FUNCTIONAL APPROACH

FUNCTIONAL APPROACH • Marketing functions are classified into three groups: • Exchange functions • Buying and Selling: • They are directly associated with negotiating an exchange of ownership – or flow of title – between a seller and a prospective buyer. • Buying activities include searching for, gathering information about, evaluating alternative products and suppliers, and negotiating a purchase agreement.

FACILITATING FUNCTIONS PP PHYSICAL FUNCTIONS • Standardization • Financing • EXCHANGE FUNCTIONS • Buying • Selling • Processing • Storage • Transportation • Risk Bearing • Market Intelligence Fig: The marketing functions

The selling function involves identifying and seeking out potential buyers, determining an asking price, negotiating terms of sale, and similar activities. • The ultimate aim for any seller is to meet its consumer (buyer’s) needs. • Thus, a farmer can be said to be market oriented when production is purposely planned to meet specific demands or market opportunities. • For example, a contract farmer, who wishes to meet the needs of a food processor producing sorghum-based malted drinks, will only grow, improved sorghum seed. It will avoid any inputs likely to adversely affect the storage and/or processing properties of the sorghum and will continually seek new and better inputs which will add further value to its product in the eyes of the customer (food processor).

2. Physical functions • Storage: • Balances supply of and demand for agricultural and food products. • Agricultural production in developing countries is usually seasonal whilst demand is generally continuous throughout the year. • Hence the need for storage to allow a smooth, and as far as possible, uninterrupted flow of product into the market.

Transportation: • Making the product available where it is needed, without adding unreasonably to the overall cost of the produce. • Adequate performance of this function requires consideration of alternative routes and types of transportation, with a view to achieving timeliness, maintaining produce quality and minimizing shipping costs.

Processing: • Most agricultural produce is not in a form suitable for direct delivery to the consumer when it is first harvested. • Rather it needs to be changed in some way before it can be used. The form changing activity is one that adds value to the product. • Changing green coffee beans into roasted beans, cassava into ‘gari’ or livestock feed, full fruit bunches into palm oil increases the value of the product because the converted product has greater utility to the buyer.

3. Facilitating functions • Standardization: • concerned with the establishment and maintenance of uniform measurements of produce quality and/or quantity. • This function simplifies buying and selling as well as reducing marketing costs by enabling buyers to specify precisely what they want and suppliers to communicate what they are able and willing to supply with respect to both quantity and quality of product. • In the absence of standard weights and measures trade either becomes more expensive to conduct or impossible altogether.

Quality differences in agricultural products may be due to production methods and/or because of the quality of inputs used. • Technological innovation can also give rise to quality differences. • In addition, a buyer’s assessment of a product’s quality is often an expression of personal preference. • Thus, for example, in some markets a small banana is judged to be in some sense ‘better’ than a large banana; white sugar is considered ‘superior’ to yellow sugar; long stemmed carnations are of ‘higher quality’ than short stemmed carnations; and white maize is ‘easier to digest’ than yellow maize.

Financing: • In almost any production system there are inevitable lags between investing in the necessary raw materials (e.g. machinery, seeds, fertilizers, packaging, flavorings, stocks etc.) and receiving the payment for the sale of produce. • During these lag periods some individual or institution must finance the investment.

Risk bearing: • In both the production and marketing of produce the possibility of incurring losses is always present. • Physical risks include the destruction or deterioration of the produce through fire, excessive heat or cold, pests, floods, earthquakes etc. • Market risks are those of adverse changes in the value of the produce between the processes of production and consumption. • A change in consumer tastes can reduce the attractiveness of the produce and is, therefore, also a risk. All of these risks are borne by those organizations, companies and individuals.

Market intelligence: • It is the process of collecting, interpreting, and disseminating information relevant to marketing decisions. • The role of market intelligence is to reduce the level of risk in decision making. • Through market intelligence the seller finds out what the customer needs and wants. The alternative is to find out through sales, or the lack of them. • Marketing research helps establish what products are right for the market, which channels of distribution are most appropriate, how best to promote products and what prices are acceptable to the market.

As with other marketing functions, intelligence gathering can be carried out by the seller or another party such as a government agency, the ministry of agriculture and food, or some other specialist organization.

USES OF THE FUNCTIONAL APPROACH • Analyzing the functions of various middlemen is particularly helpful in evaluating marketing costs. • Retailing is usually much more costly than wholesaling. • The functional approach, however, points to the greater complexity of retailing. • The functional approach is also helpful in understanding the difference in marketing costs of various commodities.

For example, a perishable product is often more costly to market than one that is less perishable. • Much of this difference may be because of the grater difficulty in the performance of the transportation, storage and risk bearing functions. • There are three important characteristics of these marketing functions. • First, the functions affect not only the cost of marketing food but the value of food products to consumers.

Processing, transportation and storage provide form, space and time utility for consumers. • The exchange and facilitating functions grease the wheels of the marketing machinery and perhaps provide services at costs lower than farmers and consumers can perform them. • In evaluating marketing functions consideration must be given to both the costs and benefits of the functions. • The value added by a marketing function may be greater or less than the cost of performing that function.

Second, although it is frequently possible to “ eliminate the middleman,” it is not possible to eliminate marketing functions. • Usually, eliminating the middleman involves the transfer of marketing functions and costs to someone else. • For example: Farmers may assume the storage, selling and transportation functions, eliminating brokers and commission men.

A neighborhood group of consumers can eliminate the food retailer by purchasing in large lots from wholesale food outlets but in doing so they will assume some retailing functions-storage, standardization, and perhaps transportation. • And the group often will settle for fewer services- such as check cashing or price marking. • The cost of performing a marketing function, then can be reduced, but the function cannot be eliminated from the marketing process.

The third characteristics of marketing functions is that they can be performed by anyone anywhere in the food system. • Conceivably, all the functions could be performed by a single firm that had complete control of food, from farm to fork. • On the other hand, there are specialized firms and industries- such as railroads, grain brokers and speculators- who perform only one marketing function.

Grain may be shipped direct from farm to storage in the city, or it may be stored on farm and shipped to market later in the season. • There are some traditional combinations, placements, and timing of food marketing functions. • Food processors usually combine the storage, processing, and transportation functions; and many farmers view on farm storage as an integral part of farming. • But in general, a variety of firm combinations and timing of food marketing functions is observed. • The functions may be indispensible, but they are quite flexible because they can be performed in various places within the food industry.

THE INSTITUTIONAL APPROACH • Where the functional approach attempts to answer the “what” in the question of “who does what” the institutional approach to marketing problems focuses attention on the “who”. • The institutional approach considers the nature and character of the various middlemen and related agencies and also the arrangement and organization of the marketing activities.

Marketing Middlemen • Middlemen are those individuals or business concerns who specialize in performing in various marketing functions involved in the purchase and sale of goods as they are moved from producer to consumer. • Food marketing middlemen can be classified as follows: • Merchant middlemen • Retailers • Wholesalers • Agent middlemen • Brokers • Commission men

Speculative middlemen • Processors and manufacturers • Facilitative organizations • Merchant middlemen: • Merchant middlemen take title to, and therefore own, the products they handle. They buy and sell for their own gain.

Retailers • Retailers purchase and merchandise food products for final consumers. Their task is to provide a wide variety of products at a single location , making it convenient for consumers to assemble a desired market-basket of goods. • Food retailers may include supermarket: restaurants: convenience food stores: specialty meat and fruit and vegetable stores, dairies, or bakeries. They are the most numerous of the marketing institutions.

Wholesalers • Food wholesalers sell to retailers, other wholesalers and industrial users but do not sell in significant amounts to final consumers. • Wholesalers make up a highly heterogeneous group of firms with varying sizes and characteristics. • One group of wholesaler is the local buyers or country assemblers who buy goods in the producing area directly from farmers and ship the products to the larger cities where they are sold to other wholesalers and processors.

Another group of wholesalers is located in the large urban centers. These may be “full-line” wholesalers who handle many different products or those who specialize in handling a limited number of products • They may be cash and carry wholesalers or service wholesalers who will extend credit and offer delivery and other services. • Such terms as a jobbers and car-lot receivers are often used synonymously with wholesalers.

Agent middlemen • Agent middlemen, as the name implies, act only as representatives of their clients. They do not take title to, and therefore do not own, the products they handle. • Brokers: • Brokers do not have physical control or ownership of the product. They follow the directions of buyers and sellers and have less influence in price negotiations than commission men.

Commission men are usually granted broad powers by those who consign goods to them. • They normally take over the physical handling of the product, arrange for the terms of scale, collect, deduct their fee and remit the balance to the seller.

Speculative middlemen • Speculative middlemen are those who buy and sell products with the major purpose of profiting from price movements. • All merchant middlemen, of course speculate in the sense that they must face uncertain conditions. • They seek out and specialize in taking various risks and usually do a minimum of handling and merchandising.

Processors and manufacturers • Processors and manufacturers are among the best known food marketing firms. • They specializing adding time , form, place, and possession utility to raw farm products. • For example: They convert wheat into flour and bread.

Facilitative organizations • Facilitative organizations aid the various middlemen in performing their tasks. • Such organizations do not as a general rule, directly participate in the marketing process either as merchants, agents, processors, or speculators. • They may furnish the physical facilities for the handling of food products or for the bringing of buyers and sellers together. • They establish the “rules of the game” that must be followed by the trading middlemen.

Uses of the Institutional Approach • The institutional approach can help us understand why there are specialized middlemen in the food industry. • It is possible to imagine a food system without middlemen. • Farmers can and at times do, perform such middlemen activities as storage, transportation, selling, and even processing.

Consumers can assume food middlemen functions, such as processing, transportation, and storage. • Farmers markets eliminate the food middlemen by transferring marketing functions to farmers and consumers. • Why, then are there so many food middlemen if there are no practical reasons why farmers and consumers could not replace them?

The answer is that these specialized firms often can perform the food marketing functions more efficiently than either farmers or consumers. • There are three reasons for the presence of specialized middlemen in the food system. • First, the rise of middlemen specializing in such activities as storage, transportation, processing, and retailing is an example of division of labor and specialization.

Middlemen free farmers to specialize in agricultural production and free consumers for other activities. • Normally, there are gains from some specialization and division of labor is a common characteristics of industrial societies. • Second, these gains from specialization mean that many of the food marketing functions are marked by economies of scale. That is, the average cost of performing the marketing functions falls as the volume of products handled rises.

Finally, middlemen can reduce market search and transactions costs. • Markets are not costless. There are expenses associated with finding buyers and sellers and negotiating exchanges between them. • By specializing in these functions, food middlemen relieve farmers and consumers of the considerable costs they would otherwise incur for search and transactions activity.

The Behavioral Systems Approach • The marketing process is continually changing in its organization and functional combinations. Understanding and predicating change is a major task. • Either a particular marketing firm or an organization of firms, such as the marketing channel, can be viewed as a system of behavior. • Each is composed of people who are making decisions in an attempt to solve particular problems.

In either the firm or the organization of firms, four major types of problems, with their associated behavioral systems, can be indentified. • (1) Input output system: • Each marketing firms or organization of firms is attempting to produce an output of something. • This is true whether it is a meat processor, a commission man, or a marketing channel consisting of many firms.

Each is using as an input, resources that are costly and scarce. • Each hopes to find a satisfactory solution as to how to combine these input resources to secure a profitable output. • Here we find the motives to develop and adopt new technology, new products, and different organizations that may be cost reducing or output enhancing.

(2)Power system • All firms and groups of firms have status and a vested interest in the present role they are playing. • They may have developed a reputation for quality, being market leaders, having a community conscience or being the fastest growing. • No decisions will be made that might deteriorate their particular niche of power, and means will activity be sought to enhance it. • Economic theories of monopoly and imperfect competition behavior, as well as the political scientists concern with power behavior, give insights into this system of behavior.

(3)Communications systems • How to establish effective channels of information and direction is a major problem of large firms and complex organizations. • Desirable actions may be frustrated by not receiving the right information or by the misinterpretation of the messages of action. • It is in this area that the concern of psychology, sociology, and business management over the proper ways to organize and direct subordinate workers and units becomes of particular relevance.

(4)Adapting systems • Finally, if change is the essential characteristics of marketing, then one of the major problems of marketing firms and organizations is how to adapt to these changes. • The behavioral system for adapting to internal and external change is then a major component of the firm or organization.

Uses of Behavioral Systems Approach • The behavioral systems approach is useful to an understanding of a major change that is currently underway in the food system. • Many observers have noted that the food production and marketing system are more and more resembling the nonfood, factory sectors of the economy. • This is often termed the industrialization of the food sector

Changes in consumers demand for foods and new agricultural and food science technology, it is suggested, are forcing closer linkages between formerly independent food producers, processors, and consumers. • Contracts and other forms of marker communication are coordinating producer and processor input/output decisions. • The process is increasing the market power of farm product buyers and encouraging larger farms. • In these ways, food firms continually attempt to adjust their behavior to market forces at the same time that they attempt to influence these forces.

FUNCTIONAL APPROACH