A GROUP PROJECT OF MANAGERIAL ECONOMICS FOR DEMAND ANALYSIS OF CADBURY DAIRY MILK SUBMITTED BY: 11077 11068 11071

11093 Submitted to: Dr. KinjalAhir Faculty of Managerial Economics, TIMS 8th AUGUST, 2011

1|P a g e

TolaniInstitute of Management Studies

9 August 2011

INDEX: SERIAL NO
1 2 3 4 5

CONTENT
SUBH ARAMBH(INTRO) FACTORS MAIN FACTORS OTHER FACTORS PRICE ELASTICITYOF DEMAND

PAGE NO
3 4 5-6 7-12 13-14

INCOME ELASTICITY OF DEMAND

15-16

CROSS ELASTICITY OF DEMAND(SUBSTITUTE GOODS)

17-18

CROSS ELASTICITY OF DEMAND(COMPLEMENTARY GOODS)

19-20

BAND WAGON & SNOB EFFECT

21

10

REFERENCE

22

2|P a g e

TolaniInstitute of Management Studies

9 August 2011

INTRODUCTION:
Cadbury is a leading global company, which was in Birmingham in England when John Cadbury started his family grocery shop with side business of cocoa and chocolate products in around 1824. His two sons, Richard and George, expanded their family business of cocoa and chocolate. Their head quarters are in the UK.Cadburyenjoys a value market share of over 70%.

CADBURY IN INDIA:
In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities. The corporate office is in Mumbai.

CONSUMERS VIEWS:Customers get sentimental and emotionally attached.

We can see that it had really affected the minds and psychology of consumers E.g.-when the company advertised its brand by tag lines KuchMeetha Ho Jaye " and AajPehliTarikHai ,

PappuPaas Ho Gaya . However, the consumers

had stopped purchasing the bars for sometime after the worm controversy.

PRODUCT:In the early 90's, chocolates were seen as 'meant for kids', usually
a reward or a bribe for children. In the Mid 90's the category was re-defined by the very popular `Real Taste of Life' campaign, shifting the focus from `just for kids' to the `kid in all of us'. It appealed to the child in every adult. And Cadbury Dairy Milk became the perfect expression of 'spontaneity' and

COMPETITORS:
Main competitors: Nestle(bar one), Amul.

FACTORS AFFECTING DEMAND OF CADBURY DAIRYMILK:

3|P a g e

TolaniInstitute of Management Studies

9 August 2011

 MAIN FACTORS:

1. PRICE 2. INCOME 3. PRICE OF COMPETITIVE GOODS  OTHER FACTORS:

1. TASTE. 2. POPULATION. 3. QUANTITY. 4. COMPLEMENTRY PRODUCTS. 5. SCHEMES AND OFFERS. 6. AVAILABILITY IN THE MARKET. 7. OCCASION. 8. BRAND IMAGE. 9. AGE OF CUSTOMERS. 10.GEOGRAPHICAL LOCATION. 11.ADVERTISMENT. 12.INGREDIENTS. 13.PACKAGING. 14.HEALTH. 15.DUPLICATION OF THE PRODUCT. 16.CHARACTERISTIC OF THE PRODUCT. 17.GOVERNMENT POLICIES.

y MAIN FACTORS
4|P a g e

TolaniInstitute of Management Studies

9 August 2011

1. PRICE:
Price is what you pay. Value is what you get The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices. Generally the relationship is negative, means that an increase in price will induce a decrease in the quantity demanded .The assumption of a negative relationship is reasonable.

Thus there is a negative relationship between price and demand of Cadbury Dairy milk.

2. INCOME:
A large income is the best recipe for happiness I ever heard of . In most cases, the more disposable income you have the more likely you buy. Income of the customers also affects the demand of Dairy milk in the market. When there is an increment in the income of the

customers, the quantity demanded of Dairy milk will also see an increase and vice-versa.

Thus there is a positive relationship between income and demand of Dairy milk.

5|P a g e

TolaniInstitute of Management Studies

9 August 2011

3. PRICE OF COMPETITIVE GOODS:

Dairy milk have no friends and no enemies - only competitors . The prices of competitive goods available in the market will also impact the demand of Dairy milk. Now if Nestle increases the price of Bar One chocolate, then will see an increase in demand for dairy milk.

Thus there is a positive relationship between price of competitive goods and demand of Dairy milk.

These were the main factors affecting the law of demand

6|P a g e

TolaniInstitute of Management Studies

9 August 2011

y OTHER FACTORS:

1. TASTE:
All of life is a dispute over taste and tasting . Among the other factors affecting demand of Dairy milk, one of the factors is the taste and preferences of customers. With time, taste may differ and accordingly demand will either increase when taste increases inversely will decrease when customers will stop consuming it.

Thus we can see a positive relationship between taste of customers and demand of Dairy milk.

2. POPULATION: The number of customers consuming Dairy milk will also affect its demand. With an increase in the number of population the consumption of product increases

Thus we can see a positive relationship between number of increase in population and demand of Dairy milk.

7|P a g e

TolaniInstitute of Management Studies

9 August 2011

3. QUANTITY: From the past experience, we have seen that the quantity provided has reduced. So the price sensitive people consumes less.

Thus there is positive(+) relation between quantity and the demand.

4. COMPLEMENTORY PRODUCTS:
Price of sugar, milk, choco powder etc .effects the demand for the product. For example, if the sugar price increases, the ultimate price of the product increases as a result demand decreases.

Thus there is negative(-) relation between complementary goods and demand.

5. SCHEMES ANF OFFERS:

The level of schemes and offers available to the customers will see an impact on the demand of Dairy milk. Due to the lackness of scheme in the product demand deteriorates

Thus we can see a positive relationship between scheme / offer and demand of Dairy milk.

8|P a g e

TolaniInstitute of Management Studies

9 August 2011

6 AVAILABILITY IN THE MARKET:

The demand of Dairy milk can also be affected by the easy availability of it in the market. Due to its easy availability customers preferences towards the product increases Thus, we observe a positive relationship between availability and demand of Dairy milk.

7. OCCASION & FESTIVALS:

Occasion will also have an impact on demand. For instance, festivals and occasion we can witness an increase in the demand for it and vice-versa. Thus, occasional factors affects demand ,and a positive relation establishes.

8. BRAND IMAGE:
Brand Image creates an impact on the minds of the people. Due to its established goodwill priority for the product increases Thus brand image has a positive effect on demand of product.

9. AGE OF CUSTOMERS:
Among the other factors, age of customers also has an effect on the product. Like for example ,younger generation consumes more of Dairymilk which will automatically increase the demand for it. Thus we can see a positive relationship between age of customers and demand of Dairy milk.

9|P a g e

TolaniInstitute of Management Studies

9 August 2011

10. GEOGRAPHICAL LOCATION:

Geographical location creates an impact on the demand. For example, consumption of Dairy milk is more in the cities than in villages. Villagers prefers low budgeted chocolates.

11. ADVERTISEMENT: Tagline which fonds people now a days is kuchmeetha ho jaaye

.People are directed towards the product due to the presence of versatile actor AMITABH BACHHAN in the advertisement. We always observe that customers get more attracted towards the product through its advertisement campaign. Thus advertisement can have a positive relationship with demand For Dairy milk.

12. INGREDIENTS: The ingredients available in the product will definitely affect its demand. For example, as dairy milk is full of chocolate, people preferring wafer chocolate will consume less. So if the ingredients increases its demand increases Thus ingredients and demand for Dairy milk have a positive relation between them.

10 | P a g e

TolaniInstitute of Management Studies

9 August 2011

13. PACKAGING: Packaging also impacts the demand for Dairy milk in the market. The more appealing the packaging of Dairy milk, the higher the company can except the demand to go up. As the company follows double wrapping system, the product becomes more hygienic

Thus, we counter positive relation between packing and demand.

14. HEALTH: Health also affects the demand for the product. It creates dental problems, mom s restricts their child to take up the product. Increase in cholesterol leads to different diseases, so the health conscious and weight conscious people will prefer less.

Thus there is a negative relation between health and demand for the product.

15.DUPLICATION OF THE PRODUCT : Duplication of the product creates drastic effect on the demand. Even these people are quite smart they just interchange the name of the original brand and cell in the market .example dary milk .Thus, there is a negative relation between duplication and demand

11 | P a g e

TolaniInstitute of Management Studies

9 August 2011

16. CHARACTERISTIC OF THE PRODUCT: People consume less as it melts when its kept under low temperature for the longer duration. It has a negative impact on the demand of the product.

17. GOVERNMENT POLICIES: Due to the changes in VAT policy by the government the price of the product will increase which cause decrease in demand.

These were the others factors affecting the law of demand.

12 | P a g e

TolaniInstitute of Management Studies

9 August 2011

ELASTICITIES OF DEMAND:

PRICE ELASTICITY OF DEMAND:

Price Elasticity of demand refers to the percentage change in quantity demanded of a commodity divided by the percentage change in its price, holding all other variables constant.

PRICE DAIRYMILK(Rs.) 5 6

OF QUANTITY DEMANDED OF DAIRYMILK 100 80

ELASTICITY OF PRICE: (% change in price / % change in quantity demanded)  By increasing the price by 25% we can observe following changes: EP= Q/ P*P/Q = = 20/1*5/100 1 Q=Changes in quality. P=Changes in price. P=price Q=quantity Here as the price elasticity is 1 we can conclude that demand for Dairy milk is unitary elasticity.

13 | P a g e

TolaniInstitute of Management Studies

9 August 2011

MIDPOINT METHOD FOR PRICE ELASTICITY OF DEMAND:

ELASTICITY OF PRICE = Q2-Q1/P2-P1*P2+P1/Q2+Q1

=80-100/6-5*6+5/80+100

= 20/1*11/180

= 1.22

Q1=original quantity

P1=original price

Q2=new quantity

P2= new price

14 | P a g e

TolaniInstitute of Management Studies

9 August 2011

y INCOME ELASTICITY OF DEMAND:

Income elasticity of demand refers to the responsiveness in the quantity demanded to a change in consumers income.

INCOME LEVELS(Rs.)

QUANTITY DEMANDED OF DAIRYMILK

10000 15000

150 200

INCOME ELASTICITY :(% Change in Quantity Demanded)/(% Change in

Income)  Increasing the income by 5% we can observe the following changes:

EI= = =

Q/ I*I/Q 50/5000*10000/150 0.67

EI=income elasticity Q = changes in quality demanded. I= changes in income. I=income. Q=quantity. Here as the income elasticity is between 0 and 1 we can conclude that Dairy milk is a normal good.

15 | P a g e

TolaniInstitute of Management Studies

9 August 2011

y MIDPOINT METHOD FOR INCOME ELASTICITY OF DEMAND:

EI = Q2-Q1/I2-I1*I2+I1/Q2+Q1

= 200-150/15000-10000*15000+10000/200+150

= 50/5000*25000/350

0.71

EI=elasticity of income

Q1=original quantity

I1=original income

Q2=new quantity

I2= new income

16 | P a g e

TolaniInstitute of Management Studies

9 August 2011

y CROSS PRICE ELASTICTY OF DEMAND:

Cross price elasticity of demand refers to the responsiveness in the demand for commodity X to a change in the price of commodity Y.

1. SUBSTITUTE GOODS:
PRICE OF BAR QUANTITY DEMANDED DAIRYMILK(X) 5 90(prior to change in price) 10 150(after a change in price ) CROSS ELASTICITY: (% change in price of a substitute or complement/ % change in quantity demanded)  Increasing the price of substitute products by 100% we can observe following changes: E (xy) = Qx/ Py*Py/Qx OF

ONE(Rs.)(Y)

= 60/5*5/90 = 0.75 E(xy)=cross elasticity of demand for substitute goods. Q= changes in quality demanded. P= changes in price of substitute goods. Py=original price of the substitute goods. Q=original quantity demanded.Here cross elasticity is 0.75. So we can conclude that Dairy milk and BAR ONE are close substitute of each other.

17 | P a g e

TolaniInstitute of Management Studies

9 August 2011

MIDPOINT METHOD FOR CROSS ELASTICITY OF DEMAND  SUBSTITUTE GOODS:

E (xy) = QX2-QX1/PY2-PY1 *PY2+Py1/QX2+QX1

= 150-90/10-5*10+5/150+90

= 0.75

E(xy)=cross elasticity of demand for substitute goods.

Qx2=new quality demanded.

Qx1=original quantity demanded.

Py2=new price of substitute products.

Py1=original price of substitute products.

18 | P a g e

TolaniInstitute of Management Studies

9 August 2011

2. COMPLEMENTARY GOODS:
PRICE OF MILK(Rs.)(Y) QUANTITY DEMANDED OF DAIRYMILK(X) 15 25 130(DURING JULY 10) 100(DURING AUG 10)

 Increasing the price of complementary goods by 66.67% we can observe the following changes: E(xy) = Qx/ Py*Py/Qx = 30/10*15/130 = 0.35 E(xy)=cross elasticity of demand for complementary products. Q=changes in quantity p=changes in price. Q=original quantity demanded. P=original price. Here the cross elasticity is 0.35 so we can conclude that Dairy milk and milk are complementary to each other.

19 | P a g e

TolaniInstitute of Management Studies

9 August 2011

y MIDPOINT METHOD FOR CROSS ELASTICTY OF DEMAND  COMPLEMENTARY GOODS:

E(xy) = QX2-QX1/PY2-PY1 *PY2+Py1/QX2+QX1

= 25-15/130-100*25+15/130+100

= 0.05

E(xy)=cross elasticity of demand for complementary goods.

Qx2=new quantity demanded.

Qx1=original quantity demanded.

Py2=new price of complementary goods.

Py1=original price of complementary goods.

20 | P a g e

TolaniInstitute of Management Studies

9 August 2011

BANDWAGON & SNOB EFFECT  BANDWAGON EFFECT :

Bandwagon Effect refers to the concept whereby a customer demands a commodity because others are purchasing it. The customer goes with the trend and follows what others are doing in the market.

 SNOB EFFECT:
Snob Effect refers to the concept where a customer wishes to be different and wants to be opposite to the flow. The customer here consume less of the goods than the actual consumption.

In this product Cadbury Dairy milk , we witnessed the effect of BANDWAGON. This shows that customers are with the flow of the market.

21 | P a g e

TolaniInstitute of Management Studies

9 August 2011

References http://www.cadburyindia.com/brands/choco1.asp

22 | P a g e

TolaniInstitute of Management Studies

9 August 2011

23 | P a g e

TolaniInstitute of Management Studies

9 August 2011

24 | P a g e

TolaniInstitute of Management Studies

9 August 2011