Price elasticity competition and the shampoo market Essay

Monetary value

The monetary value of a trade good represents the value the consumer ‘s topographic point on it and the gross the manufacturers want from it.

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Demand Curve

The demand curve shows the relationship between monetary value and measure demanded and is one of the most basic and of import tools for analysing consumer ‘s side of the market.

Monetary value Competition

In monetary value competition, the house ‘s attempt to capture the market by take downing the monetary value since lower monetary value will increase demand. Hence houses try to crush each other in monetary values. Consumers normally shift to the lowest priced trade name hence monetary value rivals will normally hold monetary values really near to each other.

Non – Monetary value Competition

In Non -Price Competition houses try to increase gross revenues and market portion by viing with challengers in countries like stigmatization and advertisement.

The house builds trueness towards the trade name by stressing merchandise characteristics, service, quality etc. The steadfast brand sure that the consumer must be able to separate trade name through alone merchandise characteristics and perceive the differences in trade names and see them as desirable.Another signifier of non-price competition is patents through which the house makes it hard for rivals to emulate the differences between houses and there merchandise. The house tries to extinguish its monetary value difference with its rivals through non-price competition, where by it off-sets the monetary value difference by the sensed benefits of its merchandise.

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Demand Curve for two different trade names of the same merchandise

The above image shows the demand curve of two viing houses where one house ‘s demand curve is shifted out to the right by emphasizing typical properties, hence consumers perceive and desire peculiar attributes thereby holding a greater demand for one houses merchandise at the same monetary values.

Example which distinguish Price and Non- Price Competition

For case, two restruants selling the same sort of culinary art and located right following to each other will hold really similar or may be precisely same monetary values on their Menu Cards. Hence, these restraunts are prosecuting in monetary value competition. Since they are selling precisely the same culinary art and are located right following to each other, if one monetary value to bear down the higher than the other it will lose all its clients. This is a signifier of monetary value competition.

Now see two eating houses selling wholly different sort of culinary arts. One is a Chinese eating houses and the other is a Grecian Restaurants, so we can anticipate that even tough both are situated right following to each other they might be bear downing wholly different monetary values for their nutrient and still acquiring clients. This is a instance of non-price competition because each eating houses has its ain differenciated merchandise that it can afford to sell at a different monetary value and still acquire clients.

Merchandise Development

It fundamentally focuses on making a good trade name image. Non-price competition typically involves promotional outgos, ( such as advertisement, selling staff, the locations convenience, gross revenues publicities, vouchers, particular orders, or free gifts ) , selling research, new merchandise development, and trade name direction costs.

Competition

In economic analysis, the most of import index of the grade of competition is the ability of houses to command the monetary value and utilize it as a competitory arm.

Perfect Competition

In perfect competition there are many Sellerss offering the same merchandise hence an single house has virtually no control over the monetary value of its merchandise. That is they all are monetary value takers.

Perfect competition is a theoretical market construction. It is chiefly used as a benchmark against which other market constructions are compared. The industry that best reflects perfect competition in existent life is the agricultural industry.

Monopoly

In Monopoly a house has all the market power because it the lone marketer in this type of market. It has the power to set up the monetary value at whatever degree it wants, capable to possible restraints such as authorities ordinance. It ‘s the masterful monetary value shaper.

In perfect competition and monopoly, there is neither monetary value competition nor non- monetary value competition.

Monopolistic Competition

Monopolistic Competition

Monopolistic competition is a signifier of imperfect competition as manufacturers viing each other and selling merchandises that are differentiated from one another ( means merchandises are non precisely similar, they are the replacements ) .In monopolistic competition houses can act like monopolies with regard to their ain merchandise and utilize the market power to bring forth net income. Finally in Monopolistically competitory markets other houses enter the market and the benefits of distinction lessening with competition ; the market becomes more like perfect competition where houses can non derive economic net income. Models of monopolistic competition are frequently used to pattern industries. Textbook illustrations of industries with market constructions similar to monopolistic competition include eating houses, cereal, vesture, places, and service industries in big metropoliss.

In Monopolistic Competition the market state of affairs could be both Price and Non- Price Competition.An illustration Nokia sells its Music Express phones in somewhat higher monetary value than the other music phones of other companies because of its differentiated characteristics.

Oligolopoly

Oligopoly is a market state of affairs in which there are merely a few Sellerss ( of merchandises that can be differentiated but non to any great extent ) ; each marketer has a high per centum of the market and can non afford to disregard the actions of the others.

In some state of affairss, the houses may use restrictive trade patterns ( collusion, market sharing etc. ) to raise monetary values and restrict production in much the same manner as a monopoly. There can be monetary value and non-price competition in oligopoly. For illustration: In the Indian market gasoline pumps is an illustration of oligopoly.

Elasticity

In economic sciences, snap is the ratio of the per centum alteration in one variable to the per centum alteration in another variable. It is a tool for mensurating the reactivity of a map to alterations in parametric quantities in a unit-less manner. In add-on to the monetary value and non-price competition, the demand for merchandise depends on snap of demand. There are three types of Elasticity ‘s which could impact market demand from the consumer ‘s side. These are:

– Own Price Elasticity,

– Income Price Elasticity,

– Cross Price Elasticity.

Own Price Elasticity

Price snap of demand measures the per centum alteration in measure demanded caused by a per centum alteration in monetary value. As such, it measures the extent of motion along the demand curve. This snap is about ever negative and is normally expressed in footings of absolute value ( i.e. as positive Numberss ) since the negative can be assumed. In these footings, so, if the snap is greater than 1 demand is said to be elastic ; between zero and one demand is inelastic and if it equals one, demand is unit-elastic.

Income snap of demand

The income snap is calculated as the per centum alteration in the measure demanded of the good divided by the per centum alteration in income. Income snap can be used to sort goods as normal or inferior. With a normal good demand varies in the same way as income.With an inferior good demand and income move in opposite way.

If the income snap for a good is positive we call them normal goods. It can be between 0 and 1, and we call it income inelastic demand for goods such as nutrient, vesture, newspaper. If it is above 1, we call it income elastic demand. Examples are the ruddy vino, sails, jewellery, art, etc.

If the income snap is negative, this means that as income additions, the measure demanded for those goods really decreases, we call those goods inferior goods. Examples are “ Ramen noodles ” , cheap ruddy vino, murphies, rice etc.

Cross monetary value snap of demand

The cross monetary value snap is calculated as the per centum alteration in the measure demanded of good ten divided by the per centum alteration in the monetary value of good Y. Goods can be complements, replacements or unrelated. A alteration in the monetary value of a related good causes the demand curve to switch reflecting a alteration in demand for the original good. Cross monetary value snap is a measuring of how far, and in which way, the curve displacements horizontally along the x-axis.

If the cross monetary value snap is negative, so we call such goods Complements ( illustration: pizza and soft drinks — they are consumed together ) . If the cross monetary value snap is positive, so we call such goods Substitutes ( illustration: pizza and Burgers — you normally consume either / or ) .

Harmonizing to the entire outgo method ;

Ep & lt ; 1

Monetary value of Ten additions so the outgo on Ten additions. Therefore the outgo and demand on Y lessenings. Cross monetary value snap of X and Y i s negative, therefore they are regards.

Now Taking Ep & gt ; 1… we can happen out the relation of replacements.

Therefore ain monetary value and cross monetary value snap is non wholly independent of one another.

Ans 2

In store name “ All Needs ” which is mini Vishal mega marketplace, one went through the shampoo subdivision of that store, where I observe how the agreement of Shampoos is done. The first thing one notice when they enter the shampoo subdivision are the most normally used shampoos like Fructis, Sunsilk, Clinic Plus, Clinic All Clear, Pantene, Baby Johnsons & A ; Johnsons Shampoo, Head & A ; Shoulders. L’Oreal has its ain separate subdivision. The high monetary value shampoos like Vela, L’Oreal are placed at the topmost subdivision.There was a separate subdivision of Anti-Dandruff Shampoos of assorted trade names.The conditioner and other least used shampoos like Sesa, Ayur, Vatika, Medicare, Halo were displayed at the lower subdivision. Shampoo Sachets and little bottles were displayed at the lowest subdivision.

Retailers ‘ has focus on the demands of the consumer and consequently displayed shampoos. They figured out that work forces demand aroma, childs demand aroma and bubbles, in-between income subdivision demands normal trade names like Sunsilk, All Clear, Head & A ; Shoulders which are easy low-cost and last long. Low income people by and large demand Sachets of shampoos or Herbal shampoo like Himalaya, Chik, Ayur. High income people demand shampoos like L’Oreal, Wella.

Consequently Retailer of ‘All Needs ‘ have arranged the shampoos in the undermentioned mode:

“ Upper section is focused on upper category people and joint household, where 1st they have arranged L’Oreal and so Wella, so 700ml and 400ml bottles of Dove, Head & A ; Shoulders, Sunsilk, Elvie.

Middle Segment is focused on in-between category people where they have largely displayed 200ml, 300ml bottles of Clinic Plus, Sunsilk, Fructis, Himalaya.

There is 1 separate section of Anti-dandruff shampoos of all trade names like Head & A ; Shoulders, Clinic All Clear, Dove Anti-Dandruff. This could be placed either at upper section or at in-between section.

Mixed Segment focal point on lower category subdivision where largely inexpensive and easy low-cost shampoos are displayed which is easy low-cost to all tough does non transport good quality. These shampoos are like all shampoo sachets and easy low-cost shampoo like Vatika, Clinic Plus, Chik, Herbal Shampoos like Aloe-Vera, Ayur, Dabur wellness shampoo.

After analysing the nature of the market, I have observed that people of high income category largely prefer to buy L’Oreal, Joint household purchase 400ml-700ml of Dove, Head & A ; Shoulders, Sunsilk, And Clinic Plus. Middle income Class people largely purchase 200ml-300ml bottles of Pantene, Dove, Sunsilk, Clinic All Clear, Fructis. Low income category people largely purchase sachets of shampoos and 100ml -200ml bottle of Chik, Ayur.

Pricing scheme

There is intense monetary value and non-price competition in the shampoo market. If we look at the two major challenger companies viz. HUL and P & A ; G we notice the tendency that these two companies have been prosecuting in intense monetary value competition. The followers is an extract from a newspaper article:

“ ” WITH the monetary value war in the FMCG industry escalating farther, Procter and Gamble ( P & A ; G ) India on Thursday announced that it has slashed the monetary values of its popular Pantene scope of shampoos by 16 per cent.

Here we see an illustration of monetary value competition between houses in the shampoo market. So houses with similar merchandises engage in monetary value competition to capture a larger portion of the market. In add-on there is non-price competition besides. Companies spend a immense sum of money on advertizements every bit good as merchandise development. Therefore we have advertizements where celebrated people like film stars claim that utilizing a certain shampoo has benefitted their hair vastly. For illustration – In add-on houses besides keep on presenting new types of shampoos. Example: Bollywood Television actresses Shilpa Shetty and Neha Dupiya utilizing New advanced ‘ Pantene Pro V ‘ ; Asin Thottumka and Bipasha Basu for ‘Clinic Al Clear – Anti – Dranduff Shampoo ‘ . P & A ; G late introduced Pantene Hair Fall Control shampoo, which is “ designed to cut down hair autumn due to breakage by up to 50 per cent within two months ” . Pantene presently has a market portion of 7.5 per cent in the Rs. 900-crore domestic shampoo market and is seeking to increase it by presenting new merchandises every bit good as viing in monetary values with other shampoo Sellerss.

Current Market Position

The current shampoo market in India is deserving Rs.930crore. The shampoo incursion is 40 % for urban and 10 % for rural markets. There is a batch of competition possibility in this market due to the immense untapped market.

The Top Companies of Shampoos in India are Hindustan Uniliver Ltd. , ITC ( Indian Tobacco Company, Dabar India, Paras, P & A ; G, Himalaya, L’Oreal Paris.The Top Shampoo trade names are:

‘Normal Shampoos – Clinic Plus, Chik, Dove, Fiama D’wills ‘ .

‘Herbal Shampoos – Ayush, Dabar Vatika, Nyle, Ayur, Himalaya ‘ .

‘Anti-Dandruff Shampoos – Clinic All Clear, Head & A ; Shoulders, Dabar Vatika ADVANCE ‘

‘Premium Shampoos – Revlon Flex, L’Oreal, Wella ‘

Decision

Harmonizing to my analysis, I conclude that shampoo market is a Monopolistic Competition where many viing manufacturers sell merchandises that are differentiated from one another ( that is, the merchandises are replacements, but, with differences such as stigmatization, are non precisely likewise ) . Monopolistic Competition is viing both in footings of monetary value and trade names. If there are more replacement of shampoos it is more elastic. In this all merchandises are differentiated in some ways, therefore the house will merely be able to sell excess end product by take downing the monetary value. In physical differences of shampoos it could differ in colour, aroma, thickness, bottle design and lathering ability.

Hence each house has its ain clients ( by set uping some consumer trueness ) , modest alteration in the end product monetary value of any individual house has no perceptible influence on the gross revenues of any other house, i.e. one house can raise monetary value without losing all clients. Therefore, in add-on to monetary value competition there is non-price competition. Shampoo shapers have every inducement to seek out and supply merely the characteristics that consumers are truly willing to pay for. By publicizing it attracts people towards their merchandise.

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