Markt Integration

MARKET INTEGRATION
Definition
types
Definition
• Kohls and Uhl defined “Market integration as process

which refers to the expansion of firms by consolidating
additional marketing functions and activities under a single
management”.
▪ Setting up of milk processing plant.
▪ Establishment of wholesale facilities by retailers.
Richard L. Kohls
• Richard L. Kohls served

Purdue University from 1948
to 1986 as a faculty leader,
teacher, researcher, and
administrator.
Joseph N. Uhl
• Dr. Joe Uhl retired from the Department of

Agricultural Economics in June 2004 after
38 years of service at Purdue University. Dr.
Uhl was awarded a BS in Horticulture (1961)
and a doctorate in Agricultural Economics
from Michigan State University (1969) prior
to joining the Purdue Agricultural
Economics faculty in 1966.
Importance
• Integration shows the relationship of firms in a market.

• Integration influences market conduct of firms and consequently their
marketing efficiency.
Types of market integration
1. Horizontal integration
2. Vertical integration
3. Conglomeration
Horizontal integration
• When a firm gains control over other firms, performing similar

marketing functions.
• Some marketing agencies (sellers) combine to form a union for
reducing their effective number and the extent of competition
in the market.
• If farmers join hands and form cooperatives, they are able to sell
their produce in bulk and reduce their cost of marketing.
Horizontal integration
• advantageous for the members who join the group.

• HI of selling firms is not in the interests of consumers or buyers.
• Occurs when a firm performs more than one activity in the

sequence of the marketing process.
• It is linking together of two a more functions within a
single firm or under a single ownership.
1. If a firm assumes the functions of the commission agent
as well as retailing.
2. Floor mill which engages in retailing activity as well.
• Vertical integration leads to some economies in the cost of

marketing.
• Enjoys greater market power while reducing the number
of middlemen.
two types of vertical integration
• Forward integration: Wholesaler assuming the function of retailing

i.e. assuming another function.
• Backward Integration: Processing firm assumes the function of
assembling / purchasing the produce from villages.
• Firms often expand both vertically and horizontally. Eg: Modern retail
stocks.
• Horizontal : Expanding either retail stores or number of commodities
they deal.
• Vertical : Operate their own wholesale, purchasing and processing
establishment.
3. Conglomeration
• A combination of agencies or activities not directly related

to each other, may when it operates under a united
management, be termed a conglomeration.
• Eg: Hindustan Lever Ltd. Delhi cloth and General mill (cloth
& vanaspati).
A conglomerate is a corporation made up of a number of different, seemingly
unrelated businesses. In a conglomerate, one company owns a controlling stake
in a number of smaller companies which conduct business separately. The first
major conglomerate boom occurred in the 1960s, and things escalated from
there.
KEY TAKEAWAYS
▪ A conglomerate is a corporation made up of different, independent businesses.
▪ In a conglomerate, one company owns a controlling stake in smaller companies that
conduct business separately.
▪ The parent company can cut back the risks from being in a single market by becoming
a conglomerate.
▪ Sometimes conglomerates can become too large to be efficient, at which time they
have to divest some of their businesses.
• Warren Buffet’s Berkshire Hathaway, a
conglomerate that has successfully managed
companies involved in everything from plane
manufacturing to real estate, is widely
respected and one of the most well-known
companies in the world. Berkshire Hathaway
has a majority stake in over 50
companies and minority holdings in
companies ranging from Wal-Mart to car
manufacturers.
• Another example is General Electric.
Originally founded by Thomas
Edison, the company has grown
to own companies working in energy,
real estate, finance, and healthcare,
previously owning a majority stake in
NBC. The company is made up of
specific arms that operate
independently but are all interlinked.
MARKETING EFFICIENCY
• Marketing efficiency is essentially the degree of market performance.

It is a broad and dynamic concept.
• It is the ratio of market output (satisfaction) to marketing input (cost
of resources).
• An increase in ratio represents improved efficiency and vice versa.
Empirical Assessment of Marketing
Efficiency
•
2. Shepherd's formula
•
Marketing cost & Margin
Marketing Costs
• The movement of products from the producers to the ultimate

consumers involves costs, taxes, and fees which are 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.
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.
Marketing costs would normally include
i. Handling charges at local point

ii. Assembling charges
iii. Transport and storage costs
iv. Handling by wholesale and retailer charges to customers
v. Expenses on secondary service like financing, risk taking and
market intelligence
vi. Profit margins taken out by different agencies
vii. Producer’s share in consumer’s rupee
Producer’s share in consumer’s Taka
•
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.
Three alternative measures
•
Where
▪ PRi = Total value of receipts per unit (sale price)
▪ Ppi = Purchase value of goods per unit (purchase price)
▪ Cmi = Cost incurred on marketing per unit
Sum of Average Gross margins method
The average gross margins of all the intermediaries are added to

obtain the total marketing margin as well as the break up of the
consumer’s Tk.
▪ MT = Total marketing margin

▪ Si = Sale value of a product for ith
Si - Pi firm
MT = Σ n --------- ▪ Pi = value paid by the ith firm
Qi ▪ Qi = Quantity of the product
handled by its firm
▪ i = 1, 2, . . . . n (No. of firms
involved in the marketing channel).
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.
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 8. Costly and inadequate finance

2. Consumption pattern – Bulk 9. Seasonal supply
transport to deficit areas
3. Lack of storage facilities 10. Unfair trade practices
4. Bulkiness of the produce 11. Business losses
5. Volume of the products handled 12. Production in anticipation of
6. Absence of facilities for grading demand and high prices
7. Perishable nature of the produce 13. Cost of risk
14. Sales service
Factors affecting marketing costs
7. Bulkiness
1. Perish ability
8. Need for retailing: (more retailing – more
2. Losses in storage and transportation costly)
3. Volume of the product handled 9. Necessity of storage
4. Regularity in supply: Costless irregular 10. Extent of Risk
in supply – cost is more
11. Facilities extended by dealers to consumers.
5. Packaging: (depends on the type of (Return facility, home delivery, credit facility,
packing) entertainment)
6. Extent of adoption of grading
7. Necessity of demand creation
(advertisement)
Ways of reducing marketing costs of farm
products
1. Increased efficiency in a wide range of activities between producers 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.
Marketing Channel
Marketing Channel
Marketing channels are routes through which agricultural products
move from producers to consumers. The length of the channel varies
from commodity to commodity, depending on the quantity to be
moved, the form of consumer demand and degree of regional
specialization in production.
MARKETING CHANNELS OF DISTRIBUTION
It is the route taken by a product in its passage from its first
owner i.e. producer to the last owner, the ultimate
consumer.
Important channels of distribution:

1. Producer or manufacturer – Retailer – Consumer.
2. Producer or manufacturer – Consumer.
3. Producer or manufacturer – Wholesaler – Retailer – Consumer.
4. Producer – Commission agent.
Factors considered while choosing a Channel
1. Nature of the product.

2. Price of the product.
3. No. of units of sale.
4. Characteristics of the user.
5. Buyers and their buying units.
▪ Low priced articles with small units of sale are distributed through retailers.
▪ High price special items like radios, sewing machines etc. are sold by
manufactures and then agents.
▪ Public services like gas, electricity and transport are usually sold directly to the
consumer.
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MARKET INTEGRATION

• Kohls and Uhl defined “Market integration as process

• Richard L. Kohls served

• Dr. Joe Uhl retired from the Department of

• Integration shows the relationship of firms in a market.

• When a firm gains control over other firms, performing similar

• advantageous for the members who join the group.

• Occurs when a firm performs more than one activity in the

• Vertical integration leads to some economies in the cost of

• Forward integration: Wholesaler assuming the function of retailing

• A combination of agencies or activities not directly related

• Marketing efficiency is essentially the degree of market performance.

• The movement of products from the producers to the ultimate

C = Cf + Cm1 + Cm2 + . . . + Cmn

i. Handling charges at local point

The average gross margins of all the intermediaries are added to

▪ MT = Total marketing margin

• The difference between the price paid by the consumer

1. To ascertain which intermediaries are involved between producer

1. High transportation costs 8. Costly and inadequate finance

1. Increased efficiency in a wide range of activities between producers and

Important channels of distribution:

1. Nature of the product.

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