Marketing costs.pptx

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1. Marketing costs

2. Contents Marketing cost - Cost of marketing functions Marketing Margins - Margins of intermediaries Difference b/w price paid and received Concurrent margin: Diff. b/w prices prevailing at successive stages of marketing at a given point of time/date Lagged margins: Diff. b/w price received by a seller at a particular stage of marketing and price paid by him at preceding stage during an earlier period. Accounts time elapsed b/w purchase and sale – by a party and b/w farmer and consumer

3. Price spread – difference b/w price paid consumer and price received by the farmer Producers' share in the consumer's rupee

4. Marketing costs Total Cost of Marketing: The total cost, incurred on marketing either in cash or in kind by the producer seller/ various intermediaries involved in the sale and purchase of the commodity till the commodity reaches the ultimate consumer C = CF + Cm1+ Cm2 + Cm3 + …. + Cmi C = Total cost of marketing of the commodity CF = Cost paid by the producer -for marketing functions Cmi = Cost incurred by the ith middleman

5. Methods of estimation of marketing costs Three methods are generally used in the computation of marketing margins and costs 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 Difficult to chase movement Most of the lots lose their identity during the process of marketing There is no assurance that the lot selected is representative of the whole product

6. ii) Sum of Average Gross Margins 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

7. iii) Comparison of Prices at Successive Levels of Marketing Under this method, prices at successive stages of marketing at the producer's, wholesaler's and retailer's levels – are compared. The difference is taken as the gross margin The margin of an intermediary is worked out by deducting the ascertainable costs from the gross margin earned by that intermediary

8. Difficulties Representative and comparable series of prices for the same quality of successive stages of marketing are not readily available for all the products Adjustment for a loss in the quality of the product at various stages of marketing due to wastage and spoilage in processing and handling is difficult The price quotation may not cover the price of a product of a comparable quality The time lag between the performance of various marketing operations is not properly accounted for

9. Producer’s price Net price received by farmer at the time of first sale P F = P A -C F P F - Producer’s price P A - Wholesale price in the primary assembling market C F - Marketing cost incurred by the farmer

10. Producer’s share in Consumer’s Rupee It is the price received by the farmer expressed as percentage of the retail price (price paid by consumer) P S = (P F ÷ P r )x 100 P S - Producer’s share in consumer’s rupee P r - Retail price P F - Producer’s price

11. Relationships of FP, MC and RP FS = (RP - MC)x 100 FS=Farmer’s share (%) RP RP = Retail price OR MC = Marketing costs FS = (PF/RP)x100 including margin PF = Price received by the farmer

12. The factors which affect marketing costs 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 adoption of grading Necessity of demand creation/ Advertisement

13. Contd. Bulkiness of the Product Need for retailing Necessity of storage Extent of risk Facilities extended by the dealers to the consumers:

14. Agriculture products Vs other products Generally, the cost of marketing of agricultural commodities is higher than that of manufactured products Widely dispersed farms and small output per farm Bulkiness of agricultural products Difficulty in grading Irregular supply Need for storage and processing Large number of middlemen Risk involved