Assignment 1: Synthesis paper of Managerial Economics

PRODUCT – BRITANNIA BISCUITS

Date of submission: 01-10-2019

SUBMITTED TO:
Dr. Sarbani Mukherjee
Asst professor
IIPM - Bengaluru

SUBMITTED BY, SECTION 1-GROUP 5

Chinnari. Sri Raksha 19 PGDM- ABPM 07

Mada Pradeep Chandra Sharma 19 PGDM -ABPM 21
Rathnaswathy.S 19 PGDM- ABPM 32
Shaik Batti Riyaz Basha 19 PGDM -ABPM 34
Nandakishor wangikar 19 PGDM -ABPM 44
 BRITANNIA- BISCUITS

INTRODUCTION:

Britannia is one of the India’s leading biscuit firms, with an estimated market share of 38%. There
are many different biscuit products that the company manufactures like Britannia good day, nice time,
Marie gold, tiger, Britannia treat, little hearts, Britannia 50-50, salted biscuits, Britannia milkbikis. The
major competitor for Britannia is Parle. and the other competitors are Parle products pvt ltd, surya food
and agro ltd, Anmol biscuits ltd.

DEMAND ANALYSIS:
It refers to the quantity of the commodity which an individual consumer or a household is willing
to purchase per unit time at a particular price. It states that as the price of a good increases, the quantity
of that good or services demand decreases and vice-versa.

DETERMINANTS OF DEMAND: The determinants of demand are,

 Price
 Income
 Population and age group
 Brand image
 Consumer preference and taste
 Expected future Price
 Competition
 Price of Complementary Goods
 Advertisement campaign

PRICE:
If there is a slight increase in the price, the demand of the biscuits will remain unaffected, because this
product is a brand loyal product. But if there is a decrease in the price, the demand of the biscuits may
slightly increase.
 P

Qd1
Qd
Q

INCOME:
If the income of the people increases, the demand of the biscuits increases and if the income
decreases the demand also decreases because the people will go for lower price biscuits. So, there is a
positive relationship between income and the product demand.

I
I

Qd
Qd 1 1
Qd Qd 1
Q Q

POPULATION & AGE GROUP:

This product is known by children, adults and also for the old people. Hence the age group doesn’t
affect the demand of the product, so the demand remains same. The demand of the biscuits increases,
when the population increases.
 p Qd Qd1

BRAND IMAGE:
The brand image of the “Britannia” plays an important role in the demand of the biscuits. This
product has built such a brand image that it attracts the mind of the consumers so they will not like to
switch over to the other brand.

CONSUMER’S TASTE AND PREFERENCES:

If the people enjoy eating and develop a preference towards the Britannia biscuits, there will be
more demand. If the consumer doesn’t prefer the biscuits due to its taste the demand for the biscuits
decreases. Income changes and lower priced substitutions could affect their taste and cheaper priced
alternative could become a new preference.

EXPECTED FUTURE PRICE:

The demand for the Britannia biscuits increases, if the consumer knows that the price is going to
increase in the near future. On the other hand, if the consumer knows that price is going to drop in near
future demand decreases.

P Qd Qd1 P

Qd
Qd1
Q
Q
COMPETITION:
There are many competitors like Parle products pvt ltd, Monaco, Milano etc. in the market so if the
price of the competitors increases, the demand of the Britannia biscuits increases. And if the price of the
competitors decreases demand for the biscuits decreases.

PRICE OF COMPLEMENTARY GOODS:

The price of the complementary goods is inversely proportional to the demand for the biscuits. If
there is a little change in the price there is no effect on the demand of the biscuits. But if there is a higher
change in price there is a greater effect on the demand of the biscuit

ADVERTISEMENT CAMPAIGN:

Advertisement has played a vital role in attracting the major part of the population towards the
Britannia biscuits. It has associated Britannia with the tag line “good food good life”. Hence it has gained
social acceptance. If advertisements increase demand for the chocolates also increases.

ELASTICITY

PRICE ELASTICITY OF BRITANNIA BISCUITS:

Price elasticity of demand measures the quantity of demand of Britannia changes in relation to the change
in the price of other biscuits

Price elasticity = % change in quantity demanded / % change in price

For Britannia biscuits the price elasticity is Relatively Inelastic because even though increase in price,
but demand does not decreases at a higher rate .i.e. % change Quantity demand is less than % Change in
price (E<1) Because of brand loyalty, unique taste and it is a normal good, even though price increases at
a higher rate, demand decreases only to some extent

for example, in case of Britannia, in the year 2008 Britannia announced that input costs had increased by
5-6 % and the current price of biscuits is was increased from 20 Rs to 25 Rs per packet due to which
quantity demand was drop from 100 units to 98 units.
 PRICE ELASTICITY = PERCENTAGE CHANGE IN QUANTITY DEMANDED /PERCENT
CHANGE IN PRICE

E = 2/5*20/100, E = 0.2 (< 1)

The curve is more steeper

because it is relatively inelastic
since it operates in monopolistic
market.

eterminants of price elasticity of demand

1.Substitutes.

2.Time.

3. Market type.

4.Quality and brand value of Cadbury.

1. SUBSTITUTES: In case of Substitutes there are more substitutes in the market due to which demand
of the product will be more elastic in nature the cure will be more gentler demand curve will shift towards
right.

For example, if Britannia biscuits price increases and there is no change in the price of the substitute’s
products like parle biscuits then consumers will prefer parle biscuits but not Britannia biscuits although it
is a loyal brand.
2.TIME: SHORT RUN: In the case of the short run if price of Britannia increases then demand of the
product will decreases

LONG RUN: In case of long run demand is not much affected but it decreases when price of substitutes
is less than the price of Britannia biscuits and low quality of Britannia biscuits, then demand will be elastic
and shifts towards right.

3. MARKET TYPE:

Britannia biscuits has monopolistic market due to which demand will be inelastic

INCOME ELASTICITY OF DEMAND:

When income increases the demand increases and when income decreases then demand
decreases as income increases people will tend to purchase more Britannia biscuits. Since it is a normal
good quantity demanded increases but increases less proportionately than the income increase. If the
income rises by 20% then demand will raise by 14%. The curve is positively sloped and Ey < 1

INCOME ELASTICITY LESS

THAN UNITY

CROSS-PRICE ELASTICITY OF DEMAND FOR SUBSTITUTION GOODS:

A change in price of one commodity (substitutes like parle biscuits) leads to change in quantity demanded
of another commodity (Britannia biscuits). For example, if there is an increase in price of parle biscuits
(original price is 20 Rs, new price is 30Rs) quantity demanded for Britannia biscuits increases from 100
to 150 units. As a result, there is a strong demand towards Britannia biscuits.
 Complementary goods: tea and biscuits

We cannot determine cross price elasticity for biscuits with respect to tea and other compliments.

SUPPLY

The quantity of a good or service that producers are willing and able to offer for sale at various prices
during a given time period.

DETERMINANTS OF SUPPLY FOR BRITANNIA BISCUITS:

1. PRICE OF INPUTS (MILK AND CACAO)

2. TECHNOLOGY
3. NUMBER OF PRODUCERS IN MARKET
4. EXPECTED FUTURE PRICE
5. GOVERNMENT TAXES, SUBSIDIES AND REGULATION.
1. PRICE OF INPUTS: Increase in price of cacao and milk leads to decrease in supply of biscuits even
though price of biscuits is constant.
For example, in 2009, UK faced inflation in price of cacao that brought huge impact to all confectionery
companies including Britannia. This shifts the supply curve to left. In the contrary decrease in the price
of inputs causes the increase in the supply of biscuits. This shifts the supply curve to right.

Qs 1 Qs Qs Qs 1
111
111
1

Decrease in supply with increase Increase in supply with decrease

in price of inputs in price of inputs.
2. TECHNOLOGY: improvements in technology will lower the production costs. lower production costs
increase the profits. as a result, Britannia produces more and more biscuits and supply to the market. so,
the supply curve shifts to right.
 better cocoa refining reduces cost of making biscuits.
 Faster shipping and better refrigeration lead to less wastage in spoiled cocoa beans.
 Technology advancement enables firm to supply more at each price
 SHIFT IN THE SUPPLY CURVE TO RIGHT

Qs
Qs 1

3. EXPECTED FUTURE PRICE: Producers of Britannia biscuits delay the production of biscuits if they
expect the price of the product raises in near future. The producers will be more willing to sell the biscuits
at higher price rather than selling the chocolates at current lower price .so supply curve shifts to left. and
when price is expected to reduce in near future, producers Britannia biscuits of increase the production
because producers are willing to sell biscuits at a higher current price rather than at lower future price.
then supply curve shifts to right.

Qs 1
Qs
Expectations of increase in
price in near future, decreases
the supply. supply curve shifts
to left

Qs Expectations of decrease in
Qs 1 price in near future, increases
the supply. supply curve shifts
to right

4. GOVERNMENT TAXES, SUBSIDIES AND REGULATIONS: Government policies such as taxes,

subsidies and regulations affect the cost of producing biscuits. If government-imposed tax on every new
biscuit produced, the result will be smaller profits. as a result, Britannia company will decide to reduce
the quantity of chocolates to be produced. This would shift the supply curve to left
SHIFT IN THE SUPPLY CURVE TO LEFT

Qs 1
Qs

MARKET EQUILIBRIUM:

1. When consumers buy goods and producers sell goods, their interaction lead to
the determination of an Equilibrium price in the market.
2. Equilibrium price: The price at which the quantity that sellers are willing to sell equals the quantity
that consumers are willing to purchase.

When demand and supply are in equilibrium, price and quantity are constant

Qs

Qd

MARKET DISEQULIBRIUM:
1. In 2010 demand for Britannia biscuits suddenly decreased due to decrease in price of parle biscuits and
the is supply is constant, then price decreased and quantity also decreased.

Qd 1 Qd
Qs Quantity demanded decreased from
Qd to Qd 1 and supply is constant
P Qs then equilibrium price of
P1 Britannia decreased from P to P1and
quantity decreases from Q to Q1

Q1 Q

2. In 2011 again supply of Britannia biscuits increased due to decrease in price of inputs (cocoa) demand
is constant.

Qd
Qs Supply for Britannia is increased from
Qs to Qs 1 and demand Qd is constant
Qs1 then quantity increased from Q to
P Q1and equilibrium price decreased
from P to P1
P1

Q Q1
 CONSUMER EQUILIBRIUM:

Allows a consumer to obtain the most satisfaction possible from their income.

Law of diminishing marginal utility – consumer equilibrium one commodity case

Law states that quantity consumed of a biscuit goes on increasing the utility derived from each
successive unit consumed goes on decreasing when consumption of all other commodities remain
constant.
A consumer is having 20 Rs/- and price of 1 biscuit is 2 Rs/- so the total utility and marginal utility are as
follows:

BISCUITS
units TOTAL UTILITY mu MARGINAL UTILITY PRICE mu y/ py
1 24 24 2 12
2 46 22 2 11
3 66 20 2 10
4 84 18 2 9
5 100 16 2 8
6 114 14 2 7
7 126 12 2 6
8 136 10 2 5
9 136 0 2 0
10 126 -10 2 -5
When he consumes 9 biscuits total utility is 136 and the marginal utility is 0, it is the point where consumer
gets the maximum satisfaction. After 9 biscuits the marginal utility is negative. so, consumer stops taking
biscuits after 9 biscuits.

CONSUMER EQUILIBRIUM OF BRITANNIA BISCUITS IN VIJAYAWADA

In Vijayawada survey shows that consumers are giving more importance to brand value of
Britannia rather than packaging

s.no y +x change in packaging change in brand value MRS

1 20+3 0 0 0

2 15+4 -5 1 -5

3 12+5 -3 1 -3

4 10+6 -2 1 -2
The rate at which consumers in Vijayawada sacrifice packaging is more to brand value

So, brand value is given more importance when compared to packaging

Marginal rate of substitution is increasing ( -5 to -2)

PRODUCTION:

BRITANNIA INDUSTRIES Ltd: maximization of profit subject to cost constraints.

Cost of production = W*L + r *k

SHORT RUN PRODUCTION FUNCTION: Expanding output by increasing labor and capital constant.

Q = f (L, K)
 Since Britannia is well established company its capital is constant and labor vary
labour capital total product average product marginal product
1 200 0 0 0
2 200 100 50 100
3 200 250 83.33333333 150
4 200 350 87.5 100
5 200 425 85 75
6 200 500 83.33333333 75
7 200 500 71.42857143 0
8 200 420 52.5 -80
9 200 300 33.33333333 -120

RETURNS TO SCALE: Britannia is well established company and enjoying profits. The input efficiency
is high and there is increase in returns to scale.
ECONOMIES OF SCALE: Since the production is in bulk, per unit cost of productivity is less.
AC (less) = C (LOW) / Q (HIGH)
ECONOMIES OF SCOPE: since there are many varieties of biscuits produced by Britannia which
uses the same equipment, company enjoys economies of scope because joint cost of production is more
than the individual cost of production.
 MARKET STRUCTURE:
When we consider market type for Britannia it lies in monopolistic competition.
Main feature of the monopolistic market: -
 large number of buyers and sellers
 product differentiation (not homogenous)
 demand elasticity

Large number of buyer and sellers: -

Lager number of firms includes Parle, Oreo, sun feast are the major competitors for Britannia. That is why
each firm follows the independent price policy.

Product differentiation (not homogenous): -

One of the best features of Britannia is product differentiation, but products are not perfectly different but
slightly different from other firms like Parle, Oreo and sun feast. And company has monopoly on the
product due to some secret recipes, ingredient and brand value. Sometime product differentiation may be
real or imaginary. In real, differentiation include design, material, skills and in imaginary differentiation
include the advertising, trade mark

Demand elasticity
Britannia it is one of the leading companies in biscuit market and brand value of the Britannia makes their
demand inelastic.

Demand is more inelastic and Britannia is making profits P >AC

PARLE: demand is more elastic because of less product differentiation and is in loss, P< AC
 BRITANNIA PARLE

Britannia - profit Parle - less

GAME THEORY: Two players: Britannia and Parle

Strategies of game: high price, medium price , low price.
Payoff:
PARLE

H M L
H (73, 25) (57, 42) (66, 32)

BRITANNIA M (80, 26) (35, 12) (32, 54)

L (28, 27) (63, 31) (54, 29)

STRATEGIES: Britannia has low price as dominant strategy, Parle does not have any dominant strategy
it will follow Britannia dominant strategy.
Case analysis: Britannia has many competitors including parle and other local brands. How
can Britannia make profit in short and long run?
In long run also Britannia makes the profit while Parle satisfy with AP=AC.
Out of total production 70-80% of Britannia production done by the third parties but when compare
with the Parle only 20% of total production is done by the third parties.
So due to brand loyalty Britannia purchases the biscuits from third party and sale them under brand
name of Britannia
That’s why the labour cost, land cost, machinery cost, is less for Britannia too less as compare to
Parle.

Profit made by bit Britannia in short run.

Profit made by Britannia in long run

While Parle require more labour, machine, land as compare to Britannia.

 Profit made by Parle in short run.

In long run AR=MR FOR PARLE

Britannia should maintain the brand image by maintaining demand inelastic by increase in varieties
and bringing more uniqueness in their products (product differentiation) then Britannia can make
more profits even in the increasing competition in biscuit manufacturing companies.