MARKET INTEGRATION
Kohls and Uhl define market integration as the process where firms grow by adding more marketing functions and managing them under a single system.
Examples:- Establishing a milk processing unit
- Retailers setting up wholesale outlets
Key Points:
- Integration shows the structure among firms in the market.
- It affects firm behavior and marketing efficiency.
- Markets vary in their level of integration.
Types of Market Integration:
1. Horizontal Integration:
- Occurs when companies with similar marketing roles combine.
- Aims to reduce competition and increase influence.
- Example: Farmers forming cooperatives to sell produce in bulk.
- Helps participants but may not benefit consumers.
2. Vertical Integration:
- Involves a firm performing multiple marketing functions.
- Merges functions under a single ownership.
- Examples:
- A company acting as both a commission agent and retailer.
- A flour mill that also sells products directly.
- Reduces costs and middlemen involvement.
Types of Vertical Integration:
- Forward Integration: Example – A wholesaler begins retailing.
- Backward Integration: Example – A processor buys directly from villages.
Dual Integration: Companies may expand both ways:
- Horizontal: Increase in retail outlets or product range.
- Vertical: Managing their own procurement and sales units.
- Combining unrelated businesses under one management.
- Examples:
- Hindustan Lever Ltd.: Textiles and vanaspati.
- Tata: Steel, tea, cement, salt.
- Reliance: Power, telecom, retail, insurance.
MARKETING EFFICIENCY
Marketing efficiency refers to how well a market system performs its roles. It includes cost control, participant satisfaction, and overall market performance.
Key Components:- Minimizing marketing costs or maximizing outcomes.
- Meeting expectations of producers and consumers.
- Ensuring stable returns for intermediaries.
- Improving welfare of all market stakeholders.
- Kohls and Uhl (1980): Marketing efficiency is the ratio of market output (satisfaction) to marketing input (costs). A higher ratio indicates better efficiency.
- Jasdanwalla: It is the effectiveness with which a market structure carries out its functions.
- Clark (1954): Marketing efficiency includes:
- Effectiveness of marketing services.
- Cost of providing those services.
- Impact of cost and methods on production and consumption.
ME = (Value of Output / Marketing Cost) × 100
ME = O / I × 100
Examples:- ME = (3000 / 500) × 100 = 600%
- ME = (3000 / 1000) × 100 = 300%
A higher ME value shows greater marketing efficiency.
Methods of Assessing or Measuring Marketing Efficiency
1. Technical or Operational Efficiency:
This type of efficiency focuses on reducing the cost per unit of output when performing marketing functions like storage, transportation, processing, and handling.
Efficiency improves when these costs decrease for each unit marketed to consumers. It can also be enhanced by minimizing physical losses using improved marketing technologies.
Example: Enhancing transport systems or upgrading storage and processing facilities.2. Pricing or Allocative Efficiency:
This is achieved when the market system efficiently distributes farm products over time, across regions, or among traders, processors, and consumers in such a way that no other distribution method would better satisfy both producers and consumers.
It ensures pricing of goods benefits all stakeholders—producers, middlemen, and consumers—by matching product prices to their true economic value at various stages, times, and places.
Conditions for Pricing Efficiency:
- Price differences between distant markets are only due to transport costs.
- Price changes over time are only due to storage costs.
- Price differences due to processing are justified by the transformation of the product.
Efficient pricing indicates that sellers receive fair value for their produce and consumers pay prices that reflect the true worth of the goods.
Factors Affecting Pricing Efficiency:
- Level of market competition (number and size of buyers/sellers, entry barriers, etc.)
- Access to and quality of market information.
- Behavior of market participants (speculative or stable).
Note: Technical and pricing efficiency support each other and are both vital for long-term marketing efficiency.
Empirical Measurement of Marketing Efficiency:
As per Kohls and Uhl, marketing efficiency improves when the same satisfaction is achieved at lower cost, or when higher satisfaction is obtained at the same cost.
Formula: ME = (O / I) × 100
- ME = Marketing Efficiency
- O = Output value added by marketing
- I = Actual cost of marketing services
Shepherd’s Formula for Marketing Efficiency:
ME = [(Value received by consumer or V) / (Marketing cost or I) - 1] × 100
Formula: ME = (V / I - 1) × 100
- V = Price paid by consumer or value of the marketed product
- I = Total marketing input or cost
