What is Cooperative Marketing?
Cooperative marketing essentially involves understanding or an agreement between two companies aiming to promote or sell the other companies' products. They also sell their products. The companies within the agreement do this to complement each other's services. This provides mutual benefits. Cooperative marketing results because of the combined or joint efforts of two or even more companies. Typically, they bundle and group the products and services in the hope of reaching a common target audience. In cooperative marketing, products can complement or even supplement each other. In some cases, it can cater to different seasonal cycles.
In the survey done in 1968 of co-operative marketing societies, the Reserve Bank of India decided to do effective linking of credit with marketing. This was done to help government agencies execute price support programs; in this way, the interests of the producers were being fulfilled.
The Latin word co-operari, meaning working together, is the origin of the word Co-operative. It is a voluntary association or organization of people or entities to promote their interests – usually the common economic ones – based on unity, equality, liberty, and economic principles. For example, cooperative marketing is an association of producers who are ready to help each other market their products as a whole, catering to economies that emerge from a large-scale business.
According to K. R. Kulkarni – “Co-operative marketing is the marketing for the producers and by the producers that aims at eliminating the chain of middlemen operating between producers and the ultimate consumer and thus securing the maximum price for their produce.”
In India, cooperative marketing was necessary for several reasons. Rampant malpractices in what was then the agricultural marketing system, the existence of all manner of intermediaries, and their excessive charges made this necessary. That earlier system, or lack of it, meant farmers owed vast amounts of money to lenders, leaving them, sadly, at the mercy of them. Come harvest time. The farmer was routinely forced to sell whatever product they had to the middlemen at shamefully low prices. Cooperative marketing societies were a step to overcome those pre-existing problems.
What is interesting about cooperative marketing is that since it is a voluntary business organization, patrons decide to collectively market products for the benefit of each of them in a system governed by democratic principles. The members share all the revenue and savings depending on their share.
The members are all owners; they operate and contribute to the commodities and become direct beneficiaries of savings. They do not have to worry about intermediaries profiting at their expense. They are assured of the benefits of large-scale business, which would have been difficult for them to achieve individually. Here, each producer/member has one vote, regardless of the number of shares he buys.
Cooperative Marketing emphasizes the concept of commercialization, although the economic motives and characters make them stand apart from other associations. The method of operation often resembles private businesses, but the differences in their respective reasons are essential.
Importance of Cooperative Marketing
In cooperative marketing, where multiple players work in tandem, creating valuable benefits to all parties, what is ensured is that the combined endeavors produce a synergy, and this makes superior products, and the whole eco-system results in immense value-addition, for the members as well as the end customers.
Need for Cooperative Marketing
- It ensures better results because everyone collaborates and adds their bits, both ideas and produces. In addition, the ability to place bulk orders makes the costs go down substantially.
- Advertisements of products and the availability of each other’s marketing network can be done jointly, resulting in more market penetration. Usually, the typical advertising could be direct mails, online marketing, or even print media. As a result, the total cost of products for all parties involved can be reduced substantially. They also get better bargaining power and can negotiate a price better.
- Eliminating malpractices – all manner of malpractices that prevail, from very arbitrary deductions to unfair and illegal price manipulation, can be reduced, if not eliminated. There is rampant manipulation of weights and measures, which can be substantially reduced.
- Establishing appropriate reward for the endeavors put in – the veritable army of intermediaries is very interested in collecting, storing, insuring, and financing rural produce. Their charges are hugely inappropriate and disproportionate. Any cooperative marketing strategy that is efficiently organized reduces the price spread, providing fair returns to all stakeholders.
- Concomitant of Integrated Programme – cooperative marketing has brought in the system of a vast expansion of credit. Marketing societies act as the agents to collect and recover loans given by the cooperative credit societies.
- To Stabilise the Agricultural Price – left to its own devices, the will of the private intermediaries would only cause more destabilization and uncertainty. Cooperative Marketing ensures that does not happen, along with price stabilization, and results in a very balanced economic development that does not veer towards a single side. The profit motive stops having the upper hand, and usual market conditions do not deviate from fair practice to uncertainties of pointless speculation, leading to hoarding and architected crisis.
Disadvantages
- It can often lead to a lack of commitment because they are not individually responsible for anything. This lack of commitment even among members in an agreement can substantially reduce the business for all.
- Who is the target audience to whom this can be applied? The marketing strategy could potentially be only applicable to a part of the target audience.
- Information sharing: There might be resistance to sharing information with everyone, especially those who have done individual business historically. Simply agreeing does not change behavior ingrained deep into a person. Trust becomes an issue, which can hamper how the products get marketed.
Cooperative Marketing – A Few Top Examples
Think about it. You go to buy a McDonald’s meal, and you get the burger as well as Coca-Cola – and you get it at a lower price than it would have been had you bought them individually. Both the companies also benefit as they get more significant numbers, more business, more advertisement, and more profit.
Similarly, we can think of how Inox or any movie chains sell drinks, popcorn, or other snacks. Again, the businesses gain enormously from this, although the customers do end up paying more in these cases. But it is a precious brand image creation.
The structure of Cooperative Marketing
The cooperative marketing societies have different structures in India and can be two-tiered and three-tiered. NAFED is the apex institution for this at the national level.
The primary cooperative societies at the base level are the ones who market the farmers’ products particular to that area.
Central Co-operative Marketing unions are there, and their primary function is marketing all the farmers’ produce that they bring for sale. Usually, their location is at the secondary wholesale markets. The unions have as their members all those who are there in the primary marketing societies and individual farmer members. In addition, the State level societies function through their offices throughout the state.
Right now, there are over 6000 primary marketing societies in India. The District level has around 170 Central Marketing Societies, and the State level has 29 Marketing Federations and 16 particular commodity Marketing Federations. NAFED – National Agricultural Cooperative Marketing Federation and NCDC – National Co-operative Development Corporation are national nodal bodies.
The structure is pyramidal. States usually have two or three-tiered designs, depending on their choice and requirement.
Some Features of Cooperative Marketing Societies
These societies have features that are pretty unique and distinguishable from other organizations involved in rural marketing produce. First, their very existence is to assist in increasing their incomes.
Membership
(i) Ordinary Members:
Ordinary members are usually Individual farmers, cooperative societies, and service societies of the locality. Membership would provide them the right to participate in all the discussions within the society, get a share in the profits, and have a voice in the decision-making process.
(ii) Nominal Members:
Nominal members are those with whom the society has reasons to interact. However, they do not get to participate in any decision-making, nor do they get a share in their profits.
Sources of Finance
The following are the significant sources of finance of a co-operative marketing society:
(i) Share Capital
All the members and even the state government subscribe to the share capital. Members can purchase any number of shares they want and are even encouraged to invest as much as they want and buy as many shares as they wish. Like all share markets, they can also support their dividends, etc.
(ii) Loans
These societies are authorized to take loans and stabilize or raise their finances. They can do the same from commercial banks; they accept pledging and clean credit.
(iii) Subsidy
The marketing societies all get subsidies to buy grading machines and other infrastructural needs. In addition, subsidies are also provided to take care of at least a portion of the cost of staffing etc.
Service Motto
The whole philosophy behind cooperative societies was to provide and extend various benefits and services to the members. Profits were never part of the plan. Consequently, all facilities – procuring seeds, manures, and such things, providing tools for grading and standardization, etc. are all sold to members at favorable and affordable rates.
One Person, One Vote
It does not matter how many shares each member holds in cooperative societies. They all have the right to vote as a single unit. This adhered to the principles of democracy and equal rights and freedom. It ensures that no one person can make his orders the rule in joint-stock companies. This eliminates favor and discrimination and gives everyone an equal voice.
Open Membership
Membership in these cooperative marketing societies is open for all. The only rule is that the member has to produce a product. Entry and exit from such memberships are also dependent on a person’s desires and convenience. To encourage more membership, following the process is straightforward too, which helps.
Governing themselves
The entire management of the societies is in the hands of the members. Every member is encouraged to participate in the administration, proceedings, and functioning. The member has the power to exercise his vote. The set-up is very democratic, and everything is off, for, and by the members.
Capital rewards
Equality and fraternity are the cornerstones in Cooperative Marketing – all capital invested by members also earn the same interest rate, making it very risk-free for all the members. Profiting is not the motive, as mentioned earlier.
Co-operation
At the core of these initiatives is the concept of self-help while helping others in tandem. These sorts of societies create a sense of cooperation and mutual help. This is then carried into improved advertising, marketing, ensuring better business and a raised standard and quality of living.
Distributive Justice
When it comes to distribution, the concept of one man, one vote is not employed, and members are given their share of profits depending on their investment in the network. This ensures there is no feeling of unfairness and bitterness. The more they contribute, the better the dividends they will be given and vice versa. There is no gainsaying that profits are a direct consequence of members' contribution. Therefore, it is only fair that their rewards should match up.
Main functions of Co-operative Marketing Societies
Purchase and Sale of Produce – These societies buy and sell members' produce, and they do it in bulk. This makes it easy to reduce marketing costs, earning good returns substantially.
Distribution – Main ingredients – seeds, material, etc., are all provided at reasonable rates. Members can also get credit to procure their material.
Storage facility – Many societies typically have their own or hired warehouses for members to store their material, providing much-needed security.
Supplying implements – Cooperative societies often provide infrastructural needs to their members. This helps in raising both the quality and quantity of their produces. Market information – Often, individual members do not have the money to access the latest news and techniques to increase production or benefit in other ways. This information helps members properly assess and ensure they get the correct price of their products.
Stability of prices – The societies can adjust the supply of items based on market demand. This is an excellent way of stabilizing prices and ensuring the members do not face the adverse effects of price fluctuations based on external factors.
Taking part in foreign trade – Participation in export trade initiatives of the country can happen more quickly, promising better prices for the members. The marketing cooperatives open the markets wide for both the members and their customers.
Conclusion
Cooperative marketing is an initiative to democratize and leave an open and fair field for producers to market. As a result, individual chances and risks are significantly minimized, and members have lesser cause to worry. A problem shared becomes a problem lessened.