termed as ‘the farm marketing
problem.
 Cont’d….

1. Farmers are unable to adjust their production schedule to

changing marketing situation
2. Farmers are unable to influence prices of their products (Price
taker)
3. Farmers are a victim of a situation of cost-price squeeze
4. Superior bargaining powers of buyer of farm products as
compared with that farmer.
5. Changing market-efficiency in still another component of
marketing problem.
 2.1.4 Agricultural marketing problems in Ethiopia

 The problems of agricultural produces marketing in this country

and most developing countries are:
1) Interrelation of agricultural production and marketing

2) Small scale and widely dispersed production,

3) Inadequate transport and communication facilities

4) Inadequate storage facilities

5) Poor handling, packing and processing

6) Lack of standardized weights and measures

7) Absence of market information,

 2.2. Marketing functions
A) Marketing functions: are those specialized activities that a marketer must
perform in order to:
 identify and source potentially successful products for the market place and
 then promote them by differentiating them from similar products.

• The important functions of marketing are discussed briefly below:

1. Research & Development Function- A marketer has to carry out adequate

research to identify the size, behavior, culture, gender, demands etc. of the target
market segment, and then develop the products/services accordingly to meet and
satisfy the needs of target customers.

2. Buying Function- The marketing department has to assist the purchase and
supply department by sending specifications of the materials required so as to get
timely and quality materials for production.
 Cont’d…
3. Standardization & Grading- Standardization means setting quality standards
to achieve uniformity in the product.
• Grading means classifying the product on certain accepted benchmarks or bases
such as size, quality etc. Through grading, the marketer can get higher price for
quality product.

4. Packaging and Labeling- Packaging is traditionally done to protect the goods

from damage in transit and to facilitate easy transfer of goods to customers.
• Label is that part of a product which contains information about the producer
and the product.

5. Branding- It is the process of stamping a product with some identification

name or mark or a combination of both. Branding means giving a distinct
individuality to a product. Some popular brands are Sony, Coca cola, etc.
 Cont’d…
6. Pricing- Determination of price of a product is an important task of a
marketing manager.
• Price is influenced by cost of product and service offered, profit margin
desired, prices fixed by rival firms, government policy, etc.

7. Promotion Function- The marketing manager must design adequate strategies

to make known to consumers about the availability of products in the market by
advertising, personal selling, publicity and sales promotion.

8. Physical Distribution- This function involves the activities which are

necessary to transfer ownership of goods to customers and also making available
goods at the right place and time.

9. Transportation- It provides the physical needs which facilitate the movement

of persons, goods and services from one place to another.
 Cont’d…
10. Warehousing- To meet the expected demands of consumers, goods are
produced or secured well in advance and stored in warehouses till they are
transferred to customers.
• Warehouses protect the goods from any damage which may be caused by any
rodents, moisture, sun, theft, etc.
11. Risk- taking function- Risks are involved in almost all levels of marketing
process that is inherent in producing and handling goods, including the possible
loss due to a fall in prices and the losses from spoilage, depreciation,
obsolescence, fire and floods etc.
 B. Institutions involved in marketing

• An institutional market is a consumer market composed of large buyers who

tend to purchase in volume quantities.
Cont’d…
 C. Marketing communication

• Communication: is simply the act of transferring information from

one place, person or group to another.
• Marketing communication: is the messages and media that
marketers use to communicate with target markets.
• Examples of marketing communications include traditional
advertising, direct marketing, social marketing, presentations and
sponsorships
• Marketing Communication: refers to the means adopted by the
companies to convey messages about the products and the brands they
sell, either directly or indirectly to the customers with the intention to
persuade them to purchase.
 Cont’d…

• The marketer uses the tools of marketing communication to create

the brand awareness among the potential customers, which means
some image of the brand gets created in their minds that help them to
make the purchase decision.
• In fact, without effective marketing communications the consumer
remain unaware of products and services they need, who might
supply them and the benefits which both product and suppliers can
offer.
• Moreover, it is impossible to develop effective and efficient
marketing systems without first establishing channels of
communication.
 Cont’d…

• Marketing communications serve five key objectives:

o The provision of information
o The stimulation of demand
o Differentiating the product or service
o Underlining the product's value, and
o Regulating sales
 Cont’d…

• Marketing communications takes four forms

o Advertising,
o Sales Promotion,
o Public Relations and Publicity,
o Personal Selling.

• These tools of communication are collectively called

as Marketing Communication Mix
 Factors influencing the communications mix

• There are at least 5 major influences on what makes a given mix

of promotional techniques appropriate. These are:
• the nature of the market,
• the nature of the product,
• the stage in the product life cycle,
• price and the funds available for promotional activities.
 2.3. Approaches of marketing researches
• There are several ways of approach to the marketing problem.
 i.e., to understand the existence of & find solutions to various
marketing problems.

 The 3 important approaches to the study of Agricultural Marketing

are:
1. Functional Approach
2. The institutional approach
3. The commodity (product) approach
 Buying
. Exchange Functions
selling
transportation

packaging

Functional Physical Functions processing

Approach
storage

Standardization/grading

Risk bearing
Facilitating Functions
Financing

Market intelligence
1. Exchange Function
It is the heart of marketing.
Þ refers to the buying and selling activities performed along the chain.
Þ It includes buying, assembling and selling.
i.e Those are directly concerned with change in the ownership of goods.

 Buying is the first step in the process of marketing.

 It involves careful planning and needs setting up of policies and
procedures. The following activities are considered before a particular
product is bought.
 What to buy (Product)? -
 When and how much to buy? (Time and quantity)
 From whom and where to buy? (Source)
 On what terms and conditions and prices? (Price)

Assembling is involves creating and maintaining of stock of goods

purchased from different sources.
 The function of selling is to ensure that :the right product is made

available at the right place, in the right quantity, at the right price, at

the right time and under the right impressions to the consumer.
 Selling function is also distribution function and creative function.
 Selling activity involves:
 pricing
 packing
 Labeling ( categorizing)
 advertising and promotion activities
 Each of these functions adds value to the product and they require
inputs, so they incur costs.
 As long as the value added to the product is positive, most firms or
entrepreneurs will find it profitable to compete to supply the service.
 2.1. Functional Approach-Cont’d

2. Physical Function:-
Þ is involved in the creation of form, time and place utility.
Þ The activities which involve handling and movement of the actual
commodity itself.
Þ They are involved in solving the problems of when and where to
do the marketing.
Þ it includes the processing, storage, packaging and transportation
activities.
Processing is a process of value addition by changing the form of
one product into a more quality and suitable form that can get a
better price.
 Storage is very essential to allow a smooth and preferably, uninterrupted
flow of product into the market.
 Which able to adjust the timing of supply of the product to match
demand.
 It may be adjust price fluctuation on the owners like buffer stock but this
buffer stock use only on the government.
Transportation:- is one of the means that make the product available
where it is needed.
 You are able to consume varieties of products coming from different
corners.
 Products must be moved from where they are produced in to the area
where they will be processed and consumed.
 Packaging is enclosing commodity in a container.
 This is a requirement for nearly all farm products, in all stages of
marketing.
 It is an activity of designing and producing the container or wrapper for
a product.
 The container used in different stages of marketing may be quite
different, and the three general types of packages or containers may
include:

i. Containers for handling from the farm to consumer and through

assembly and processing facilities.

ii. Shipping/transportation containers

iii. Consumer packages

• Packaging contributes to more efficient marketing by:
i. reducing bulk (e.g. cotton balling and density);
ii. facilitating handling;
iii. reducing shrinkage and spoilage (canned meats, fruits);
iv. facilitating quality identification and product selection by
consumers (eggs in cartons);
v. Assisting in advertising and better merchandising (cheese in
cartons).
• Packaging can improve profitability and efficiency of the
physical distribution functions.
• The design of packaging is capable to contribute to an improved
performance of the supply chain in a variety of ways.
 2.1. Functional Approach-Cont’d
3. Facilitating functions
 a function for smoothening the performance of the exchange
function and physical function.
Þ It is a subsidiary (supporting) function of the other functions.
Þ It is not directly involved in the transfer of title or in physical
handling of products.
Þ It is considered as oil or grease that lubricates to marketing
machines.
Þ The activities in this function include
a) standardization & grading
b) financing and
c) risk bearing
d) Market intelligence
 Facilitating functions

a) Standardization
→ is the establishment and maintenance of measurement of
quality and quantity which makes selling and pricing
possible.
 It is sorting of product attributes in to uniform categories on
the basis of established standards.
 so that the buyers could select the product of their
preference without wasting much time and energy in
doing the inspection work by themselves.
 since there can be different category of products in
different standards which can be reasonably priced by the
different income groups.
 Facilitating functions

b) Financing
 involves accessing of finance /money which is required at all
stages of marketing (i.e. at the producers, processors,
wholesalers, and retailers …stage).
 This finance helps to carry out day- to –day activities and
acquiring of assets or marketing facilities such as vehicles,
warehouse, processing machinery etc…..
 Facilitating functions

c) Risk Bearing
 is the function of assuming or accepting the possibility of loss
in marketing a product.
 Risks can be
 physical (Damage or deterioration of quality of a product),
 natural (disease, insect, drought etc...that lowers volume and
quality of products) and
 market or price risk (low and fluctuating prices).
 So improvement in physical infrastructure (e.g. road & vehicle),
providing insurance service especially for big marketers and
disseminating of market information are important measures to
minimize or avoid such possible risks.
 Facilitating functions

d) Market intelligence is the process of collecting, interpreting,

and disseminating information relevant to marketing decisions.
• The role of market intelligence is to reduce the level of risk in
decision making.
• Through market intelligence the seller finds out what the
customer needs and wants.
• Through market intelligence the buyer finds out what the quality
and quantity of the products.
 2.2. The Institutional Approach

The institutional Approach:

 It studies various organizations, institutions or agencies that
are involved in the process of concentration, equalization and
dispersions.
 It answers- who does what?
 functional approach deals with what is performed but in this
approach who is performed.
 2.2. The Institutional Approach-Cont’d

 Definition of Marketing middlemen; -

 Middlemen are those individuals or business concerns who
specialize in performing the various marketing functions
involved.
 The business organization that are specialized in performing
various marketing functions as commodities are moved from
producers to consumers
 Marketing middlemen can be classified on the basis of whether
they take title to the product or not.
 2.2. The Institutional Approach-Cont’d

 Classification of marketing middlemen.

1. Merchant middlemen
2. Agent
3. Speculative
4. Processors
5. Facilitative organizations
 2.2.1. Merchant middlemen;-

 Are those marketing middlemen who take title and therefore

owner of the product.
 They buy product, perform function that adds utilities and
sell for their own gain.
 They take the responsibilities of risks or losses associated
with buying and selling and they hope to cover the costs of
the functions.
 they are engaged to realize profit for their efforts.
 Retailers and wholesalers are categorized under this
group.
 2.2.1. Merchant middlemen-Cont’d

A. Retailers;-
 are business units that are engaged in selling directly to final
(ultimate) consumers.
 In the process retailers buy from farmers, wholesalers,
processors relatively in larger lots and break this in to small
lots suitable for purchase by numerous small consumers on a
day-to-day basis or weekly basis.
 2.2.1. Merchant middlemen-Cont’d

B. Wholesalers
 Wholesalers are merchant middlemen who are engaged
primarily in buying & then wholesaling the products to
other merchants,
industrial users, and
 institutional users.
 They deal with a large amount/volume of goods.
 2.2.2. Agent Middlemen

 Agent Middlemen are middlemen who act as only

representatives of their principal or clients (buyers or sellers) to
negotiate the purchase and sale of the products.
 They don’t take any title too and therefore don’t own and may
not even physical handle the product.
 they do actually assist in the transfer of title commodities.
• Agent Middlemen have knowledge of current marketing
condition such as

 source of supply, quality of the products, prices and

 potential market (s) where products can be sold or bought.

 2.2.2. Agent Middlemen-Cont’d

 Hence they sell their services to their principal since their client
lack adequate market knowledge for effective bargaining.
 Agent Middlemen receive their income in the form of fees or
commission.
 There are two types of agent middlemen. These are

a) commission men and

b) Brokers
 2.2.2. Agent Middlemen-Cont’d

a) Commission Men; -
 are people who act for their principal in arranging for the
terms of sale and collecting the money from the buyers.
 The commission men get his income in the form of
commission which is the percentage of profit or price
obtained.
 Commission agents do not possess or take the title of the
product.
 2.2.2. Agent Middlemen-Cont’d

b) Brokers
 are people who bring potential buyers and sellers together in
negotiating favorable terms of exchange.
 The actual transactions take place between the buyer and seller
with the broker as an advisor and intermediary in return for a
fee.
 These people do not take title and/or physical handle or do have
no counter over the product they are dealing with.
 2.2.3 . Speculative middlemen

 Speculative middlemen;- are those who take title to products

with the major purpose of profiting from price movement
(price fluctuations).
 They buy when/where price are low and sell when/where
prices are high with the aim of taking advantages of
fluctuation in the prices.
• Speculative middlemen seek out & specialize in taking these
markets or price risks and usually do a minimum of handling
& merchandising.
• Speculative middlemen have the role of price stabilization
and creation of time and place utility.
 2.2.4. Processors and Manufacturers
• Processors change the form of commodity they buy into a more
convenient, useful and acceptable to the market and consumers.
 They establish processing plants and other relevant facilities to
carry out the transformation of products.
 They are important part of the marketing process b/c they add
form utility in the market.
 They derive their income from the difference between their
buying and selling prices plus the proceeds from the sale of by-
products.
 2.2.5 Facilitative organizations

Facilitative organizations; -
 are agencies involved in the facilitating role of the exchange
transaction.
 They do not directly participate in the marketing process but
rather smoothen the marketing activities.
• The most common facilitating organization are
 transport agencies,
 Ware house (public storage),
 Standardization and grading agency,
 Credit service organizations etc
 2.3. The commodity Approach

 In this approach, both the functional and institutional approaches

are employed for studying the market.
 In a commodity approach, a specific commodity or groups of
commodities are taken and the functions and institutions involved
in the marketing process are analyzed.
 This approach focuses on what is being done to the product after
its transfer from its original production place to the consumer.
 It helps to identify the specific marketing problems of each
commodity as well as improvement measures.
 Cont’d…

 The approach follows the commodity along the path between

producer and consumer and
 is concerned with describing what is done and how the
commodity could be handled more efficiently.
 This approach has been used in this study as a guideline to
identify different aspects of the problem.
 Chapter - 3

3. Market Orientation And

Price Setting
 3.1. Market orientations

• Define Market Orientation

• Stages of Market Orientation

• Characteristics of marketing orientation

• Advantages and Disadvantages of Market

Orientation
 3.1. Market orientations

• Market Orientation is a marketing concept wherein the company

focuses on identifying the customer needs and preferences and,
accordingly, designs and sells products and services based on those
needs and preferences with the primary objective to earn profits.
• Market orientation is a business philosophy where the focus is on
identifying customer needs or wants and meeting them. When a
company has a market orientation approach, it focuses on designing
and selling goods and services that satisfy customer needs in order to
be profitable.
 Cont’d..

 Market orientation is a business marketing strategy that focuses

on its customer base to design and sell products and services.
 The strategy involves analyzing and researching the customers’
requirements, concerns, and suggestions concerning the particular
product or service the enterprise deals with.
 This way, the company will enable to modify or design its product
or services according to customer preferences.
 Stages of Market Orientation

 There are 4 main stages that make up the marketing orientation process.
 These stages are-

1. Initiation- focuses on the potential threats

2. Reconstitution- about embracing the changes

3. Institutionalization-deals with action

4. Maintenance- at last one is about meeting the customer demands.

 Characteristics of marketing orientation

 There are a number of characteristics which are usually exhibited by the

marketing oriented organizations. For example:
o Marketing oriented firms make the customers their focal point.
o They carry out market research very often to understand the current and
future requirements of the customers
o Marketing oriented firms focus on new product development
o There are a number of benefits of marketing orientation.
 For example, competitive advantage, customer satisfaction, long-
term profitability, customer loyalty, and reduced switching to
competitors are to name but a few.
 Advantages and Disadvantages of Market Orientation

Advantages.
o Increase in the overall revenue.
o Market share increases.
o Customers remain associated with the company.
o It helps in product innovation, as updated products attract customers.
o It brings a good name for the company as the customer feels happy with its products
and services.
Disadvantages
o As customer needs keep changing, it calls for continuous changes by the company in
its products and services.
o A large portion of the company’s budget is spent on research work.
o In the dynamic market conditions, it is difficult to predict what the future could be
concerning customer preferences, and thus, it requires lots of planning.
 3.2. Components of Marketing Mix

 Marketing is set of activities involve:-

 determining what your customer wants,
 developing that product,
 delivering that product to a place where the customer wants to purchase it,
 set a price for the product that is profitable and attractive to the customer
and
 then informing the customer about the product.
 This may sound complicated but there is an easier way to understand and
remember the important parts of marketing called the ‘Marketing Mix’.
 The marketing mix is the set of marketing tools the firm uses to pursue its
marketing objectives in the target market.
 Sometimes these are called the 4 “P’s” of marketing because all the terms
start with the letter “P”. These are:

i. Product

ii. Price

iii. Place

iv. Promotion
 Note that the four P’s represent the seller’s view of the marketing tool
available for satisfying and influencing buyers.
 From the buyer’s point of view, each marketing tool is designed to
deliver a customer benefit.
 Robert Lanrterborn suggested that sellers’ four P’s correspond to the
customer’s four C’s
Four P’s Four C’s
 Product Customers solution
 Price Customer cost
 Place Convenience
 Promotion Communication
 Customer is not part of the marketing mix. The customer is
surrounded by the four Ps.
 i. Product

 The product is concerned with developing the right

“Product” for the target market.
 This offering may involve physical goods, a service, or
a blend of both.
 Product means the needs-satisfying offering of a firm.
 Generally, Product – is anything that can be offered to
a market for attention, acquisition, use, or consumption
that might satisfy a want or need
 ii. Place

 Place is concerned with all the decisions in view of getting the

“right” product to the target market’s place.

 A product isn’t much good to a customer if it isn’t available

when and where it’s wanted.

 A product reaches customers through a channel of distribution,

refers to any service of firms (or individuals) from products to

final user or consumer.

 Sometimes a channel system is quite short..

 The market system is more complex involving many different

kinds of middlemen and specialists.

 Most producers do not sell their goods directly to the final

users; between them stands a set of intermediaries which

constitute a marketing channel.

 Some intermediaries such as wholesalers and retailers - buy,

take title to, and resell the merchandise; they are called the

merchants.
 A merchant buys different agricultural products from
producers, processed products from processing factory and sells
it to consumers.
 Others brokers, manufacturing firm representatives, sales
agents search for customers and may negotiate on the
producer’s behalf but do not take title to the goods; they are
called agents.
 Marketing distribution is a set of interdependent organizations
involved in the process of making a product available for use or
consumption by the consumer or business user.
 Intermediaries are the major sources of cost savings by reducing

the number of contact necessary in channeling products from

producer to consumer.

 Figure (a) and (b) compares the number of contacts necessary

when there are intermediaries and when there is no

intermediary.
M – Manufacturer & C – Consumer

Fig a) shows three producers (M1, M2 and M3), each using direct

marketing to reach three customers (C1, C2 and C3).

 This system requires nine different contacts.

 Thus, if the numbers of producers are M and number of
consumers are C, then the number of contacts is M times C.

Fig. b) shows the three producers working through one distributor,

who contacts the three consumers.
 This system requires only six contacts, i.e., it only requires M
plus C contacts.
 In this way, intermediaries reduce the number of contacts and
the work.
 iii. Price

 Price refers to the amount of money charged for a product or

service, or the sum of the values that consumers exchange for the

benefits of having or using the product or service.

 v. Promotion

 Promotions refer to a variety of communication activities to share

knowledge or increase awareness about a brand, product, or service
with as many people as possible.

 These activities have a variety of objects like raising awareness,

inducing people to buy a particular product, increasing demand,
differentiating products (from competitors), building brand loyalty,
etc.

 Promotion involves two-way communication.

 Promotion is communicating information between seller and potential

buyer or others in the channel to influence attitudes and behavior.
 The marketing manager's main promotion job is to tell target
customers that the right product is available at the right place
at the right price.
 What the marketing manager communicates is determined by
target customer's main needs and attitudes.
 How the messages are delivered depends on what blend of the
various promotion methods – the marketing manager chooses.
 There is several promotion methods used in marketing. The
following promotion methods are the most common ones.
 Personal selling: Personal selling - involves direct spoken communication

between sellers and potential customers.

 Face-to-face selling provides immediate feedback which helps

salespeople to adapt.

 Personal selling can be very expensive.

 So it is often desirable to combine personal selling with mass selling and

sales promotion.

 Mass selling: is communicating with large numbers of potential customers

at the same time.

 It is less flexible than personal selling, but when the target market is large

and scattered, mass selling can be less expensive.

 Publicity: This is an unpaid form of non-personal presentation of ideas, goods, or
services.
 But they try to attract attention to the firm and its offerings without having to pay
media costs.
 Sales promotion: refers to promotion activities other than advertising, publicity,
and personal selling that stimulate interest, trial, or purchase by final customers or
others in the channel. Sales promotion may be aimed at consumers, at middlemen,
or even at a firm's own employees.
 Advertising: is a type of promotional activity with the aim to sell a product or
service to a target audience,
 It is one of the main forms of mass selling.
 It is any paid form of non-personal presentation of ideas, goods, or services by an
identified sponsor.
 It is only one way to promote a product.
 It includes the use of such media as magazines, newspapers,
radio, TV, internet, and direct mail.
 While advertising must be paid for, another form of mass
selling - publicity -is ''free''.
 The decision whether to advertise:- Even if advertising succeeds in
shifting demand it may not pay for the firm to advertise. because of the
following reasons

Need to Advertise Did not Need Advertise

 Not well known brand name. Well known brand name
 The new product. Known product.
 Have not scarcity (surplus) No surplus (Scarcity)
 Homogeneous commodity have in -- Consumer did not need

d/t producer
 3.3 Pricing and pricing objectives

 All of the decisions made with respect to the elements of the marketing
mix are of critical importance.

 But pricing is one of the decisions as to what price to ask for the product
or service.

 The task of pricing is reiterative because it takes place within a dynamic

environment:-these env’t
 shifting cost structures affect profitability,
 new competitors and new products change the competitive balance,
 changing consumer tastes and disposable incomes modify established
patterns of consumption.
 This being the case, an organization must not only continually
reassess its prices, but also the processes and methods it employs
in arriving at these prices.
 Organization is to clearly articulate what objectives it seeks to
achieve through its pricing policies and then to evaluate the
factors likely to impose upon the strategies which it seeks to
adopt in pursuit of those objectives.
 Thus, the broader objective(s) of a firm make the pricing strategy.
 Pricing objectives are defined in terms of their role within the

marketing mix strategy.

 There are different strategies of setting prices.
 The different strategies can be categorized under two basic

approaches: Cost-oriented and Demand-oriented price setting.

 In general determinations of price require information on various

aspects of the firm and external factors.

 The following summarizes the key factors that influence price setting
 3.3.1 Pricing Objectives

 Many companies try to set a price that will maximize current profits.
 They estimate the demand and costs associated with alternative prices
and choose the price that produces maximum current profit, cash flow
or rate of return on investment.
 This strategy assumes that the firm has knowledge of its demand and
cost functions; in reality these are difficult to estimate.
 Some companies want to maximize their market share. They believe
that a higher sales volume will lead to lower unit costs and higher long-
run profit.
 They set the lowest price, assuming the market is price sensitive.
 The pricing objectives vary from firm to firm, they can be
classified into six major groups

Pricing objectives

profitability strategic prestige competition Volume relationship

 1. Profitability objectives

 These profits may be measured in monetary values and/or as a

percentage of sales and/or as a percentage of total capital employed.

 In addition to maximizing the profit of the firm as a whole, the

objective can further be considered in terms of the profit level from
each unit sold of a product or product line.

o i. Target return on investments: are goals can be either short

or long run goals, stated as profit as a percentage of either
sales or assets.
 This is a cost-oriented approach to pricing decisions.
 ii. Maximizing revenues

 Hence, the objective of the firm is to maximize the profits, by maximizing

sales revenue, of the firm as a whole given its direct and indirect costs.
 When a firm’s fixed costs constitute larger proportion of the total production
cost, maximizing revenue is virtually equivalent with maximizing profits.
2. Volume objectives
 On occasion, the pricing decisions of managers have more to do
with sales maximization than profit maximization.
 In these cases, organizations set a minimum acceptable profit
level and then set out to maximize sales subjected to this profit
constraint.
 3. Competitive objectives

 As with any other marketing decisions, pricing decisions must

take into account the current behavior of competitors and seek to
anticipate the future behavior of those competitors.
 In particular, a company will wish to anticipate competitors' likely
reactions if the pricing strategies and tactics it is considering are
actually implemented.

i. Going-rate pricing: Competing firms will sometimes set out to

match the industry leader's prices.
 The net result is to take the emphasis away from price competition
and refocus competition on to other elements of the marketing
mix.
 Competitors may attempt to promote stable prices by focusing
upon product/service strategies, promotion and distribution.
 In this case, the objective of firms is to avoid price competition
which may lead to price-war or suffer.

ii. Anti-competitive pricing (sometimes termed as limit pricing):

For instance, a firm will price its products with a view to
discouraging competitors from entering the market or to force them
out of the market.
 it can exercise limit pricing over a weak firm or new entrants. Such
strategy can chiefly be used by decreasing cost industry or by a
firm enjoying substantial economies of scale.
 4. Prestige objectives
 Prestige objectives are unrelated to profitability or volume
objectives.
 These involve establishing relatively high prices to develop and
maintain an image of quality and exclusiveness that appeals to
status-conscious consumers.
 Such objectives reflect recognition of the role of price in creating
the image of an organization and its products or services.
 Such pricing is mostly exercise in service firms like hotels.
 Electronics and automobiles that have well accepted brands usually
set their price high just to maintain an image of superior quality.
 The quality of the product may not actually be superior in real
sense; but firms, by making some ‘fancied’ attempt to convince
consumers that the product is different.
 Some consumers feel inferior if the price of a product is lower.
 Especially, in such services as hotels, restaurants, etc, consumers
would feel superior when they pay higher prices for the same
service that is being delivered at lower price.
 Some people in a society want to identify themselves with a higher
social class and they will be willing to pay higher price for the sake
of attaining the status.
 Firms, knowing such behaviors of some consumers, try to form
the social class through prestige pricing strategy.
 5. Strategic marketing objectives
 Price stabilization: The objective of stabilizing prices is met in the same
way as that of removing price as the basis of competition.
 That is, the company will seek to maintain its own prices at or around those
of competitors.
 Supporting other products: Pricing decisions are often focused upon the
aim of maximizing total profits than a single product within a given
portfolio.
 Especially, when a firm produces two complementary products, it can
stimulate the sales of one product by lowering the price of the complement
in a way it maximizes the overall profits of the firm.
 Such strategic behavior will be effective if the firm has some monopoly
power in one of the complements and faces high degree of competitions in
the other complement.
 Maintaining cash flow: It follows that the maintenance of a sound cash flow
position is an important management objective. Much of a company's trade
will be on the basis of credit rather than cash sales. The pricing mechanism
can be used to manage cash flow.
 Target markets: The sensitivity of buyers to prices can vary across different
market segments.
 Some consumers will view products as commodities and therefore purchase
mainly on price.
 Others will perceive differences between competing brands and will perhaps
make their choice on the basis of characteristics such as quality, freshness and
convenience rather than on price.
 Prospective buyers also differ in their perceptions of the actual price which
they are being asked to pay. Therefore, seller/producer to identify the target
market of the buyer's behavior.
 6. Relationship marketing Objectives
 Channel of distribution members: The interests of all participants in the
channel of distribution for the organization’s products have to be taken into
consideration when making pricing decisions.
 By developing pricing policies and structures which assist intermediaries to
achieve their own profit objectives, an organization is better able to retain
the loyalty of channel members.
 Suppliers: Just as the organization must take account of the interests of its
distributors, so it must be concerned about the welfare of suppliers.
 This producer sees its supplier as an extension of its own business.
 To know the general public- like societal attitude and social
cost.
 Government: Governments often take a keen interest in the
prices charged which related to policy, laws, design and
programmes.
 where organizations have been freed from government control
over prices because the price of basic food items is a politically
sensitive issue in most countries.
 The government will wish to be seen to be vigilant in
preventing profiteering at the expense of the common people.
 3.4 Pricing Method
1. Markup pricing method
 Some firms - including most retailers and wholesalers - set prices

by using a markup.
 For example consider that a retail shop buys a kilo of sugar for 100

Birr from Metahara Sugar Factory. To make a profit, the retail shop
obviously must sell the sugar for more than 100 Birr. If it adds 5
birr to cover operating expenses and provide a profit, we say that
the retail shop is marking up the item 5 birr.
 Markup means percentage of selling price that is added to the cost

to get the selling price. Thus, the markup for the above item can be
calculated as:
 A standard markup is related to gross margin - it is usually set
close to the firm’s gross margin.
 It is also important to study the markups at different levels in
the marketing channel.
 Many middlemen select a standard markup percent and then
apply it to all their products. This makes pricing easier.
 A markup chain - the sequence of markups firms use at
different levels in a channel - determines the price structure in
the whole channel.
 Different firms in a channel often use different markups. .
 Markups and Profits

 Some people including many traditional retailers think high

markups means big profits. Often this is not true.
 A high markup may result in a price that is too high - a price at
which few customers will buy.
 And you cannot earn much if you do not sell much - no matter
how high your markup.
 But many retailers and wholesalers seem more concerned with
the size of their markup on a single item than with their total
profit.
 And their high markups may lead to low profit - or even losses.
 Some retailers and wholesalers, however, try to speed turnover
to increase profit even if this means reducing their markups.
 If they can sell a much greater amount in the same time period,
they may be able to take a lower markup and still earn higher
profits at the end of the period.
 Reducing markups to increase profit works especially if
reducing price increases percentage sales by more than the
reduced percentage price.
 That is the percentage increase in quantity sold is greater than
the percentage decline in price.
 2. Average Cost Pricing Method
 Average cost pricing means adding a reasonable markup to the average cost
of a product.
 A manager usually finds the average cost per unit by studying past records.
 Dividing the total cost for the last year by all the units produced
 Total fixed cost - is the sum of those costs that are fixed in total no matter
how much is produced.
 Among these fixed costs are rent, depreciation, managers’ salaries, property
taxes and insurance.
 Such costs stay the same even if production stops temporarily.
 Fixed costs do not vary with the amounts of output.
 Total variable cost - on the other hand is the sum of those changing expenses
that are closely related to output - expenses for raw materials, packaging
materials, labor costs, sales communications, etc.
 At zero output level, total variable cost is zero. As output increases, so do
variable costs.
 Total cost - is the sum of total fixed and total variable costs. Changes in total
cost depend on variations in total variable cost since total fixed cost stays the
same.
 The pricing manager usually is more interested in cost per unit than total
cost because prices are usually quoted per unit.
 For example a company incurred the following costs last year.
 Total Fixed overhead expenses (FC) -------------- 30000
 Total Labor and material expenses (VC) --------- 32000
 Total costs (TC) ----------------------------- 62000
 Average cost (per unit cost) - is obtained by dividing total cost by the related
quantity (that is the quantity that causes the total cost).
 Q - Total quantity sold = 40000

 To get the price, the firm decides how much profit per unit to add
to the average cost per unit.
 If the firm considers 45 cents a reasonable profit for each unit,
Accordingly if the firm sells, say, 40000 units in the next period to
the total profit will be 18000 Birr.
 Average cost pricing is simple. But it can also be dangerous.
 It is easy to lose money with average cost pricing. For instance in
the above example if the firm sells only 20000 Birr, the average
cost can be calculated as follows:
 Total Fixed cost --------------------------------- 30000
 Total Variable Cost ------------------------------ 16000
 Total cost ------------------------------------- 46000
 Average cost will then be

 It the firm continues to sell its product for 2.00 Birr assuming that the average

cost is just 1.55 Birr per unit, the firm will lose 30 cents from each unit sold

and will incur a total lose of 6,000 Birr.

 The basic problem with the average cost pricing approach is that it does not

consider cost variations at different levels of output. But, average costs may

decline or increase as the level of output increases.

 Therefore, it is important to develop a better understanding of the different

types of costs a marketing manager should consider when setting a price. i.e to

use Average Cost Pricing.

 3. Break-even Pricing Method
 Another method considered in setting price is break-even pricing.
 This pricing system is sometimes called target profit pricing.
 Break-even analysis evaluates whether the firm will be able to break-even -
that is cover all its costs - with a particular price.
 This is important because a firm must cover all costs in the long run or there
is not much point being in business.
 Break-even point is the level of quantity at which the firm’s total cost will
just be equal to its total revenue.
 In other words, it is that quantity that makes profits zero.
 Break- even pricing is setting price to break even on the costs of making and
marketing a product, or setting price to a make a target profit.
THE END