Markets and Marketing

2.2 Markets and Marketing

The definition of market as an ‘operationalised atomistic realm of impersonal economic exchange of homogeneous goods’ (Harriss-White, 1996), is associated with the theory of price in microeconomics. So is the notion of the market as a ‘supreme medium for the expression of individual choice’ (Hodgson, 1988) presupposing that transactions are voluntary and made on equal basis by fully informed individuals. Marketing today is a much more sophisticated, integrated as well as a differentiated collection of a broader spectrum of activities than conceptualized earlier and so a redefinition has become an imperative as well as a challenge.

Today, text book definitions of marketing essentially as ‘exchanges intended to satisfy human needs’ and in the business context, as ‘satisfying consumer’s wants at a profit and in a socially responsible manner’ (Stanton, 1983) transcend the conventional commercial objectivisation. Marketing today is also a comprehensive concept with multiple and strategically coordinated activities in which the manner of marketing is as much important as the product marketed. Social responsibility, ethics and regulatory commitments increasingly become embedded in the marketing process.

It is ironic that marketing evolved from a point where selling was unimportant to the producer who was herself the consumer and if any marketing was at all done, the strategies were simple. The role of exchange and a case for marketing arises as the self-sufficient society changes to an economy built around the division of labour, industrialization and urbanization. Vertical integration along with the formation of various alliances and conglomerations in the supply chain is the next step in this

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evolution when innovations in managerial practices aided by recent advances in information and technology holds out a new transition process for the future of marketing.

The Agro-marketing business and Market chains

In the evolution of markets, in the beginning, exchange is local with a direct interface, but as the division of labour progresses and distances between producers and consumers grow, specialized functionaries begin to emerge helping farmers sell the increased output. The primitive ‘Do it yourself’ principle is replaced by ‘buy it’ as marketing becomes a specialized process. Marketing identifies products that consumers would demand, persuades them to purchase, figures out how to sell them in the short term and the long term and also adds value to the products. Sensitivity to the macro-economic environment, demography (age distribution, gender etc.), social and cultural factors, political and legal forces, technology and competition from other sources and allied products lies at the core of this function. With further sophistication of ‘analytics’

finer elements and micro-factors also get integrated in the marketing process² Other facilitating organizations that provide transportation, warehousing, financing, insurance and other supportive services evolve and even coalesce with marketing.

A market channel includes producers, final customers and all the middlemen involved.

The sequence of transactions and commodity movements between the initial producer and ultimate consumer is known as the marketing chain. Marketing science as a discipline makes subtle distinctions among the intermediaries like the merchandiser, the commission agent, the wholesale traders, the Auctioneers and the retailer (See Notes).

2 An advertisement by a multi-national company highlighting how slight variations in temperature or rainfall affect purchases of food products and switching between products underlines the growing sophistication of techniques in marketing.

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Evolution of the marketing channel and persistence of dualism in traditional economies

Till the 1960s local food markets did not arouse research interest in the way that international trading did although a much larger volume and variety of goods were handled in internal trade within Africa, Asia and Latin America. That the market place was a fundamental focal point of economic life in a peasant society and was ‘‘as much a part of the socio-economic routine as farming’’ was however appreciated (Yang, 1944, Mc Bryde, 1947, Berry, 1967)³.

The market place was initially seen as ‘an authorised public gathering of buyers and sellers of commodities meeting at an appointed place at regular intervals’

(Hodder,1965) with trading taking place on a simultaneous person-to-person basis.

These transactions were ideally atomistic, open, free and rational (Tax, 1953) akin to perfect competition. The channels involved were typically short.

Since a single intermediary could rarely afford the large amount of capital required for the entire marketing process, the number of functionaries increased over time and the trader became a mere link in a long chain (Bromely, 1971). Thus with the development of the internal market systems, the trading intermediaries grew in number and importance. Today such long marketing chains operating in these ‘formally free’

markets, are frequently condemned as inefficient, harmful to producer and consumer and responsible for unfair distribution of economic power (Weber, 1978). On the contrary, by allowing the substitution of labour for capital, the long chains help to ease unemployment problem in developing countries

3 Pioneering works such as C. K. Yang’s (1944) description of markets in northern China and F. W.

McBryde (1947) study of Guatemalan market may be mentioned. Interest picked up in the 1960s with publication of B. J. L. Berry’s (1967) Market center and Retail Distribution.

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Market systems fundamentally restructure with the emergence of new communication modes and changes in social structure. The length of a channel, defined as the configuration of institutions, agencies and establishments through which products move, is often used to describe the channel structure concisely. Shorter channels signify some degree of vertical integration. The presence of large wholesalers or multinational companies and a thirst for profit can be associated with vertical integration. Centrally or cooperatively administered vertical distribution systems also bypass traditional intermediaries with the objective of delivering food and income security.

The evolution of markets at central locations and modeling of the evolution interested many economists and sociologists, location⁴ of market places being an important factor for understanding markets. In urban centers these central places are generally at short distances from dwellers’ homes but residents living away have to travel. Markets are sometimes also located at communication nodes with maximum accessibility (such as a river junction and bridges, bus stations) away from the populated areas. Traveling vendors were found to gain from the practice of locating periodic markets in ‘rings’ in Korea by a study (Stine, 1962) building up a simple evolutionary model of trading in which the itinerant finally settled down as population reached a certain bulk. Thus, the distance between the producer and the consumer and the convenience of commutation were always important aspects in the evolutionary trajectory of markets.

It is suggested by the literature that small traders dominate trading in early stages but as the scale expands over time, permanent shops out-compete even the simple stalls in the market place. The new classes of proprietors enjoy greater security and can afford better facility for storage and attractive display of goods. They can offer customers extra comfort, better services, higher quality and value of goods than the predecessors they partially displace. The higher capital investment required gets reflected in higher prices

4 Periodicity also attracted interest in literature. Early literature described daily markets, periodic markets and special markets (annual fair).

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creating a dualistic set-up with the co-existence of superior quality providers selling at high price and the traditional marketplaces offering cheapness.

Channel lengths attracted considerable attention in the literature on market evolution.

Evidences in Brazil showed that market chains elongated as small intermediaries proliferated, but as the demand for agricultural products grew and bulk transport facilities developed, they subsequently shrank as the small-scale rural intermediaries were undercut by urban capital-rich wholesalers (Forman and Riegelhaupt, 1970). This was also manifest as land reforms broke up estates to small holdings in post revolution Bolivia and bulk sales to city based miners gave way to market chains connecting peasant producers with urban consumers via a new class of rural enterprising middlemen (Clark, 1968). The diverse results are hard to interpret and consolidate owing to differences on methodologies and coverage (Jaffe and Yi, 2007) but an inverted U-shaped relation between channel length and development seems plausible.

Rise of marketing Policy and Failings

Marketing of agricultural products gradually became an important component of public policy in a developing economy due to food security imperatives, poverty of the peasant-seller and as a creator of the small businessman and an entrepreneur.

Underdevelopment, attributed to the ‘inability to organize economic efforts and energies, to bring together resources, wants, and capacities’ for creative, self-generating organic growth’ (Drucker, 1958) was linked to the shortfall in marketing ability.

Marketing can only convert latent demand into effective demand, but it cannot by itself, create purchasing power. Embedded in the integrated context of economic growth, the political feasibility of changes in agro-marketing policy encompasses not just producers and traders but also urban consumers, rural net buyers, industries and the whole economy.

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As primitive practices gave way to elaborate networks, the State administrative machinery rose to the occasion attempting to provide better organization of the system for the determination of fair market prices through regulations. A cadre of personnel was dedicated by the State for the purpose. State regulations binding on farmers, traders and distribution outlets and the formation of a ‘Board’ or a ‘Corporation’ under State control, did not seek directly to change food prices in any particular direction.

However, a parallel or enmeshed price policy with the overt aim of ‘administering’

prices (for example the fixation of minimum support or guaranteed prices) was also not uncommon. In more rare cases the government even subsumed entire channels, replacing numerous trading agents with its own channel through the new institutions and created public sector employment deemed more secure in tenure and earnings in the process.

Not surprisingly, State regulations could create vested interests and collusions between State officials and the powerful parties. Elongated market chains widened the spread between what the producer receives and what the consumer pays. Besides, often failing to disseminate market intelligence fairly and by curbing the horizontal width of the channel, the regulations only came in the way of market based price determination, keeping farmers prices depressed and depriving farmers of options. A distinct bias towards the more vocal urban consumers supplemented the deprivation of the producers from emerging opportunities. Agriculture remained starved of investment in modern technology that potential integration with market could possibly bring. The causal association between the persistence of rural poverty and the state of market functioning provides a strong rationale for marketing reforms in agriculture. It also suggests that agriculture in developing countries can even create a driving force to the global economy (UNIDO, 2009).

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