Transcript Approaches of food marketing

APPROACHES TO THE STUDY OF
FOOD MARKETING
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THE FUNCTIONAL APPROACH
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THE INSTITUTIONAL APPROACH
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THE BEHAVIORAL SYSTEMS APPROACH
FUNCTIONAL APPROACH
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Marketing functions are classified into three
groups:
Exchange functions
Buying and Selling:
They are directly associated with negotiating an
exchange of ownership – or flow of title – between a
seller and a prospective buyer.
Buying activities include searching for, gathering
information about, evaluating alternative products and
suppliers, and negotiating a purchase agreement.
FACILITATING FUNCTIONS
PHYSICAL FUNCTIONS
•Standardization
•Processing
•Financing
EXCHANGE
FUNCTIONS
PP
•Buying
•Selling
•Storage
•Transportation
•Risk Bearing
•Market Intelligence
Fig: The marketing functions
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The selling function involves identifying and seeking out
potential buyers, determining an asking price, negotiating
terms of sale, and similar activities.
The ultimate aim for any seller is to meet its consumer
(buyer’s) needs.
Thus, a farmer can be said to be market oriented when
production is purposely planned to meet specific demands
or market opportunities.
For example, a contract farmer, who wishes to meet the
needs of a food processor producing sorghum-based
malted drinks, will only grow, improved sorghum seed. It
will avoid any inputs likely to adversely affect the storage
and/or processing properties of the sorghum and will
continually seek new and better inputs which will add
further value to its product in the eyes of the customer
(food processor).
2. Physical functions
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Storage:
Balances supply of and demand for agricultural
and food products.
Agricultural production in developing countries is
usually seasonal whilst demand is generally
continuous throughout the year.
Hence the need for storage to allow a smooth, and
as far as possible, uninterrupted flow of product
into the market.
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Transportation:
Making the product available where it is needed,
without adding unreasonably to the overall cost of
the produce.
Adequate performance of this function requires
consideration of alternative routes and types of
transportation, with a view to achieving timeliness,
maintaining produce quality and minimizing
shipping costs.
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Processing:
Most agricultural produce is not in a form suitable
for direct delivery to the consumer when it is first
harvested.
Rather it needs to be changed in some way before
it can be used. The form changing activity is one
that adds value to the product.
Changing green coffee beans into roasted beans,
cassava into ‘gari’ or livestock feed, full fruit
bunches into palm oil increases the value of the
product because the converted product has greater
utility to the buyer.
3. Facilitating functions
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Standardization:
concerned with the establishment and maintenance of
uniform measurements of produce quality and/or quantity.
This function simplifies buying and selling as well as
reducing marketing costs by enabling buyers to specify
precisely what they want and suppliers to communicate
what they are able and willing to supply with respect to
both quantity and quality of product.
In the absence of standard weights and measures trade
either becomes more expensive to conduct or impossible
altogether.
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Quality differences in agricultural products may be
due to production methods and/or because of the
quality of inputs used.
Technological innovation can also give rise to
quality differences.
In addition, a buyer’s assessment of a product’s
quality is often an expression of personal
preference.
Thus, for example, in some markets a small banana
is judged to be in some sense ‘better’ than a large
banana; white sugar is considered ‘superior’ to
yellow sugar; long stemmed carnations are of
‘higher quality’ than short stemmed carnations; and
white maize is ‘easier to digest’ than yellow maize.
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Financing:
In almost any production system there are inevitable
lags between investing in the necessary raw
materials (e.g. machinery, seeds, fertilizers,
packaging, flavorings, stocks etc.) and receiving the
payment for the sale of produce.
During these lag periods some individual or
institution must finance the investment.
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Risk bearing:
In both the production and marketing of produce the
possibility of incurring losses is always present.
Physical risks include the destruction or deterioration of
the produce through fire, excessive heat or cold, pests,
floods, earthquakes etc.
Market risks are those of adverse changes in the value of
the produce between the processes of production and
consumption.
A change in consumer tastes can reduce the attractiveness
of the produce and is, therefore, also a risk. All of these
risks are borne by those organizations, companies and
individuals.
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Market intelligence:
It 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. The alternative is to find out
through sales, or the lack of them.
Marketing research helps establish what products are
right for the market, which channels of distribution are
most appropriate, how best to promote products and what
prices are acceptable to the market.
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As with other marketing functions, intelligence
gathering can be carried out by the seller or
another party such as a government agency, the
ministry of agriculture and food, or some other
specialist organization.
USES OF THE FUNCTIONAL APPROACH
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Analyzing the functions of various middlemen is
particularly helpful in evaluating marketing costs.
Retailing is usually much more costly than
wholesaling.
The functional approach, however, points to the
greater complexity of retailing.
The functional approach is also helpful in
understanding the difference in marketing costs of
various commodities.
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For example, a perishable product is often more
costly to market than one that is less perishable.
Much of this difference may be because of the
grater difficulty in the performance of the
transportation, storage and risk bearing functions.
There are three important characteristics of these
marketing functions.
First, the functions affect not only the cost of
marketing food but the value of food products to
consumers.
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Processing, transportation and storage provide form,
space and time utility for consumers.
The exchange and facilitating functions grease the
wheels of the marketing machinery and perhaps
provide services at costs lower than farmers and
consumers can perform them.
In evaluating marketing functions consideration must be
given to both the costs and benefits of the functions.
The value added by a marketing function may be
greater or less than the cost of performing that function.
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Second, although it is frequently possible to “
eliminate the middleman,” it is not possible to
eliminate marketing functions.
Usually, eliminating the middleman involves the
transfer of marketing functions and costs to
someone else.
For example: Farmers may assume the storage,
selling and transportation functions, eliminating
brokers and commission men.
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A neighborhood group of consumers can eliminate
the food retailer by purchasing in large lots from
wholesale food outlets but in doing so they will
assume
some
retailing
functions-storage,
standardization, and perhaps transportation.
And the group often will settle for fewer servicessuch as check cashing or price marking.
The cost of performing a marketing function, then
can be reduced, but the function cannot be
eliminated from the marketing process.
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The third characteristics of marketing functions is
that they can be performed by anyone anywhere in
the food system.
Conceivably, all the functions could be performed
by a single firm that had complete control of food,
from farm to fork.
On the other hand, there are specialized firms and
industries- such as railroads, grain brokers and
speculators- who perform only one marketing
function.
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Grain may be shipped direct from farm to storage in
the city, or it may be stored on farm and shipped to
market later in the season.
There are some traditional combinations, placements,
and timing of food marketing functions.
Food processors usually combine the storage,
processing, and transportation functions; and many
farmers view on farm storage as an integral part of
farming.
But in general, a variety of firm combinations and
timing of food marketing functions is observed.
The functions may be indispensible, but they are quite
flexible because they can be performed in various
places within the food industry.
THE INSTITUTIONAL APPROACH
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Where the functional approach attempts to answer
the “what” in the question of “who does what” the
institutional approach
to marketing problems
focuses attention on the “who”.
The institutional approach considers the nature and
character of the various middlemen and related
agencies and also the arrangement and
organization of the marketing activities.
Marketing Middlemen
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Middlemen are those individuals or business concerns
who specialize in performing in various marketing
functions involved in the purchase and sale of goods as
they are moved from producer to consumer.
Food marketing middlemen can be classified as follows:
Merchant middlemen
Retailers
Wholesalers
Agent middlemen
Brokers
Commission men
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Speculative middlemen
Processors and manufacturers
Facilitative organizations
Merchant middlemen:
Merchant middlemen take title to, and therefore
own, the products they handle. They buy and sell for
their own gain.
Retailers
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Retailers purchase and merchandise food products
for final consumers. Their task is to provide a wide
variety of products at a single location , making it
convenient for consumers to assemble a desired
market-basket of goods.
Food retailers may include supermarket:
restaurants: convenience food stores: specialty meat
and fruit and vegetable stores, dairies, or bakeries.
They are the most numerous of the marketing
institutions.
Wholesalers
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Food wholesalers sell to retailers, other wholesalers
and industrial users but do not sell in significant
amounts to final consumers.
Wholesalers make up a highly heterogeneous group
of firms with varying sizes and characteristics.
One group of wholesaler is the local buyers or
country assemblers who buy goods in the producing
area directly from farmers and ship the products to
the larger cities where they are sold to other
wholesalers and processors.
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Another group of wholesalers is located in the
large urban centers. These may be “full-line”
wholesalers who handle many different products or
those who specialize in handling a limited number
of products
They may be cash and carry wholesalers or service
wholesalers who will extend credit and offer
delivery and other services.
Such terms as a jobbers and car-lot receivers are
often used synonymously with wholesalers.
Agent middlemen
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Agent middlemen, as the name implies, act only as
representatives of their clients. They do not take
title to, and therefore do not own, the products they
handle.
Brokers:
Brokers do not have physical control or ownership of
the product. They follow the directions of buyers
and sellers and have less influence in price
negotiations than commission men.
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Commission men are usually granted broad
powers by those who consign goods to them.
They normally take over the physical handling of
the product, arrange for the terms of scale, collect,
deduct their fee and remit the balance to the seller.
Speculative middlemen
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Speculative middlemen are those who buy and sell
products with the major purpose of profiting from
price movements.
All merchant middlemen, of course speculate in the
sense that they must face uncertain conditions.
They seek out and specialize in taking various risks
and usually do a minimum of handling and
merchandising.
Processors and manufacturers
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Processors and manufacturers are among the best
known food marketing firms.
They specializing adding time , form, place, and
possession utility to raw farm products.
For example: They convert wheat into flour and
bread.
Facilitative organizations
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Facilitative organizations aid the various middlemen in
performing their tasks.
Such organizations do not as a general rule, directly
participate in the marketing process either as
merchants, agents, processors, or speculators.
They may furnish the physical facilities for the handling
of food products or for the bringing of buyers and
sellers together.
They establish the “rules of the game” that must be
followed by the trading middlemen.
Uses of the Institutional Approach
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The institutional approach can help us understand
why there are specialized middlemen in the food
industry.
It is possible to imagine a food system without
middlemen.
Farmers can and at times do, perform such
middlemen activities as storage, transportation,
selling, and even processing.
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Consumers can assume food middlemen functions,
such as processing, transportation, and storage.
Farmers markets eliminate the food middlemen by
transferring marketing functions to farmers and
consumers.
Why, then are there so many food middlemen if
there are no practical reasons why farmers and
consumers could not replace them?
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The answer is that these specialized firms often can
perform the food marketing functions more
efficiently than either farmers or consumers.
There are three reasons for the presence of
specialized middlemen in the food system.
First, the rise of middlemen specializing in such
activities as storage, transportation, processing, and
retailing is an example of division of labor and
specialization.
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Middlemen free farmers to specialize in agricultural
production and free consumers for other activities.
Normally, there are gains from some specialization
and division of labor is a common characteristics of
industrial societies.
Second, these gains from specialization mean that
many of the food marketing functions are marked
by economies of scale. That is, the average cost of
performing the marketing functions falls as the
volume of products handled rises.
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Finally, middlemen can reduce market search and
transactions costs.
Markets are not costless. There are expenses
associated with finding buyers and sellers and
negotiating exchanges between them.
By specializing in these functions, food middlemen
relieve farmers and consumers of the considerable
costs they would otherwise incur for search and
transactions activity.
The Behavioral Systems Approach
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The marketing process is continually changing in its
organization
and
functional
combinations.
Understanding and predicating change is a major
task.
Either a particular marketing firm or an
organization of firms, such as the marketing
channel, can be viewed as a system of behavior.
Each is composed of people who are making
decisions in an attempt to solve particular problems.
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In either the firm or the organization of firms, four
major types of problems, with their associated
behavioral systems, can be indentified.
(1) Input output system:
Each marketing firms or organization of firms is
attempting to produce an output of something.
This is true whether it is a meat processor, a
commission man, or a marketing channel consisting
of many firms.
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Each is using as an input, resources that are costly
and scarce.
Each hopes to find a satisfactory solution as to how
to combine these input resources to secure a
profitable output.
Here we find the motives to develop and adopt
new technology, new products, and different
organizations that may be cost reducing or output
enhancing.
(2)Power system
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All firms and groups of firms have status and a
vested interest in the present role they are playing.
They may have developed a reputation for quality,
being market leaders, having a community conscience
or being the fastest growing.
No decisions will be made that might deteriorate
their particular niche of power, and means will
activity be sought to enhance it.
Economic theories of monopoly and imperfect
competition behavior, as well as the political scientists
concern with power behavior, give insights into this
system of behavior.
(3)Communications systems
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How to establish effective channels of information and
direction is a major problem of large firms and
complex organizations.
Desirable actions may be frustrated by not receiving
the right information or by the misinterpretation of the
messages of action.
It is in this area that the concern of psychology,
sociology, and business management over the proper
ways to organize and direct subordinate workers and
units becomes of particular relevance.
(4)Adapting systems
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Finally, if change is the essential characteristics of
marketing, then one of the major problems of
marketing firms and organizations is how to adapt
to these changes.
The behavioral system for adapting to internal and
external change is then a major component of the
firm or organization.
Uses of Behavioral Systems Approach
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The behavioral systems approach is useful to an
understanding of a major change that is currently
underway in the food system.
Many observers have noted that the food
production and marketing system are more and
more resembling the nonfood, factory sectors of the
economy.
This is often termed the industrialization of the food
sector
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Changes in consumers demand for foods and new
agricultural and food science technology, it is
suggested, are forcing closer linkages between
formerly independent food producers, processors, and
consumers.
Contracts and other forms of marker communication
are coordinating producer and processor input/output
decisions.
The process is increasing the market power of farm
product buyers and encouraging larger farms.
In these ways, food firms continually attempt to adjust
their behavior to market forces at the same time that
they attempt to influence these forces.