ALL POWER IN BUSINESS ORGANISATION ARE IN THE HAND OF CONSUMERS. ELUCIDATE

ALL POWER IN BUSINESS ORGANISATION ARE IN THE HAND OF CONSUMERS. ELUCIDATE

All marketing systems have evolved within the constraints and conditions placed upon them by the production sector and by the nature of the goods being marketed. The type of product, the number, size and density of producers, the infrastructure and the policy and institutional environments all determine the type of marketing system and the effectiveness with which it operates.

Marketing includes all business activities involved in the flow of goods and services from producers to consumers. Some important prerequisites to market development are: proper linkages between rural areas and urban centres of consumption. A conducive policy institutional environment for marketers to operate effectively and for markets to expand beyond the basic need levels of consumers and producers.  A dynamic relationship between supply and demand.  The marketing system and its structure influence the determination of a commodity's market price. The Six main elements of price theory used to explain market prices are: - Perfect competition - Imperfect competition - Horizontal and vertical integrations of markets - Separation of markets -Product differentiation - Seasonal and cyclic variations.

A marketing system is comprised of a number of elements: the particular products (e.g. butter only, or butter and raw milk) and their characteristics being transferred from producer to consumer; the characteristics of participants (e.g. the producer, the trader, the consumer); the functions or roles that each participant performs in the market; and the locations, stages, timetable and physical infrastructures involved.

When we talk of describing, quantifying or analysing a particular marketing system, there is an implicit assumption that we can distinguish the elements of that system from other economic activities. Analyses of marketing systems usually include a quantification of the flows and of the value added, costs and profit margins at each stage in the system.

MARKETING FUNCTIONS

Marketing is sometimes thought of as simply the process of buying and selling. Its tasks are much more extensive than this simple description. For a marketing system to be operative and effective, there are three general types of functions which it must provide.

    • Exchange functions:

        - Buying

        - Selling

        - Pricing.

    • PHYSICAL FUNCTIONS:

        - Assembling

        - Transport and handling

        - Storage

        - Processing and Packaging

        - Grading and Standardisation.

    • FACILITATING FUNCTIONS:

        - Financing and Risk-bearing

        - Market information

        - Demand and Supply creation

        - Market research.

Exchange functions are what is commonly thought of as marketing. They involve finding a buyer or a seller, negotiating price and transferring ownership (but not necessarily physical transfer). These functions take place at the "market" - that is, the physical meeting point for buyers and sellers at the point of production or via some other means of communication. At this point, formal or informal property rights are important to ensure the reliable transfer of ownership and to guarantee legality (e.g. that animals on sale were not stolen and will not be reclaimed).

Physical functions enable the actual flow of commodities through space and time from producer to consumer and their transformation to a form desirable to the consumer. Assemblying or concentrating the product at convenient points allows its economical transport (i.e. getting enough animals together to transport cheaply). This is a valuable function which is often overlooked in the public perception of traders. Storage allows the commodity to be held until peak season demand, thereby stabilising supply. Processing transforms the commodity into the products desired by the consumers. Grading and standardisation allow the consumer to be more confident of the characteristics of the good being purchased.

Financing and risk-bearing are two important facilitating functions. The owner of goods at any marketing stage must sacrifice the opportunity to use the working capital needed to buy those goods elsewhere. Or the owner must borrow that capital. In either case, capital must be provided by the trader or by some lending source. Regardless, cost is involved. Further, there is an implicit cost in the risk of losing all or part of that capital through theft, spoilage, mortality or changing market conditions. Without the willingness to provide the capital and to bear these costs, no stage of the market chain could function. Other facilitating functions enable producers to respond to consumer needs and thus provide goods in the locations, quantity and form desired.

These functions create the marketing environment, whose elements are:

    · Market and facilities - including all of the physical infrastructure that a market may depend on.

    · Market information and intelligence - including informal and formal communication systems, and standard weights and grades on which market information depends.

    · Institutional environment - including the government policy environment, regulations and supporting legislation

MARKETING AGENTS

Market actors are defined the roles they play, by the nature of their financing activities and their responsibility to ownership (whether to a centralised public office, to a private purchaser of the marketing: service or self-responsibility as in the case of independent private enterprises). Actors in the market can choose between specialising in one activity or integrating a number of activities into one enterprise in a vertical or horizontal manner. A specialised enterprise can offer its customers more individual attention and provide the exact quality and form of goods desired (e.g. local butcher). Thus, the roles of actors are often difficult to separate. The roles of vertically-integrated actors are likely to overlap with those of more specialised agents in the market. Figure 5.3 illustrates how the roles of market agents can vary.

MARKETING ENTERPRISES AND CHANNELS

Enterprises of four types normally fulfill the roles of middlemen described above. These are:

    · independent, locally-based private enterprises

    · co-operatives

    · marketing boards and other state enterprises

    · transnational companies.

Independent, locally-based private enterprises operate with capital owned directly by the operators and their partners, or in some cases by shareholders. Although not always large in scale of operation, these make up the greatest number of agriculture and livestock enterprises. Great variety exists in their level and degree of sophistication. Sometimes foreign-owned operations may' occupy important roles in this niche, particularly in foreign trade of livestock products.

Co-operatives have the potential to improve marketing efficiency. They can reduce marketing costs. For example, a village livestock marketing co-operative could co-ordinate the production schedules of small farmers, so that sufficient animals would reach market age at the same time, allowing truck transport to markets and lowering per unit transport costs. Co-operatives can also be used to counteract imperfect competition (monopsony/oligopoly power) among buyers, by creating greater bargaining power among producers. Typically they are used to distribute credit or subsidised inputs. In Africa they have been more successful when they have confined themselves at first to one' simple function which is important to all members, attempting only later to expand their role. In order to be successful in the long run, a co-operative must be able to carry out marketing functions with lower cost or effort than available alternatives. If this ability is not perceived by members, co-operatives are likely to break down. Since the ownership of co-operatives, by definition, lies in the hands of those who use its services (and who are thus entitled to any profits), a distinction must be made between farmer-owned and -controlled co-operatives and parastatals. Parastatals are co-operatives in name only, since they are government controlled. They may serve as taxation mechanisms or to promote government support. Private co-operatives are likely to be more efficient than parastatals, because of ownership incentives. Some co-operatives are difficult to classify, such as the Kenya Co-operatives Creamery (KCC). Although nominally a private cooperative, the KCC acts as a parastatal because of government-sanctioned monopoly and regulatory powers.

Marketing boards and other state enterprises, although popular with many African governments, have been much criticised. They are set up by government direction with government capital. Major operating decisions are subject to approval by the responsible minister. Parastatals are slightly more independent. Although government financed, they are autonomous in terms of handling funds, recruiting staff and making operational decisions.

The objectives of establishing such public intermediaries are: to raise the bargaining power of agricultural producers via an imposed monopoly on sales; 'to set up needed market and processing facilities; to raise the scale of operation and thus to capture economies of scale; and to stabilise market supply and prices. They often fail to achieve these objectives because of inappropriate policies, poor management and lack of knowledge. Attempts to replace private markets usually fail because the detailed information necessary to operate may be too dispersed to gather. Managers succumb to patronage and corruption, and incentives for efficient operation are usually lacking. The Kenya Meat Commission (KMC) was, until recently, a parastatal set up to buy and process cattle and to market the products. Although potential economies of scale existed, these were not achieved because capacity was under-utilised and per unit costs were higher. Slaughterhouses built to handle peak seasonal supply are usually under-utilised during other seasons. Parastatals with a mandate to buy at fixed prices from all producers also suffer from high costs of cattle purchases in pastoral areas, where such sales are widely dispersed.

Transnational companies often succeed because of their access to processing technology and external markets. By definition, they operate in countries other than that of their headquarters. They can assist market development by facilitating the movement of skills and capital to areas where they are in short supply, potentially contributing to the levelling of commercial expertise.

When considering the relative advantages of each of these enterprises, attention must be given to the particular environment of livestock marketing in Africa. Its marketing structures are more complicated and differentiated than those in a developed country where production is much more specialised. Further, issues of equity and income distribution between producers are more acute and must be considered in the policy decision to promote certain types of enterprise.

All of the goods in a particular market are unlikely to pass through the same set of agents. Usually goods pass through a variety of market channels as a result of varying degrees of vertical integration existing in the same market. Figure 5.4 illustrates a marketing system showing multiple marketing channels. At times, some intermediaries are bypassed, while in others, goods pass through a large number of hands. Mote that at any one level of the market, such as at level A, the sum of the percentage flows in the diagram is always 100. This type of diagram can be helpful in basic planning for new investment in marketing, by identifying both the channels where volume is highest and other channels which could be further developed.