Marketing Channels: I. Types of Market Channels

Lecture 6
Marketing Channels
Farmers producing agricultural produce are scattered in remote villages while
consumers are in semi-urban and urban areas. This produce has to reach consumers for its
final use and consumption. There are different agencies and functionaries through which
this produce passes and reaches the consumer. A market channel or channel of distribution
is therefore defined as a path traced in the direct or indirect transfer of title of a product as
it moves from a producer to an ultimate consumer or industrial user. Thus, a channel of
distribution of a product is the route taken by the ownership of goods as they move from
the producer to the consumer or industrial user.
A marketing channel is a set of practices or activities necessary to transfer the ownership of
goods from the point of production to the point of consumption. It is the way products and services
get to the end-user, the consumer and is also known as a distribution channel. A marketing channel
is a useful tool for management, and is crucial to creating an effective and well-planned marketing
strategy.
Factors affecting channels: There are several channels of distribution depending upon type of
produce or commodity. Each commodity group has slightly different channel. The factors are
1. Perishable nature of produce .e.g. fruits, vegetables, flowers, milk, meat, etc.
2. Bulk and weight–cotton, fodders are bulky but light in weight.
3. Storage facilities.
4. Weak or strong marketing agency.
5. Distance between producer and consumer. Whether local market or distant market.
I. Types of Market Channels:
Some of the typical marketing channels for different product groups are given below:
A. Channels of rice:
1. Producer–miller->consumer (village sale)
2. Producer–miller->retailer–consumer (local sale)
3. Producer–wholesaler->miller–retailer–consumer
4. Producer–miller–cum-wholesaler-retailer-consumer
5. Producer–village merchant–miller–retailer–consumer
6. Producer–govt. procurement–miller–retailer–consumer
B. Channel of other foodgrains:
1. Producer – consumer (village sale)
2. Producer–village merchant–consumer (local sale)
3. Producer–wholesaler-cum-commission agent retailer–consumer
4. Producer–primary wholesaler–secondary wholesaler– retailer– Consumer
5. Producer–Primary wholesaler–miller–consumer (Bakers).
6. Producer->govt.procurement–retailer–consumer.
7. Producer–government–miller–retailer–consumer.
C. Channels of cotton:
1. Producer–village merchant–wholesaler or ginning factory– wholesaler in lint–textile mill (consumer)
2. Producer–Primary wholesaler–ginning factory–secondary wholesaler–consumer (Textile mill)
3. Producer– Trader– ginning factory– wholesaler in lint– consumer (Textile mill)
4. Producer–govt. agency–ginning factory–consumer (Textile mill).
5. Producer–Trader–ginning factory–wholesaler–retailer– consumer (non-textile use).
D. Channels of Vegetables:
1. Producers–consumer (village sale)
2. Producer–retailer–consumer (local sale)
3. Producer–Trader–commission agent–retailer–consumer.
4. Producer–commission agent–retailer–consumer
5. Producer–primary wholesaler–secondary wholesaler– retailer– consumer (distant market).
E. Channels of Fruits:
1. Producer–consumer (village sale)
2. Producer–Trader–consumer (local sale)
3. Producer–pre-harvest contractor–retailer–consumer
4. Producer–commission agent–retailer–consumer.
5. Producer–pre-harvest contractor–commission agent– retailer–consumer
6. Producer–commission agent–secondary wholesaler– retailer–consumer (distant market).
These channels have great influence on marketing costs such as transport, commission
charges, etc. and market margins received by the intermediaries such as trader, commission agent,
wholesaler and retailer. Finally this decides the price to be paid by the consumer and share of it
received by the farmer producer. That channel is considered as good or efficient which makes the
produce available to the consumer at the cheapest price also ensures the highest share to the
producer.
Marketing cost-Margins-price spreads
INTRODUCTION
Marketing is the process involves cost, and margin at different levels of marketing and
therefore, the price spread from producer to consumer. The understanding of these concepts is
necessary to choose the channels in marketing of agricultural product.
MARKET MARGINS
Margin refers to the difference between the price paid and received by a specific marketing
agency, such as a single retailer, or by any type of marketing agency such as retailers or assemblers
or by any combination of marketing agencies such as the marketing system as a whole.
Marketing margin of a Middleman: There alternative measures may be used.

Margin of a given middleman = Middleman’s sale price – (Middleman’s purchase price + Cost
incurred)
Eg: Wholesaler’s market margin = Wholesaler’s sale price – (Wholesaler’s purchase price + Cost
incurred)
Wholesaler’s sale price = Rs. 8911
Wholesaler’s purchase price = Rs. 5017
Cost incurred = Rs. 1884
Wholesaler’s market margin = Rs. 2010
Concepts of Marketing Margins:
o Complex because it is difficult to follow the path of the channel for a given quantity of the channel
for a given quantity of the commodity.
o It is still difficult to estimate in respect of commodities subjected to processing.
Two methods are identified:
1. Concurrent margin method:
This method stresses on the difference in price that prevails for a commodity at successive stages of
marketing at a given point of time.
2. Lagged Margin Method:
This method takes into account the time that elapses between buying and selling of a commodity by
the intermediaries and also between the farmer and the ultimate consumer. Lagged margin
indicates the difference of price received by an agency and the one paid by the same agency in
purchasing in equivalent quantity of commodity.
PRICE SPREAD
 The difference between the price paid by the consumer and price received by the farmer.
 It involves various costs incurred by various intermediaries and their margins.
 Marketing costs are the actual expenses required in bringing goods and services from the Producer
to the consumer.
MARKETING COSTS
The movement of products from the producers to the ultimate consumers involves costs, taxes, and
cess which is called marketing costs. These costs vary with the channels through which a particular
commodity passes through. Eg: - Cost of packing, transport, weighment, loading, unloading, losses
and spoilages.
 Marketing costs would normally include:
 Handling charges at local point
 Assembling charges
 Transport and storage costs
 Handling by wholesaler and retailer charges to customers
 Expenses on secondary service like financing, risk taking and market intelligence
 Profit margins taken out by different agencies.
 Producer’s share in consumer’s rupee :
PF
Ps = ---- x 100
Pr
Where,
Ps = Producer‟s share
PF = Price received by the farmer
Pr = Retail price paid by the consumer
Total cost of marketing of commodity, C = Cf + Cm1 + Cm2 + . . . + Cmn
Where, C= Total cost of marketing of the commodity
Cf = Cost paid by the producer from the time the produce leaves till he sells it
Cmi= Cost incurred by the ith middlemen in the process of buying and selling the
products.
OBJECTIVES OF STUDYING MARKETING COSTS
1. To ascertain which intermediaries are involved between producer and consumer.
2. To ascertain the total cost of marketing process of commodity.
3. To compare the price paid by the consumer with the price received by the producer.
4. To see whether there is any alternative to reduce the cost of marketing.
REASONS FOR HIGH MARKETING COSTS
1. High transportation costs
2. Consumption pattern – Bulk transport to deficit areas.
3. Lack of storage facilities.
4. Bulkiness of the produce.
5. Volume of the products handled.
6. Absence of facilities for grading.
7. Perishable nature of the produce.
8. Costly and inadequate finance.
9. Seasonal supply.
10. Unfair trade practices.
11. Business losses.
12. Production in anticipation of demand and high prices.
13. Cost of risk.
14. Sales service.
FACTORS AFFECTING MARKETING COSTS
1. Perish ability
2. Losses in storage and transportation
3. Volume of the product handled
Volume of the More – less cost
Volume of the Less – more cost
4. Regularity in supply : Costless irregular in supply – cost is more
5. Packaging : Costly (depends on the type of packing)
6. Extent of adoption of grading
7. Necessity of demand creation (advertisement)
8. Bulkiness
9. Need for retailing : (more retailing – more costly)
10. Necessity of storage
11. Extent of Risk
12. Facilities extended by dealers to consumers. (Return facility, home delivery, credit facility,
entertainment)
WAYS OF REDUCING MARKETING COSTS OF FARM PRODUCTS
1. Increased efficiency in a wide range of activities between produces and consumers such as
increasing the volume of business, improved handling methods in pre-packing, storage and
transportation, adopting new managerial techniques and changes in marketing practices such as
value addition, retailing etc.
2. Reducing profits in marketing at various stages.
3. Reducing the risks adopting hedging.
4. Improvements in marketing intelligence.
5. Increasing the competition in marketing of farm products.

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Lecture 6

Marketing margin of a Middleman: There alternative measures may be used.

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