Managerial Decisions: A Case of Marico and Marico Manager

by Dr. C S. Adhikari
01/07/2015/17.05.2016

Ajay Gupta did his PGDM in 2010 from ITM B-School Kharghar, Navi Mumbai and is a Regional Manager
for Western Region posted at Ahmadabad with a FMCG Company Marico Ltd. which produces and
markets various consumables right from biscuits to hair oil.

As a regional manager, he is assigned the task of sales projections of various products of Marico in the
entire western region for the next year 2016-17 much before its commencement to the top
management to help them plan entire supply chain and production of consumables including entire
gamut of marketing activities.

The year 2015-16 is his first year as Regional Manager Western Region as well as holding the
responsibility of annual targets of sales by products. Ajay is wondering whether his PGDM Course on
managerial economics can give him some insights which coupled with his work experience of past 5
years can help him make sales projections. He had a healthy habit of taking down class notes with him
which he could easily refer to along with Internet while making some economic notes for his seniors as
well as take some managerial decisions. He always found the class notes very useful as referring to a
bulky book with too much repetition and theory coupled with too many courses in a single term makes
life miserable and class notes which sum up the essence of the entire chapter in couple of pages
sounded interesting and much more palatable and absorbing. The nature and scope of managerial
economics and objectives of the firm, a typical managerial economics books covers in 40-45 pages which
a Professor of economics completes in a session of 80 minutes with his subtle knack of getting the
essence of the entire chapter in few slides and few pages in the form of a case let.

While referring to his notes, he found out that his Professor of Managerial Economics has defined
Managerial Economics as a course which helps managers to take managerial decisions most efficiently
(optimally). To add to this simple definition he further added that it is an “Application of economic
concepts and theories with the help of tools of decision science to achieve organizational objectives
efficiently (ACETDS TOOE). What a simple way of defining Managerial economics with an acronym which
is so easy to remember. While discussing the managerial decisions, he argued that basically economic
decisions such as What to Produce, When to Produce, How much to produce, where to produce and
For whom to produce become the decision metrics of organizations and obviously these decision
problems involve the decisions related to Market Demand, Market Supply and Markets themselves
which can be easily discussed with the help of acronym PDC, i.e. Production (supply side economics),
Distribution (supply side economics or markets) and Consumption (demand side economics). Thus
examining the economic behavior of three economic agents: Producers, Consumers and Markets is
important which forms the subject matter of managerial economics. However, one thing is clear that
scarcity is at the center of economic behaviour of decision making at all levels: individual, household,
firm, nation etc,. Had there been no scarcity, there would not have been any economic problem and
hence any economic decision making.
Further explaining the acronym ACETDSTOOE, he said that economic concept like Marginal utility,
market demand, market supply, elasticity, Revenue, price, cost and profit concept, production concept
and market concepts are important and since we apply these concepts with the help of tools of decision
science we must understand those tools and their applications to achieve the profit maximization
(optimization) objective of the firm. What are the tools and techniques of decision science? These are
equations, models, graphs, slopes, derivatives, maxima, minima, regression and various statistical tools.

For example, Ajay has been given the problem of sales (demand) forecasting. How can he use his
knowledge of managerial economics in arriving at the decision? Based on the theory of demand, he can
identify the determinants of demand for his product and their inverse or positive relationship with the
market demand. Once he is in a position to identify the determinants of demand for his product, he can
also examine the elasticity coefficients of each determinant of demand with the market demand for the
product which is nothing but the extent of change in quantity demanded for the product due to one unit
change in the determinant of demand. This elasticity concept will help him understand as what the
strong determinants are and which the weak determinants of demand for the product are. Once he
finalises his demand function with all the determinants and their elasticity concepts in place, he can
collect the time series data for the same for last 5-10 years and can run the multiple regression model to
arrive at the sales forecast for 2016-17 through semi log, double log or polynomial method and based on
the Value of coefficient of determination decide about the best fit and best result.

For example based on the multiple regression the sales forecast model was:

Log Yco=24000(tons)-0.2logP+ 1.02logY+ 0.31logPs- 0.23Pc when R2= .982, it suggests that the initial
production of coconut oil of Marico in 2005 was 24000 tons and with 1% increase in price of marico
coconut oil, its demand goes down by 0.2 percent whereas with the increase in the income of
consumers, its demand goes up by 1.2%. Likewise substitutes’ price increase has a positive impact
whereas complimentary products price increase has a negative impact on marico’s market demand.

In Managerial economics we examine the economic behaviour of a firm. The firm with which Ajay is
working is Marico which is a FMCG, multi product, multi locations, multi brand listed company set up in
1991 by Mr. Harsh Mariwala,with an annual turnover above Rs.5735 crs with more than 2400
employees. It has as many as eight factories in India and it has one subsidiary in Bangladesh also. The
company holds a number of brands including Parachute, the flagship brand, Saffola, Hair &Care, Manjal,
Livon, Set Wet, Zatak, Fiancee, HairCode, Eclipse, X-Men, Hercules, Caivil, Code 78,Black Chic etc.

Harsh Mariwala is the chairman and Saugata Gupta is MD and CEO of this organisation. Marico has a
significant presence in Bangladesh, South East Asia, Middle East, Egypt and South Africa. Marico
reported a net profit of Rs 573 Crore in 2014-15.Harsh after gruaduating from Mumbai university started
his career with Bombay Oil Industries Limited in 1971 and in 1975 he developed the branding division for
this family run edible oil business. Taking risks and thinking of the future, Mariwala laid the foundation
for this brand umbrella. The brand name Marico was developed only in 1990. In 1975, he pushed the
branding part of the company and saw the importance of creating brands at that time. This was his first
step towards diversification. Branding felt like the need of the hour and showed promises of
sustainability, profitability and marginalisation.

In 1990, he started Marico, which though was a spin-off from the family business but was a completely
separate culture and required new talent. As the company started growing, he worked on strengthening
the market presence by carefully selecting distributors and strengthening the company by hiring talented
professionals.
Growth is the oxygen to any organisation. Growth leads to sustainability and this is the motivation
behind every new venture. The excitement and enthusiasm behind the creation of new products, drives
people/organisations to become market leaders.
Looking at the growth of the company, it is clear that Harsh Mariwala wanted to expand the business
which he learnt from his family business and create brands through innovations with a view to earn
profit. He succeeded in achieving his objectives with the help of professional managers and delegated
them powers to take decisions such as production decisions, brand creation and promotion, marketing,
finance, business development and expansion etc. Over the years, Marico Innovation foundation has
taken up various community and social projects in the area of empowering communities and
empowering women by skill development and livelihood, access to high quality affordable health care,
new age technology etc.

Creativity is thinking up new things. Innovation is doing"

- Ted Levitt,

"Innovation distinguishes between a leader and a follower..

"Innovation is the central issue in economic prosperity."

In one of the interviews he made the following observations:

Tips for success

 One should learn to manage adversity, think out of the box and not shy away from taking risks and
innovating.
 Each person has a certain gift and it is important to identify this unique talent and work towards
developing it.
 Short-term programmes and courses will help update your skills and will help you be on top of the
game.
 Focus is imperative to excel and one should visibly define their work and focus on achieving their
goals and targets.
 Be ready for continuous evolution and learn to delegate work, change and adapt .
 Do not let roadblocks stop you from achieving your goals.
Note:

This case was prepared with a view to discuss the nature and scope of managerial economics to PGDM
students 2015 – 17 batch of ITM B-school. In May 2016, it has been revised for the batch of 2017-18 by
incorporating a brief about Marico with a view to explain the economic behaviour and objectives of the
firm. The case mainly discusses the definition of managerial economics mainly from the point of view of
application of economic concepts and tools of decision sciences with special reference to sales
projection followed by how Marico rose from a scratch to a multi- million company.

Questions:

- What is at the root of the economic problem?

- What kind of economic decisions are taken?

- What is a company (firm) and what are its objectives?

- What is managerial economics? What do you mean by ACETDSTOOE? Explain.

- What economic concepts Mr. Ajay Gupta used while solving the economic problem?

- How does a Firm grow?