“MARKETING MARGIN”

Introduction

• Margin - the difference between two values or sums of money.

• Marketing - involves a company's attempt to inform potential buyers of its product or service, drawing attention to it in such a way that an audience will be willing to purchase it.

• A marketing margin applies to a company that buys a product with the intent to resell it.

• Marketing margins are costs of equipment, transport, labor, capital, risk, and management

• In long run, marketing margins for competitive markets should be equivalent to the cost of marketing

Definition

• When companies buy a product to act as a distributor or retailer, it must sell the product at a higher price than that at which they purchased it.

• In such situations, the marketing margin of a product is the difference between what a company pays for the product and what it charges for the product.

• Example : price paid by customers for a finished product (cheese) with the payment received by farmers for equivalent quantities of the raw material of product(milk).

Differentiation of Marketing Margin and Profit Margin

• Marketing margin is similar to profit margin in that it shows:- The relationship between the amount a company pays for a product- The amount its customers pay.

• BUT,- Marketing margin is the difference between cost to the seller and the cost to the consumer.- Profit margin is the % of the final sale price that comes as profit for the seller.

Marketing margin

• Margin is calculated by subtracting the net farm value equivalent of food sold at retail of the farm product from the retail price.

• Product price – raw material• Example :• Product price (cheese) = RM 8.60• Raw material (milk) = RM 2.60• Marketing margin =RM 6.00

Uses

• Companies use marketing margin as a way of figuring profitability.

• High marketing margin reflects a high level of profitability.

• It also reflects a high level of business stability, as it shows the business has the ability to pay for unexpected liabilities.

• High marketing margin shows a business has the ability to respond to new competitors in the market by reducing prices.

Limitations• Marketing margin is limited in its ability to account for

the effects of future business growth.

• Comparison between the price of raw material and the product is limited.

• Time intensive and sensitive for respondents

• Margins may fluctuate– exogenous factors– by commodity– by link within supply chains

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