CHAPTER 2

APPROACHES TO THE STUDY OF

MARKETING
 2. APPROACHES TO THE STUDY OF AGRICULTURAL
MARKETING

• There are several ways of approach to study the marketing

problem.
 i.e., to understand the existence of & find solutions to various
marketing problems.
• The 3 important approaches
1. Functional Approach
2. The institutional approach
3. The commodity (product) approach
 Part I

2.1. Functional Approach

 2.1. Functional Approach

 is involved in the investigation of activities performed in the

market channel.
 The most important functions in the marketing channel include:

1) Exchange Functions
2) Physical Functions
3) Facilitating functions
 2.1. Functional Approach-Cont’d

1. Exchange Function
Þ refers to the buying and selling activities performed along the
chain.
 The buying activities includes
 identifying of the supply source and
 assembling of the required product from the source
 Selling involves:
 Pricing;
 Packing;
 Labeling;
 Advertising; and
 promotion activities
 2.1. Functional Approach-Cont’d

2. Physical Function
Þ is involved in the creation of form, time and place utility.
Þ it includes the
 processing,
 storage and
 transportation activities.
Þ Processing is a process of value addition by changing the
form of one product into a more quality and suitable form that
can fetch a better price.
 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) 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
 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.
 Facilitating functions
• Standardization also eliminates or culls
 sub-standard and unusable (unmarketable) size & qualities in
the market lots and
 hence contributes for the reduction of transportation costs.

• Standardization also helps to broaden the market

 since there can be different category of products in different
standards which can be affordable 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.
 Part II

2.2. The Institutional Approach

 2.2. The Institutional Approach

The institutional Approach to study marketing:

 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 performed?
 institutional Approach deals with who does what?
 2.2. The Institutional Approach-Cont’d

 The institutional approach pays special attention to:

1. The nature & characteristics of the various kinds of
marketing organization and related agencies,
2. The form of organization like
 Individual proprietors or sole proprietors,
 Partnership,
 Cooperatives and Non-cooperatives
3. There sizes of the institutions-varying widely such as small,
medium, large.
4. Special fields or their major functions:
 Merchant, Agents, Speculators, Processors
 2.2. The Institutional Approach-Cont’d

5. Manner of operation of each type:

 Efficiency and Cost of operation
6. The problems of the institutions:
 Scales (economies of scales),
 Efficiency,
 Administration problem,
 Manpower and
 Labor management
 The institutional approach in general gives special emphasis
on human element (people) like marketing middlemen
 2.2. The Institutional Approach-Cont’d

 Middlemen refers to
 those individuals or business concerns who specialize in
performing the various marketing functions involved.
 They may operate as
individual proprietors,
partnerships,
cooperatives, or cooperation.
 2.2. The Institutional Approach-Cont’d

 Classification of middlemen.

1. Merchant middlemen
 who take title to the goods they handle.
 e.g. wholesalers, retailers

2. Agent middlemen (e.g. commission agents, brokers):

 who only act as representatives of their clients (buyer /seller)
& do not take title to the product they handle.
3. Processors & manufactures:
 who largely create form utility in the product they receive.
 2.2. The Institutional Approach-Cont’d

4.Facilitating organs/ middlemen;

 middlemen who primarily aid various middlemen that directly
involved in the marketing process. e.g. include
 financial institutions,
 insurance organizations,
 trade organization,
 weigh men,
 transporters,
 warehouse owners, etc.
 2.2. The Institutional Approach-Cont’d

• The rational for existence of middlemen are:

– These middlemen often can perform the marketing
functions more efficiently than either farmers or
consumers;
– Their use provides the advantages of division of labor &
specialization;
– They enjoy economics of scale & hence lower the cost of
function performed;
– They have adequate amount of resources.
 2.2. The Institutional Approach-Cont’d
 Definition of Marketing middlemen; -
 Are those individuals, business organization or business 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.
 Classification of marketing middlemen.
1. Merchant middlemen
2. Agent
3. Speculative
4. Processors
5. Facilitative organizations
 2.2.1. Merchant middlemen;-

Merchant middlemen;-
 Are those marketing middlemen who take title and therefore
own 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.
 Eg. Wholesalers and retailers
 2.2.1. Merchant middlemen-Cont’d

 they are engaged to realize profit for their efforts.

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 & wholesaling 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.
• Eg. commission men and Brokers
 2.2.2. Agent Middlemen-Cont’d

• 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.
 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.
 2.2.2. Agent Middlemen-Cont’d
• There are two types of agent middlemen. These are

a) commission men and b) Brokers

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

 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 is a middlemen who 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 d/c b/n
 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
 Financial organizations
 Insurance organizations
 Part III

2.3. The commodity Approach

 2.3. The commodity Approach

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 pinpoint the specific marketing problems of each
commodity as well as improvement measures.
 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.