Principles of Agribusiness Management: Role of Marketing Chapter 3

Economists analyze the fairness and efficiency of the marketing system by examining the structure, conduct and performance of individual markets.

Markets with few suppliers operate less efficiently than markets with many suppliers • Fewer suppliers mean higher prices for consumers and suppliers have larger profits • Sufficient number of suppliers mean individual firms must respond to the market • The result is more efficient markets with higher levels of satisfaction • FTC and DOJ use this model to monitor the markets

Economics gives people the ability to make good choices

Muchofthe evolution of the marketing system reflects the results of good economic decision making.

Marketing approach example

Music: records > tapes > Cassettes > CD's > Cloud Conclusion: Consumers want music. Consumers were not buying CD's when CD's were popular, they were buying the satisfaction derived from listening to portable high quality music

Market information:

Overcomes information separation

Grades and standards Function:

Overcomes information separation by providing a classification system such as Labeling and other similar information systems to inform the consumer

Buying and selling function:

Overcomes ownership by transferring title. For example, accepting credit cards for payment

Storage function:

Overcomes separation of time: Storage allows for the product to be available quickly and in good condition

Transportation:

Overcomes space separation: The product must be delivered to where the consumer wants the product. For example, home delivery of products

Risk-taking:

Overcomes time separation by assuming price risk

Processing

Overcomes value separation. For example, if the consumer wants an apple pie, the firm must process the apples to make apple pies

Financing:

Overcomes value, time and space separation. Provides funds necessary to pay for production, processing, storage, and transportation

To be fair and efficient, a market structure must have:

Sufficient number of firms in market • Few barriers to entry or exit • Firms that differentiate and improve products as they compete against each other

Marketing:

all the business activities that satisfy consumers needs by coordinating the flow of goods and services from producers to consumers

Marketers exist because

they add value to products that consumers want and are willing to pay extra to receive resulting in greater satisfaction

Five barriers that can prevent consumers from getting the maximum satisfaction from the goods and services they wish to buy.

1. Ownership separation: Inability to transfer ownership. Sellers must have the ability to transfer ownership quickly. 2. Time separation: Product is not available when wanted 3. Space separation: Product is not where consumers want it 4. Value separation: Product is not in the form consumers want 5. Information separation: Lack of consumer information

Based on the premise that a firm's success does not come from producing a technically superior product, but how completely it satisfies consumers' needs.

Consumers purchase satisfaction that products provide, not the product itself.

One way to describe marketing is that it adds value to products by completing the production process. The result is greater consumer satisfaction.

Economists call this satisfaction utility

Structure note:

The Concentration Ratio is the proportion of total sales in a market accounted for by the sales of the largest firms. Market evaluators typically become concerned when fewer than four of the largest firms account for more than 50% of total market sales

Consumers receive 4 types of utility from using products after marketers have handled them

They are: 1. Form utility - Processing the product into a form consumers want 2. Place utility - Transporting the product to right location 3. Time utility - Storing the product until consumer wants it 4. Possession utility - Facilitates buying process

The function of marketing makes sure that consumers get the products they want

This means ensuring that the right product (form utility), is available at the right place (place utility), at the right price (possession utility) and at the right time (time utility) to fully satisfy the consumer

Mission of marketing:

To bridge the gap between the conflicting needs of producers and consumers by completing the production process

To be fair and efficient, market conduct must have:

• A Number of firms in market to create some uncertainty as to whether competitors will follow their price changes • No unadjusted price discrimination (the offering of similar or identical goods at different prices to different buyers) • No collusion • no unfair trade practices • truthful product claims • Product differentiation based on meaningful differences

Structure and conduct of firms in a market affect their economic performance. Markets that meet the criteria for structure and conduct should meet these performance criteria:

• Optimum output at minimum cost per unit • Reasonable profits • Innovation and improvements in product and process • Reasonable investment, reinvestment of profits and R & D

Marketing improves:

• The overall efficiency of the economy • Increases producer's profits • Increases consumer satisfaction

People must make choices with limited resources about where to spend their:

• Time • Money • Energy

Marketing helps find answers to the following key questions:

• What products to produce • How much to produce • When production should be initiated • Who should do the producing • Who makes up the market for the product/service