3.0 Market Analysis, Marketing Channels, Marketing Costs and Margins Market Intermediaries

AM GRICULTURAL
ARKETING
KING JEHU II QUIRINO RADAZA
Department of Agribusiness Management
College of Agriculture
CENTRAL MINDANAO
MARKETING CHANNELS
Marketing channels are alternative routes by which products
flow from the producers to the consumers. These are made up
of interdependent agencies and institutions involved in the
task of moving products from points of production to points
of consumption.
Marketing channels vary with respect to the type of

commodity handled, time and location.
Marketing channels may have either or greater or smaller number of

members involved depending on the performance of various marketing
functions given in terms of service outputs.
A product often passes through a number of intermediaries before reaching

the consumers.
TYPES OF INTERMEDIARIES
A. Contract buyers- most prevalent for fruits and vegetables

channels. An agreed price is set and a contract is made
between the producer and buyer before the product is
harvested. The contract buyer takes care of the plants until
harvest. All expenses are borne by the buyers including pre-
harvest and post –harvest and risk.
B. Wholesalers- merchant middlemen who sell to retailers and other merchants

in significant amounts but not to ultimate consumers. Products are usually sold
in large quantities or on wholesale basis.
C. Commission agents – middlemen who buy products in localized areas from

the producers and other middlemen. They buy products for other middlemen
such as assembler-wholesaler and in return be given commissions as payment for
their services.
D. Wholesaler-retailers – middlemen who get the
produce in large quantities either from wholesalers or
contract buyers. They sell mainly to retailers on
wholesale basis but they also retail the rest.
E. Assembler-wholesalers – they buy from producers and contract

buyers, assemble the products in large volume and transport them to
market centers. They sell products in wholesale basis.
F. Retailers- these are product handlers who serve as the last link in the
marketing channel. They are selling directly to consumers on retail basis
and conducted almost every day.
ANALYSIS
OF AGRICULTURAL PRODUCTS
Market analysis is the process of looking into,
examining and evaluating the external environment of the
firm or farm with view of identifying opportunities and
threats. The components of market analysis in agricultural
products are: 1) market structures 2) demand and supply,
price analysis 3) methods of forecasting and 4) market
segmentation and target marketing.
1. Market structure refers to how a market is organized with
particular emphasis on the characteristics that determine the
relationships among the various sellers in the market, among the
various buyers and between the various buyers and sellers in a
market. In other words, market structure deals with the
organization of the market as it influences the nature of
competition and pricing
Types Characteristics How Price is determined

1. Perfect Many buyers and sellers; By interaction of demand and
Competition no single market supply curve
participant affecting price
2. Monopoly One seller, many buyers By seller, facing market demand

3. Monopsony One buyer, many sellers By buyer, facing market supply

4. Oligopoly Few sellers dominate In complex manner
market
5. Oligopsony Few buyers Influenced by price/wage
quoted by competing firms

2. Demand and Supply
3. Methods of Forecasting
a. Needs Assessment
b. Expert’s Opinion
c. Time Series Analysis
1. Arithmetic Straight Line Approach
2. Geometric Approach
3. Trend using Least-square method
4. Market Segmentation and Target Marketing
Another component of market analysis is the selection of a target market. Before
pinpointing a target market , the total market must be segmented first. Market
segmentation is the process of subdividing the total heterogeneous market into
several groups which are more or less homogeneous. This method is used to
identify potential consumers because an appropriate marketing strategy cannot be
determined until the market has been identified.
Major Segmentation Variables
1. Geographic region by political regions I-XII

2. Density -urban, rural, sub-urban
3. Demographic- age, sex, household size, family life (young and
single, young married), monthly income, occupation, education,
religion
4. Psychographic – social class(Class A, B, C,D) lifestyle (
conservative, modern)
5. Behavioral – occasion (regular)
6. User status - non-user, ex-user, potential user, first time user.
Usage rate (light user, medium user, heavy user)
MARKETING
MARGINS
Marketing margin refers to the difference between
prices at different levels of the marketing system.
It can also be defined as the difference between

what the consumer pays and what producer
receives for his products.
The value of the marketing margin may be

subdivided into different components.
One way of subdividing this margin is in terms of its returns to the factors of
production used in providing the processing and marketing services rendered
between the farmers and consumers. These include wages as return to labor, interest
as a return to borrowed capital, rent as a return to land and building and profit as a
return to entrepreneurship and risk capital. All these things are referred to as
marketing costs.
Another way of subdividing marketing margin is
according to various agencies and institutions
involved in marketing of products like return to
retailers for their services, to wholesalers for their
activities, to processors for their manufacturing
activities and to assemblers for the work they
perform. This subdivision is referred to as
marketing charges.
In marketing studies, these components are presented as marketing costs

and returns. Net return is derived by deducting marketing costs from
marketing margin. The net return is used to reflect the payment for the
risks, management and capital employed in moving the product from one
market level to another.
EXPENSIVE PRICE
The wide margin is largely due to the provision of marketing
services demanded by consumers. These services require
additional labor, management and capital that lead to
accumulated costs thus brought to a large margin. On the other
hand, the wide margin may be due to excessive marketing cost.
This weak position of many producers when bargaining with wholesale buyers
because of indebtedness to them, lack of capital, inadequate knowledge of
prices and market condition and the lack of competition between buyers at
the farm level often allow the wholesalers to obtain higher than necessary
profits at the expense of the farmers.
The wholesalers and retailers may incur high cost because of inadequate
transport, storage and handling facilities and methods which cause heavy
losses of produce, deterioration in quality and enhanced market risks.
Another source of excessive costs is the lack of price and
quality information among consumers, the absence of
effective competition at the retail level and the lack of
consumer organization and public measures to protect their
interests.
TYPES OF MARGIN
A. Absolute constant margin – expressed in terms of pesos
and are constant overall quantity ranges. Regardless of the
volume marketed the absolute peso difference between prices
at various levels remains constant.
B. Percentage margin – the absolute difference in price i.e. the absolute

margin divided by the selling price. If a retailer purchased a kilo of
eggplant at P12/kilo and sold it for P15/kilo, the absolute margin would
be P3/kilo and the percentage margin would be 20%.
Percentage margin = Absoluite margin x 100

Selling Price
where absolute margin = Selling price – buying price

C. Combination of fixed constant and percentage margin –
middlemen set a fixed margin, say P0.50/kilo of eggplant in
addition to the percentage margin he could obtain.

Percentage mark-up is different from percentage margin. It is
computed as the absolute margin divided by the buying price.
In our example above, the absolute margin is P3/kilo therefore,
the percentage mark-up would be 25% which is higher than the
percentage margin.
BREAKDOWN OF CONSUMER’S PESO
The breakdown of consumer’s peso is a phrase popularly applied to a
series of figures representing the absolute margins of different types
of middlemen or assignable to different marketing functions, divided
by the retail price. Mathematically, this can be expressed as:
Absolute margin at any two levels = AM

Final retail price or consumer’s price PM
Where: Final retail price = Farm price + marketing margin of all

middlemen
Farmer’s share = (Farm Price) / Final retail price

Middleman ‘s share = (Middleman’s margin)/ Final
retail
Wholesaler’s share = (Wholesaler’s margin)/Final retail
price
Retailer’s share = (Retailer’s margin)/ Final retail price
Example:
Given: Farm price of mango = P30/kilo
Wholesaler price = P38/kilo
Wholesaler-retailer price = P45/kilo
Final Retailer price = P60/kilo
To compute for:
Farmer’s share = 30/60 x 100 = 50%
Wholesaler’ share = (38-30)/60
= 8/60 x 100 = 13.33%
Wholesaler-retailer’s share
= (45-38)/60
= 7/60 x100 = 11.67%
Retailer’s share = (60-45)/60
= 15/60 x 100 = 25%
Middlemen’s share = 100 –farmer’s share
= 100-50 = 50%
or 13.33 + 11.67 + 25 = 50%
Farm price = P12/kg,
Retail price = P18/kg,
Marketing Cost = P0.65/kg
Farmer’s share =12/18 = 0.67 or 67%
Net profit as a percentage of marketing margin.
From the expression marketing margin = marketing cost + net

profit, the net profit can be computed as
Net profit = marketing margin – marketing cost

= (18-12) – P0.65= P5.35/kg
Net profit as a percentage of margin

= 5.35/6 =0.89 or 89%
Marketing cost as a percentage of marketing margin =

P0.65/6 = 0.108 0r 11%
THE 4 P’S OF MARKETING
A marketing mix strategy consists of four parts: product,
price, place or distribution and promotion. These strategies
are referred to as the 4 P’s of marketing.
A. Product Strategy
A product is defined as anything offered for sale, attention and

acquisition.
Agribusiness products are classified into three groups: raw or fresh agricultural
products, semi-processed and processed products.
Raw products are newly harvested products from the farms which are devoid of
transformation. They are either consumed directly or used as raw materials by
agro-industries. Semi-processed products had underwent primary processing and
are not usually intended for human consumption but further processing. Processed
products are finished products which underwent several levels of transformation.
Product mix – refers to the number of products a firm is
handling. The firm’s product mix may be described as
1)wide – if there are a lot of product lines 2) deep -if
there are several products within each line and 3)
consistent- if the products being produced are related.
Branding – is a letter, word or symbol used to identify

products. A brand has three parts: the name, mark and
trademark.
In agriculture, branding is not commonly observed because they

are highly perishable, have short exposure in the market, considers
added cost to the farmers without any added return and the lack of
differentiation among farm products. Their only basis of
differentiating and choosing one product over the other is the
degree of freshness.
A label is a part of a package which carries information
about the product, It shows the brand, manufacturer, expiry
date and other information about the product. The types of
label are brand label, grade label and description label
which is the most common type of label.
B. Pricing strategy
Business whether small or large have the important task of pricing the
products. It is considered as the most important function since it is the only
function which lets money flow back to the business. The other components
of the marketing mix such as product, place or distribution and promotional
strategies all contribute to the cost pricing t of operating the business.
Steps in Price Setting

1. Set pricing objective 4. Analyze competitor’s prices
2. Determine demand 5. Evaluate pricing models
3. Determine cost 6. Select the price
PRICE BEHAVIOUR OVER TIME
A. SEASONAL PRICE VARIATIONS

B. ANNUAL PRICE VARIATION
C. TREND
D. CYCLICAL PRICE VARIATIONS
E. RANDOM OR IRREGULAR PRICE MOVEMENTS
Price are generally determined by supply and demand relationships. The
Fluctuation in prices occur primarily for three reasons:
A. SEASONAL PRICE VARIATIONS

PRICING STRATEGIES
A. Competitive pricing- set prices to be near or equal to those in other
stores for products bought at regular or irregular basis. This is the most
common pricing method used in agricultural products.
B. Psychological pricing – the use of odd centavo pricing such as

P4.91, P4.95, P4.97 or P4.99 instead of P5.00. These prices are
understood by the customer to denote minimum price more than mere
quality available in the market price.
C. Unit pricing – setting prices to gain volume is through pricing items in units
of two or more. This quoting a product as 2 for P8.99 results to large
purchases.
D. Price lining – offering two or more classes of the same product at different
prices. By separating same products into two or more groups and placing a high
price on the better lots even though the cost is the same , profits can be
increased.
E. Special prices – pricing on items to be offered on special occasions
C. Distribution or Place Strategy
Distribution means making the right products available at the

right place and at the right time. It is a very important
component of the marketing mix because it links the firm to
the market.
There are three decisions to be made in order to effectively

manage distribute systems:
1) A seller has to choose between direct and indirect
marketing.
2) If he choose indirect marketing, he has to determine the

number of channels to be passed by his products
3) He has to decide on the channel management system.

D. Promotion Strategy
The entrepreneur’s job does not end in deciding where and how
the company will distribute the products. Another consideration is
to disseminate that information that such products exists and to
keep buyers well-informed about the product merits and
developments.
Promotion is the personal and /or impersonal process of assisting a prospective

customer to buy a product or act favorably upon an idea that has commercial
significance to the seller.
Promotional Methods:
Advertising – any paid form of non-personal presentation of the
product
Personal selling – oral presentation of the product
Sales promotion – are price off, bonuses, lotteries and premiums
Publicity – non-personal form of promotion which aims to attract buyers
by publishing commercially significant news about the product in
different media
Marketing Plan
A marketing plan is a means that allows the farmer to study the
needs and preferences of the consumers in advance before
production is carried on. It consists of the courses of action that
the farm manager should do to insure that the products that will
be produced will be sold at a price commensurate with his
efforts and costs of production.
Purpose of the marketing plan
Basically, the marketing plan will address what products to grow with good market
potential? when to sell (markets), to whom to sell (potential buyers) and to define
the strategy how to reach that market. –means of transport, packaging materials,
schedule of delivery, prices expected, terms of payment, etc.

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AM GRICULTURAL

Marketing channels vary with respect to the type of

Marketing channels may have either or greater or smaller number of

A product often passes through a number of intermediaries before reaching

A. Contract buyers- most prevalent for fruits and vegetables

B. Wholesalers- merchant middlemen who sell to retailers and other merchants

C. Commission agents – middlemen who buy products in localized areas from

E. Assembler-wholesalers – they buy from producers and contract

Types Characteristics How Price is determined

quoted by competing firms

1. Geographic region by political regions I-XII

It can also be defined as the difference between

The value of the marketing margin may be

In marketing studies, these components are presented as marketing costs

B. Percentage margin – the absolute difference in price i.e. the absolute

Percentage margin = Absoluite margin x 100

where absolute margin = Selling price – buying price

Absolute margin at any two levels = AM

Where: Final retail price = Farm price + marketing margin of all

Farmer’s share = (Farm Price) / Final retail price

Net profit as a percentage of marketing margin.

From the expression marketing margin = marketing cost + net

Net profit = marketing margin – marketing cost

Net profit as a percentage of margin

Marketing cost as a percentage of marketing margin =

A product is defined as anything offered for sale, attention and

Branding – is a letter, word or symbol used to identify

In agriculture, branding is not commonly observed because they

Steps in Price Setting

A. SEASONAL PRICE VARIATIONS

A. SEASONAL PRICE VARIATIONS

B. Psychological pricing – the use of odd centavo pricing such as

Distribution means making the right products available at the

There are three decisions to be made in order to effectively

2) If he choose indirect marketing, he has to determine the

3) He has to decide on the channel management system.

Promotion is the personal and /or impersonal process of assisting a prospective

Purpose of the marketing plan

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