Le Hai Yen - s3483015

Luu Quynh Mai - s3500368

Nguyen Thuy Trang - s3410042
Nguyen Quang Trung - s3501539
Nguyen Thai Ngoc Anh - s3450024

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TABLE OF CONTENT

A. Introduction 3

B. Finding
1. Major brands and suppliers 4
2. Substitution 5
3. Market Structure 6
4. Potential Suppliers 8
5. Elasticity of Demand and Supply market and taxes 11
6. Price control policies and tariff 13

C. References 14

A. INTRODUCTION

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The paper is going to research into the shampoo market in Vietnam. According to Oxford
dictionary, shampoo is a liquid used to wash the hair, however, this research does not include "2-
IN-1" products. For example, products that are advertised to have the function of both shower gel
and shampoo, or shampoo and conditioner in 1 container.

Consider the fact that the timeliness of data can affect the reliable of the research, all data
collected for research purpose are from 2008 to 2014.

A. FINDING

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 1. Outline the major brands and suppliers (ie. manufacturers and importers, not retail
outlets) for the product shampoo in Vietnam.

According to Hair Care in Vietnam (0ct, 2014),the market in Vietnam was really potential at not
only in media such as magazines or newspaper but also in others field like supermarket with
shampoo. To more specific, in this area, Vietnam has a strong advantage with two main dominant
manufacturers are Unilever Vietnam International Co Ltd and Procter & Gamble Vietnam Ltd,
which these companies reach at 66% for share in 2013.

Chart 1 - Consumption of different shampoos in Vietnam (2012) by Vinasearch

The consumption of different shampoos in Vietnam (2012)

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Sunsilk Clear Double Rich Rejoice Pantene Dove

According to Vinasearch, the top 5 major brands in Vietnam are Clear (18.7%), Sunsilk (14%),
Rejoice (13.8%), Patene (10%) and Dove (6.2). All these 5 brands belong to Unilever and Protect
& Gamble.

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 2. Discuss the products you would consider to be close substitutes of shampoo (if any),
giving reasons(eg, What characteristics do these products have that make them close
substitutes?).
Natural products
From the last few decades, Vietnamese people did not have enough condition and the product
called shampoo did not appear, they just only depend on the natural things. As a consequence,
they usually exert grapefruit skin or locust seed to wash their hair instead of using shampoo.
However, these kind of natural things are much more popular for older generations: mother,
grandmother. Although these things are really useful and good for health but it may take a lot of
time for preparing process. Nowadays, people are too busy to use it. They can easily find and
buy a shampoo for washing their hair. Even though, it is not popular like it used to be but that
does not mean that people are no longer using it.
Shower Gel
Another alternative to shampoo is shower gel. However, it is much more often use as
complementary goods rather than substitute products.
Combine-function products
An example of these products are products that have both function of shampoo and conditioner
or shampoo. However, they are not very popular in our market.

Overall, there are a way to wash hair without shampoo but they cannot compare to shampoo
product. Therefore, it is acceptable to conclude that shampoo does not have a close substitute
goods.

3. Using the concepts of concentration, product differentiation, and barriers to entry,

discuss and classify the structure of the market for shampoo in Vietnam.

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Base on Vietnam Customs Department, there is only a few Government's policies and regulation
on health, there are not many barrier to enter the Vietnamese shampoo market. This is the reason
why there is a large number of competitors within the market.
Many different shampoo brands and suppliers are available in Vietnamese market. In order to
compete with others, shampoo products have become highly differentiated in many aspects.

Picture 1 - Shampoo sections at Lotte Mart (by Luu Quynh Mai - December 2014)

A small market research was conducted at 3 supermarket chains (Lotte Mart, BigC and Fivimart)
to see the differences in these brands.
Shampoo products differ from type and use. They have shampoo uses for anti-dandruff, repair
damaged hair, for coloured hair, daily use and more. In term of physical differences, they vary
from colour, smell, packaging, size, thickness to lathering.

Picture 1 - Shampoo sections at Lotte Mart (by Luu Quynh Mai - December 2014)

In term of price, it is very difficult to compare between brands since each brand focus on
different customer's need. The price range is quite narrow and with product's value vary in
different aspects, the differences in price can be perceived as zero or insignificantly small.

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Consumers tend to choose product base on functions, smells rather than solely base on product
price.
Therefore, in shampoo market, suppliers hold a certain level of control over price. Firm's market
power comes from its differentiated product (which creates customer's loyalty). Therefore, they
can lower their prices without starting a war price with other competitors. Hence, firm feels free
to set prices and wont creates any impact on overall market or fear that changes will create more
competitors

Base on the research above, the structure of Vietnamese shampoo market can be classified as
Monopolistic Competition.

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 4. Comment on the likelihood of potential suppliers entering the market to compete
with existing suppliers. Provide evidence to support your opinion (ie. specific names
of potential suppliers and the reasons why they would want to enter the market to
compete with existing suppliers).

According to Irena Admundson ( 2012), if the prices rise, additional suppliers will be enticed to
enter the market. Supply will increase until a market-clearing price is reached again. In fact,
when the demand of consumers increases rapidly , existing firms are more likely to raise the
prices to maximize their own profits. This means they are generating more positive economic
profits that are considered as incentives for new suppliers to begin competing with existing
firms. Additionally, the ease of entry into the industry is also an essential factor since it
determines how easy or difficult for new firms to enter into the potential markets. Basically, the
ease of entry the industry is based on the two main factors : the reaction of existing firms to new
entrants and the barriers of entry. From existing suppliers perspective, new entrants are
considered as potential threats for them regarding to the decrease in market share and revenue if
new competitors are more efficient and productive. Hence, they are more likely to react strongly
with new competitors to maintain their position of market share. Besides that, barriers to entry
are defined by economies of scale, product differentiation, capital requirements, government
policies .In terms of Shampoo market in Vietnam, its structure is under monopolistic competition
concept with low barriers to entry which are relatively favorable conditions for new suppliers.
Moreover, new entrants can be motivated by looking at the economic success of the two major
existing firms :
Jonathan ( 2012) stated that Unilevers Vietnam sales have been growing at an average of 18.5
percent a year over the past decade, with sales in Vietnam hitting $700 million in 2010. Unilever
and P&G have been expanding throughout Vietnam, offering goods ranging from baby formula
to cosmetics.

Potential competitors
Garnier is a shampoo belonging to LOreal Group. Aside from shampoos, Garnier also
manufactures conditioners and other hair care products, like hair coloring. It has a worldwide
presence and the firm differentiates its product line of shampoo depending on skin type and even
the nations culture.
According to LOreal annual report 2012, the sales of cosmetics was 20,812 mil euro and Hair
care brand accounted for 21% of the sales
Net profit after non-controlling interests increased by 13,8% from 2,240 mil euro in 2010 to
2,868 in 2012. This proves that the company is doing well in its industry so that it has capable
ability to compete with existing firm in Vietnam.

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 a. What would be the impacts on the market price and quantity of shampoo
consumed in Vietnam, and on the existing suppliers profitability if a major
new supplier enters the market?

The prices of products are determined by the supply and demand. If a major new supplier enter
into the market, it means that they will bring with them new ideas, new ways to manufacture
better quality of products or services. At the same time, existing firms will try to create strategic
plans or to reduce the prices to maintain their competitive advantage. The more suppliers in the
industry are, the more the prices of their product decrease. When the price of a product decrease,
the quantity demand will increase as consumers are able to gain more benefits.

Graph 1 - The effects of a new competitor enters the market

As can be seen from the graph, the supply curve of Shampoo shift to the right from S1 to S2
since there are more products or substitutes in the industry. As a result, the quantity demand will
increase from Q1 to Q2 and the price go down from P1 to P2.
More firms in the industry mean that each firm has smaller market share and revenue This in turn
will create incentives for firms to be more efficient to invest in R & D, innovation as well as help
raising productivity growth.

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 b. Similar to question 4(a) above, what would be the impacts if a major supplier
decides to leave the market?

As firms making losses, some firms will leave the industry. If a major firm makes a decision to
leave the industry, this prove that this industry is less profitable than others. In short run, if the
net profit is less than the average variable costs, the firm should shut down its operation or
change to other industry.

Graph 2 - The effects a competitor leaves the market

The graph illustrates how supply and price of shampoo change if a major firm decides to leave
the industry. There will be less firms in the industry. Therefore, the supply curve shifts to the left
from S1 to S2. As the consequence, the prices increase from P1 to P2 while quantity demand
declines. The only one effectively existing firm will enjoy monopoly which allow the company a
freedom to control the price and the supply of the market.

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 5. Discuss the demand and supply elasticities of shampoo and based on this, discuss the
tax incidence if a unit tax is imposed on shampoo.

To the first extent, the demand for shampoo is easy to recognized as inelastic and it could
interpret through some criteria below:
The availability of substitute products
Since people in the past explore many ways to take care of themselves from head to toes, they
had already experienced some simply types of herbs to wash their hair. Even herbs could use for
washing hair purpose but people seem rarely consume it instead of shampoo because of itself
multifunction effects and useful. As a consequence, shampoo could be easy recognized as
necessity goods in economics concept. Necessity is a sort of goods that people cannot live
without consuming it. This is mean the amount of shampoo in general people consume will not
be completely influenced in case the prices go up and down or income change.
The essential of commodity
Shampoo is a product plays an important role in modern life few decades recently; the
revolution of shampoo has been completely changed in washing hair habit of consumers. It does
not waste time to process before using like the old one. In a study, it was determined that the
frequent shopping of buyers for shampoo is about one time per month.
As a result, shampoo is always an inelastic product even there is an adjustment in the price. In
particular, although the income stays the same, the price of necessities increase but buyers still
have a demand for it.

Supply of shampoo in Vietnam is being more developed and got a lot of attractions more than
other nations from many different companies overseas. This might be because the significant
difference between the Vietnam Dong is much lower than other countries. Other reason is
producing; advertising goods in Vietnam does not have to deal with huge difficult barriers
or austerities like it is in other Asia countries. In addition, the location of Vietnam is also an
advantage for suppliers, with the long beaches and lots of harbors; it is convenient in supporting
logistic and trading. Thus, the more diverse in product is, the more options for customers
chose. In particular, Unilever is one of the initial companies, which has foreign capital joined
market in Vietnam and this big giant occupies the majority the shampoo market of Vietnam. It
has produced multiple types of shampoo with a range of prices; classify various functions aim to
different classes. The mass hair care products brand of Unilever have been very popular and are
dominant in the domestic market such as Sunsilk, Clear, Dove..

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Tax on shampoo is an important issue for not only suppliers but the consumers as well. To
encourage local shampoo industry, Vietnamese Government does not impose tax on this type of
product.
However, in case the government want to imposes tax on shampoo, the burden of tax fall more
on consumers. The reason lays on the market inelastic demand curve. Shampoo do not have any
close substitute products, hence, consumers is force to buy them regardless of price.

Graph 3 - The effect of Government imposes 1 unit of tax on the market

Without tax With tax

Consumer Surplus A+B+C A
Producer Surplus D+E+F D
Deadweight Loss None B+E

Government Revenue None C+F

According to the diagram, before applying tax, the market apply at equilibrium (Q E, PE). After the
tax incident, consumers have to pay at PT (VND) for the same product while producers only
receive an amount of profit at PP. This also result in a decline in quantity supply and demand for
shampoo (from QE to QT). Both consumers and producer is at loss after the tax incident, however,
consumers have a heavier burden of tax than producer. However, government gain revenue by
collecting tax on shampoo.

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 According to Hong Van (2012), Ministry of Finance can also increase the percentage of tariff on
raw materials in producing shampoo or because they have to import them from overseas since
Vietnam is unable to manufacture that material. However, this can create negative effects on
local producers and so the government has not reconsidered on the amount of tariff (which is
15%) on both input in shampoo process and shampoo itself.

Graph 3 - The effects of tariff on Vietnamese shampoo market (adapted from RMIT University)

With free trade With tariff

Consumer Surplus CS CS- A, B, C, D
Producer Surplus PS PS + A
Deadweight Loss None C

Government Revenue None B+D

This chart illustrates the world price on shampoos, before and after applying one unit of tariff.
With international trade, consumers gain more benefits, while producers will be worse off, due to
local business is less efficient than foreign competitors. Consequently, the governments legislate
rules about tariffs to protect local businesses. Tariffs are taxes imposed by government on goods
imported into a country, which increase the cost of selling products (cited from Microeconomics,
RMIT University).
After applying tariff, part of consumers surplus transferred to producers, which helps them
gaining more benefit . Besides that, the government also collects tariff revenue, through part
C that they did not get when applying free trade. However, tariffs also cause the deadweight
loss in society. This included the loss of resources used to produce additional output at higher
cost but less efficient and represented the decline in welfare of economy.

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Specifically, since they trade shampoos to Vietnam market which the government requires 15%
on tariff for this kind of imported goods. In this point, the government will get revenue from
imported goods, suppliers can sell products at better price, whereas, customers will purchase at
worse price, due to tariff increase the cost of selling a good.

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 6. Discuss how price controls such as price ceilings and price floors or taxes could
affect this market in terms of price, output and perhaps, the three key
characteristics.
Base on the research, Vietnamese Government does not set any price ceilings or price floors on
shampoo products, since shampoo producers are operating at a fairly acceptable price.
Assuming that, if Vietnamese government does interfere into the shampoo market in order to
distribute the social welfare more evenly between producers and consumers.

Graph 4 - The effect of price floor on Vietnamese Shampoo market

Before Price Floor After Price Floor

Consumer Surplus A, B, C A
Producer Surplus E, F F, C
Deadweight Loss None B, E

The diagram shows the changes when price floor appears on shampoos industry. Price floor has
been made to rise the benefits of producers up, they have chance to sell their products at better
price. Meanwhile, when the price goes up, the demand shifts to the left that means consumers
will buy less, so producers also sell less. As a result, when the quantity supplied excess the
quantity demanded, these excess goods will become inventories or be exported.
The good point of price floor usually concentrates on protecting suppliers from the exploitation
by the buyers. They can sell their products at better price than a normal price which helps them

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to make extra profit. However, it affects negatively consumers, when suppliers sell at higher
price, they have to pay more money on shopping. Furthermore, it can cause the rise on the cost
of imports up, due to increase the import tariff. This will lead to the decline on demand that is not
good for general economy, specifically, less product is being sold, less able to collect taxes on
sales of products by the government.
In case, the government applies price ceiling on the shampoo market in Vietnam, the effects will
be opposite of price floor.

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Sadia, 2014, 7 Benefits of Grapefruit essential oil for Hair, Style Craze, viewed 12 December
2014, <http://www.stylecraze.com/articles/benefits-of-grapefruit-for-hair/>

To 2014, Bubblews, viewed 08 December 2014, <http://www.bubblews.com/news/3180756-the-

secret-of-popular-summer-hair-care-effective>

Euromonitor International 2014, Hair Care in Vietnam 2014, viewed 08 December 2014,
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LOreal 2012, Beauty for all, LOreal, viewed 11 December 2014,

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