Data on marketing costs and margins is a mean of assuring efficiency. Marketing efficiency can be defined as the movement of goods from the producer to the consumer at the least cost , consistent with provisions of service required by the consumer.
Reduction in costs without impairing the standard of service represents a clear increase in the efficiency. Additional marketing services raising the costs represents greater efficiency if consumers value them more than the corresponding saving in cost.
However, two aspects of marketing efficiency may be distinguished as:
1. physical handling of a product, and
2. economic terms on which handling takes place such as:
i. New methods of packing, storage, transportation, loading, unloading, to prevent losses and technological development like the refrigeration may improve the efficiency.
The expression of these physical savings as reductions in money costs depend on the economic environments in which the marketing proceeds.
ii. Economic efficiency implies working of a firm or an industry on lowest cost feasible with the technical skills and knowledge available and the benefits of all possible economies reflected in the prices and margins prevailing in the market.
In competitive markets, the pressure of competition compels traders to pass on the benefits of economy to the producer and consumer.
As such technical and economic efficiencies do not always coincide. For example, improvement in refrigerated transport and storage may reduce the losses but the cost of operating chains of cold storages may be more than the profit.
It can thus be said that refrigeration is efficient technically, not economically i.e., in monetary terms.
Thus in any study on the marketing efficiency consideration should be given to both the physical efficiency i.e., the quantitative yields and the monetary efficiency i.e., the ratio of inputs of costs to outputs of returns from a particular situation.
Marketing margins: Marketing margins refer to the difference in price paid and received by any agency.
The total margin, therefore, is the difference between the price paid to the producer and that paid by the consumer. It is commonly expressed as the producers' share in the consumer's price.
There are various ways of calculating the margins like:
1. Selecting specific lots and tracing them through marketing system up to the consumer. However, the limiting factor in such calculations is the loss of identity of lots in subsequent operations. As such it becomes difficult to give the regard to yields and losses e.g., in rice and livestock.
2. Recording gross sales and gross receipts; difference being the gross margin.
Following it, at each level, shall give total margin. This is also not an easy task because traders are reluctant to part with this information and there is no legal compulsion on them.
3. Comparison of prices at different levels. But this depends on the availability of representative and comparable prices at each level. In this we have to see that:
a. Price quotations are representative of the general level of prices to which they refer.
b. Prices are of comparable quality.
c. Allowance is given for wastage and spoilage.
d. Time lag between different marketing operations.
Excessive marketing costs and margins:
Higher marketing margin in the developed countries is due to the demand of better services or for processed-ready-to eat food requiring higher processing, packaging, refrigeration etc. But there are many other reasons for unduly high margins in our country.
Some being: 1. Small-scale producer - weak bargaining position, lack of recourse market news and inadequate credit resources.
2. Inadequate transport, storage and handling facilities resulting in wastage and an increase in marketing cost.
3. Lack of market, price and quality information.
4. Strong grouping of traders.
In order to advise on marketing improvement in particular cases the usual information of prices and margins is not sufficient. An accurate and detailed appraisal of current performance of the marketing functions and of the techniques used is necessary.
Then, the cost of alternative systems, applying more efficient techniques, which may even involve re-organization and changes in the traditional marketing organization has to be studied. One example may indicate what is involved in such case studies.
In the past a question arose in West Germany to find out whether transport of live animals or meat to consuming centres was economical. A study was conducted in the costs, including the transportation of animal and meat, slaughtering costs in consuming centres vis-a-vis producing area, feeding costs, and a special study was made on the loss of weight of livestock during transit. Such loss, in the case of one animal when transported for 200 miles was about 2.5 per cent. As a result of this study, it was recommended to transport meat from the producing area instead of live animals.
A similar study conducted in Pakistan revealed that what was economical in West Germany did not justify itself in this country due to high costs of refrigeration.
This will clearly indicate that the economics of alternative marketing methods must be appraised in each individual case.
Unfortunately, such studies are largely lacking in our country. With a view to improving the marketing structure in the country, therefore, it is necessary that such studies are conducted so that both the producer as well as the consumers ultimately benefit.