AGRICULTURAL ECONOMICS 220

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AGRICULTURAL ECONOMICS 220

• Theme 4
• Marketing Management
• Kohls and Uhl Chapter 18 19
• Groenewald Chapter 8

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4.5 Distribution and management of the marketing
channel

• 4.5.1 Distribution
• 4.5.2 Role of the middleman
• 4.5.3 Transport
• 4.5.4 Storage
• 4.5.5 The total distribution concept

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4.5.1 Distribution introduction

• A distribution channel is the set of firms and
  individuals that take title, or assist in the
  transferring of title, to a good or service as it
  moves from the producer to the final consumer or
  industrial user
• Modern distribution systems are based on
  strategic planning, adhere to the marketing
  concept, focus on target markets, and are
  consistent and flexible

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Types of Distribution systems(Source Food and
Agricultural Organization)
Agribusinesses, Farmers, Fishermen, Manufactures,
etc.
Agents Brokers
Brokers, sales agents, auctions
Wholesale
Retailers
Full-service/limited service wholesale
Agric. machinery dealers, stores, supermarkets
Direct sales
Own Sales force,sales, outlets
CUSTOMERS
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4.5.1 Types of distribution systems

• Direct marketing
• Retail institutions
• Wholesalers
• Sales agents and brokers
• Auctions
• Vertical market systems
• Horizontal marketing systems

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4.5.1 Power and conflict in distribution channels

• Incompatibility of goals
• Confusion over roles and rights
• Differences in perceptions
• Degree of interdependence

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4.5.2 Value of middlemen

• Many functions in moving the product through the
  distribution channel
• Each function requires funding and specialist
  know how
• Middlemen play a role here - their remuneration
  depends on scope of functions and efficiency in
  executing these functions
• Middlemen solve the information costs of
  matchmaking
• Thus as long as middlemen decrease transaction
  costs for actors in the market middlemen are
  justified

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4.5.3 Transportation

• Food industry critically dependent on physical
  distribution
• Creates place utility, play a role in market
  development and influences other marketing
  functions (storage in the form of inventories)
• Transport costs usually higher proportion for
  food than for non-food products
• Variability of agricultural production and
  seasonal fluctuations
• Biological and bulky nature
• Pioneer agriculture developed hand in hand with
  the food transportation system

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4.5.3 Modes of transport

• Rail and road transport - in SA diversion from
  rail to road, mainly due to lifting of past
  restrictions
• Road dominate in short haul high vale crops, rail
  in long haul bulky low value crops
• Water, only where speed is not important, bulky
  and great weight. In SA only sea, in US and
  Europe rivers
• Air transport - increased rapidly, only high
  value (cut flowers, nursery products, fresh
  fruits and veggies)
• Advantages of different modes
• Regulation
• Freight rates
• Concentration in the SA market

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4.5.3 Reducing food transport costs

• Technological and other improvements
• Regulation and competition
• Increased capacity use
• Reduced spoilage and damage
• Changing the product

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4.5.4 Storage

• All food marketing firms perform some form of
  storage
• Interrelated with all marketing functions
• Food stocks, Carry over, Reserves or buffer
  stocks, Speculative stocks
• Storage locations and capacities
• Changing seasonal storage patterns
• Reducing food storage costs - physical
  facilities, interest on investment, quality
  deterioration and shrinkage, stored vs. fresh
  product and consumer acceptance, price risk and
  associated costs, technological advances

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4.5.4 Costs of Storage

• The costs necessary to provide and maintain the
  physical facilities for storage
• The interest on the financial investment in the
  product while it is in storage
• The costs of quality deterioration and shrinkage
  during storage
• The loss that may result from poor consumer
  acceptance of the stored versus the fresh product
• The risk that the price of the product might
  unexpectedly decline

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4.5 The Total distribution Concept

• Based on the notion that all elements of physical
  distribution are so interdependent that a
  decision made about one element will impact on
  some or all of the others
• E.g. Reduce number of depots
• Reduce costs of staffing, wastage etc but
• Increase transportation costs

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4.5 Components of the total costs attached to
physical distribution
Tot.distribution costs
Storage Costs
Total distribution costs
System Costs
Unit delivery costs
No. of warehouses
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4.5 Key decisions in channel management

• Price policy - list prices, margins, schedule of
  discounts - aim is to be efficient and form a
  lasting relationship
• Terms and conditions of sale - payment terms,
  guarantees, restrictions
• Territorial rights
• Definition of responsibilities - who is
  responsible for after sales service etc.
• Extensive distribution, selective distribution,
  exclusive distribution