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Understanding Agriculture Input Market Classification of Agricultural Inputs Characteristics of Demand for Inputs Market Mix for Agriculture Inputs vis-àvis consumer and industrial goods Framework for Marketing Environment Classification of Agricultural Inputs Based on their economic contribution or use - Production increasing - Production saving - Production facilitating Based on their economic life - only for one production period - over several production period Classification of Agricultural Inputs Based on their economic nature - land saving inputs - labor saving inputs Based on skill to use - simple to use - require new skills and methods Classification of Agricultural Inputs Based on technical product features - High differentiated inputs - Low differentiated inputs Characteristics of Demand for Inputs Derived demand - Farmers do not use the inputs per se but what they can do to their crops. Complementary demand - inputs are demanded not individually but as a package Dependent demand - depends upon weather, nature and health of the crop, subsidies, loans Dynamic nature - change in cropping pattern, change in availability of irrigation water Characteristics of Demand for Inputs Willing to experiment - depends upon risk bearing ability Seeing is believing attitude Role of opinion leaders Value for money seeking buyers - calculate cost and benefits of using the inputs Market Mix for Agriculture Inputs vis-à-vis consumer and industrial goods Marketing Mix – components - Price - Product - Promotion - Place (distribution) Market Mix for Agriculture Inputs vis-à-vis consumer and industrial goods Price - Agricultural inputs and industrial products share similar response patterns - Users of these two products tend to be more quality conscious than price conscious - Response to the consumer goods is likely to be influenced by the price factor Market Mix for Agriculture Inputs vis-à-vis consumer and industrial goods Product - Incase of agricultural inputs and industrial good, consumers are more interested to know the technical details or the performance parameters - importance of product knowledge and advisory services Market Mix for Agriculture Inputs vis-à-vis consumer and industrial goods Promotion - agribusiness consumers share similarities with the consumer goods users - in both the cases, the number of prospects to be reached is large, diverse and spread across different regions. - Both the product groups require market segmentation - Prospects of the industrial products are relatively small in numbers, uniform in their requirements, and generally concentrated in cluster of region. Market Mix for Agriculture Inputs vis-à-vis consumer and industrial goods Place (distribution) - levels of channel and the network intensity required for consumer goods and agricultural inputs are relatively higher than that required for industrial products. - Role of channel as a dispenser in consumer goods and agricultural inputs - The channel does not have a pulling function - Pulling is done by advertisement, demonstrations, personal contacts and other extension means Market Mix for Agriculture Inputs vis-à-vis consumer and industrial goods - In case of industrial products, channel is small - channel has to act as an advisor and not merely a dispenser Market Mix for Agriculture Inputs vis-à-vis consumer and industrial goods Component Consumer goods Agricultural inputs Industrial products Product * * Price * * Promotion * * Place (Distribution) * * Marketing Environment for Agriculture Inputs Understanding farmers’ Perception about Inputs - Why the farmers want to use Inputs? (usefulness) How to create effective demand for Agriculture Inputs? Converting Effective Demand into consumption of Inputs. Marketing Environment for Agriculture Inputs Effective Demand - Desire to use the inputs - Willingness to pay for inputs - Capacity to pay for inputs Marketing Environment for Agriculture Inputs Usefulness of inputs to farmers - quantity of production raised - quantity of production saved - improved quality - reduce the uncertainty or risk of obtaining good production “Agronomic potential” of Agricultural Inputs Marketing Environment for Agriculture Inputs Increase the Agronomic Potential of Agriculture Input - Research & Development It is long term process It requires large investment initially Basically Technological Intervention Marketing Environment for Agriculture Inputs Agronomic potential of a input depends on use of other inputs - agricultural inputs are derived demand products - Inputs are purchased as package, not individually Marketing Environment for Agriculture Inputs Does the Agronomic Potential of Input is sufficient to create Desire among the farmers to use Input? - No or Yes - Why? Marketing Environment for Agriculture Inputs Inputs are typically expensive units. Two important considerations: - Value of additional output gained by using the input (x1) - Value of output lost by not using the input (x2) Unless the value of x1 or x2 is substantial and sufficiently more than the cost of input – farmer will not use the input “Agro-economic Potential” of Input Marketing Environment for Agriculture Inputs Agro-economic potential of Input is affected by Price of output Cost of Input Non-monetary inputs (techniques) Marketing Environment for Agriculture Inputs There is sufficient lag between the point when input is used and the point when output is realized Price of output is expected price and it may be less or more than the actual price realization - It may differentiate the actual realization of Agro-economic potential of Agriculture Input Marketing Environment for Agriculture Inputs Cost of Input - Price of Input - Transaction cost of obtaining the Input -Due to varying level of transaction cost, cost of Input may vary to different groups of farmers Marketing Environment for Agriculture Inputs To create effective demand: - Extension services - Credit - Entrepreneurship (risk management) Marketing Environment for Agriculture Inputs When effective demand has been created, actual consumption will depend on: - Adequate production - Effective Distribution Marketing Environment for Agriculture Inputs Effective Distribution - Catering to a large number of small farmers - Scattered over a large area - How to minimize the cost? - Institutional Intervention in the form of Group Approach FRAMEWORK FOR MARKET ENVIRONMENT OF AG. INPUTS Research & Development Agronomic Potential Output Price Input Cost Agro-Economic Potential Extension Services Infrastructure Transport Services Credit Entrepreneurship Effective Demand Adequate Production Effective Distribution Actual Consumption Marketing Environment for Agriculture Inputs Agriculture input supply should not be seen in isolation Integrated approach with input, production and marketing Recent initiatives by input companies are in similar lines