CONSUMER CHOICE BETWEEN HOUSE BRANDS AND NATIONAL

BRANDS IN DETERGENT PURCHASES AT RELIANCE RETAIL

OPERATIONS RESEARCH – MARKOV ANALYSIS

GROUP - 2

Ankul Anand Nishant Singh Pawan Kumar Mishra Piyush Arora Pradeep Kumar
CGT19007 CGT19014 CGT19015 CGT19016 CGT19019
Contents

Reliance Retail
Laundry Detergent Market in India
Sudz- The product
Management Dilemma
Brand Promotions
Study questions and analysis
Reliance Retail

 Subsidiary of Reliance Industries, founded in 2006

 One of the largest retailers in India: 4000+ stores

 Aiming to become the one-stop shop for any and every purchase in the Indian market
Laundry Detergent Market in India

 Indian detergent market was estimated to be ~12000 Cr INR

 1000+ brands available in the market

 Per capita consumption of detergent ~2.7 kg/ year (Developed countries ~ 10kg/year)

HUL accounted for 35% of market share (brands - Rin, Wheel, Surf)

 Proctor & Gamble had 10% market share (with brands Ariel, Tide)

Detergent consumption was expected to grow at 7-9% per year nationally

Laundry Detergent Market in India

Per capita detergent consumption

(kg/ year)
15
Share of Detergents sold at Reliance Retail 10
10

9% 7% 3.6 3.7
3% 5 2.7
Ariel
Henko 0
18% India Malasia Philipines USA
23% Rin
Sudz (Reliance)
Surf
Average price of detergent powders
₹200.00
6% Tide ₹166.60
34% ₹140.40
Wheel ₹150.00
₹122.70

₹100.00 ₹76.50
₹61.00 ₹55.00
₹50.00 ₹37.10

₹-
Ariel Surf Henko Tide Rin Sudz Wheel
SUDZ – The product

 a house brand sold by Reliance

 value proposition for shopping at Reliance Retail

 current market share of 6.27%

 envisioned as a cost-effective detergent - customers get incredible value for money

 comparable performances with other established brands like Surf, Rin, Ariel, Tide, etc
Management Dilemma : To promote or not to promote?

Would customers leave

their brand and make a Is there a need to generate
switch to Sudz? ‘catalyst effect’?
Brand Promotions

How to convince the customers that ‘Sudz’ was the

perceived alternative to their regular brands?
Stock Keeping Units based
Introductory low price for SKUs, special displays, feature
Types of Promotions advertisements, bundling a SKU with an existing brand, etc.

Temporary Price Reduction (TPR)

directly or indirectly lower the cost per unit; Consumers
benefit from either paying a lower price or getting more
of a product for the same price

Promotional Packaging
25% detergent included in the same pack

Multi-item Promotion
Buy two – get one free
TRP – Implication

01 02 03 04
Brand Switching Perceived Quality Purchase Acceleration New Customers
Customers could be induced
Adverse Impact on perceived
Sudz sales could increase to move their purchase Customers who previously
quality
when customers switch from ahead in time were not patrons of this
their previous seeing the product might start
Sales could drop if customer
new lower price level purchasing Sudz
perceived price drop as a
Stocking up on supplies until
reflection of poor quality and
further promotions
associated risk with the
purchase

 Promotions were run at short intervals on Sudz to induce people to try out Sudz
 Promotions were not announced beforehand, so as not to let people plan their purchases in advance
 The discount offered was as high as 25%
 Sales data were collected after each promotional season
Study questions & Analysis
 Can the brand switching problem described in the case be analysed using Markov Chain
Q1 Model? What assumptions are made in the analysis?

Markov chain analysis are most suitable for studying the impact of brand switching behaviour on time scale. It
can be used to predict the future state from the previous state and also the steady state through the transitions.

Key assumptions made in the analysis are:

• Each repeat-buying and brand-switching proportion has to remain constant or stationary from period to
period. Therefore, there is a fixed set of future states
• The purchasing level of each brand in the long run would tend towards a certain steady state.
• Market Share has been derived from number of customers and not the weight or volume of product sold.
• Impact of no-promotion and promotion for a particular brand assumes that there are no promotional
initiatives from other brands in the market.
 What inferences can be obtained from Exhibits 1 & 2 regarding switching between Sudz
Q2 and other brands?

Transition Without promotion Transition during promotion

Brand Ariel Henko Rin Sudz Surf Tide Wheel Brand Ariel Henko Rin Sudz Surf Tide Wheel
Ariel 43.51% 0.32% 13.16% 1.47% 22.25% 13.08% 6.21% Ariel 42.18% 0.00% 8.89% 10.62% 22.69% 8.12% 7.50%
Henko 1.71% 42.03% 5.42% 1.99% 10.88% 12.40% 25.57% Henko 0.00% 52.78% 16.67% 0.00% 16.67% 8.33% 5.55%
Rin 5.64% 0.91% 59.41% 4.91% 15.04% 7.21% 6.88% Rin 3.75% 1.67% 61.89% 6.10% 13.35% 5.42% 7.82%
Sudz 1.49% 0.85% 16.34% 40.34% 21.85% 13.14% 5.99% Sudz 1.02% 0.70% 17.66% 47.86% 20.58% 6.93% 5.25%
Surf 6.13% 0.92% 10.45% 3.95% 62.35% 9.75% 6.45% Surf 5.01% 2.16% 6.71% 7.19% 59.13% 9.80% 10.00%
Tide 7.37% 2.01% 8.57% 1.87% 16.93% 5.47% 10.78% Tide 7.37% 0.52% 7.64% 2.60% 19.77% 47.10% 15.00%
Wheel 5.53% 6.38% 14.01% 3.23% 24.24% 17.39% 29.22% Wheel 7.34% 5.15% 15.49% 3.67% 21.69% 16.84% 29.82%

Gain to Sudz: Gain to Sudz:

 40.34% of Sudz customers remain with  47.86 % of Sudz customers remain with +7.52%
Sudz Sudz

 17.42% of the other brand user switch over  30.18 % of the other brand user switch
+12.76%
to Sudz each time over to Sudz each time

Loss to Sudz: Loss to Sudz:

 59.66% of Sudz customers switch over to  52.14 % of Sudz customers switch over to
-7.52%
other brands other brands
 What will be the market share of the brands after three periods under promotion? What
Q3 percentage of Sudz customers remain as Sudz customers after three periods?

Data in % of market share

Brands Unit Initial Stage Cycle 1 Cycle 2 Cycle 3

Ariel % 6.84 7.47 7.65 7.67
Henko % 3.42 3.50 3.63 3.70
Rin % 22.79 21.38 21.09 21.07
SudZ % 6.27 8.34 9.22 9.60
Surf % 33.90 31.96 31.37 31.18
Tide % 18.23 15.86 15.17 14.92
Wheel % 8.55 11.49 11.87 11.86

P(S1/S0) = 0.4786 P(S2/S1) = 0.4786 P(S3/S2) = 0.4786

SudZ SudZ SudZ SudZ

Others Others Others Others

From the initial customers of Sudz ~ 10.96% of customers will remain with Sudz
Note: P(S3/S0) = 0.4796 * 0.4796 * 0.4796 = 0.1096 = 10.96%
 What is the long run market share of Sudz under promotion and no-promotion? What
Q4 are the important assumptions made in this calculation? Calculate the long-run market
share of Sudz using the corrected initial market share.

In the long run, the market share of Sudz is expected In the long run, the market share of Sudz is expected
to shrink to 5.38 % under no-promotion and grow to to shrink to 5.37% under no-promotion and grow to
9.87 % with promotions 9.87 % with promotion

Long run market share Long run market share

Initial Market Initial Market
Brand Without With Brand Without With
share share - Corrected
Promtotion Promotion Promtotion Promotion
Ariel 6.84% 9.30% 7.61% Ariel 6.84% 9.30% 7.61%
Henko 3.42% 2.74% 3.76% Henko 5.42% 2.74% 3.76%
Rin 22.79% 21.35% 21.20% Rin 20.79% 21.42% 21.20%
Sudz 6.27% 5.37% 9.87% Sudz 6.27% 5.37% 9.87%
Surf 33.90% 32.72% 31.04% Surf 33.90% 32.72% 31.04%
Tide 18.23% 18.41% 14.73% Tide 18.23% 18.41% 14.73%
Wheel 8.55% 10.12% 11.78% Wheel 8.55% 10.12% 11.78%

Key Assumptions:

 Steady state is assumed to be reached at end of 11th sales cycle

 The probability of changing states remains the same over time
 Each repeat-buying and brand-switching proportion has to remain constant or stationary from period to period.
Therefore, there is a fixed set of future states
 Market Share has been derived from number of customers and not the weight or volume of product sold.
 If a customer is currently buying Sudz, what is the probability that he/ she will be
Q5 retained three periods from the current period under promotion and no-promotion?

Ariel Ariel Ariel

Henko Henko Henko

Customers retained No With
Rin Rin Rin at the end of Promotion Promotions

P(S1/S0) P(S2/S1) P(S3/S2)

1st period 40.34% 47.86%
Sudz Sudz Sudz Sudz
2nd period 16.27% 22.91%
Surf Surf Surf 3rd period 6.56% 10.96%

Tide Tide Tide

Wheel Wheel Wheel

 Which brand has more loyal customers? What is the steady-state retention rate of each
Q6 of the brand sold at Reliance Retails?
Surf has the most loyal customers

The steady state (after 11th period) retention rate of all the brands have been shown in the table below for both the
scenarios with and without Sudz promotions :

Steady state transition matrix

Transition Without promotion Transition during promotion

Brand Ariel Henko Rin Sudz Surf Tide Wheel Brand Ariel Henko Rin Sudz Surf Tide Wheel
Ariel 9.30% 2.73% 21.34% 5.37% 32.73% 18.41% 10.12% Ariel 7.62% 3.75% 21.18% 9.89% 31.05% 14.73% 11.78%

Henko 9.30% 2.75% 21.31% 5.36% 32.71% 18.43% 10.14% Henko 7.59% 3.83% 21.25% 9.83% 31.00% 14.72% 11.78%

Rin 9.30% 2.73% 21.38% 5.37% 32.71% 18.39% 10.12% Rin 7.60% 3.76% 21.28% 9.88% 31.00% 14.71% 11.78%
Sudz 9.30% 2.74% 21.35% 5.37% 32.72% 18.41% 10.12% Sudz 7.60% 3.76% 21.24% 9.88% 31.02% 14.72% 11.78%
Surf 9.30% 2.73% 21.34% 5.37% 32.73% 18.41% 10.12% Surf 7.62% 3.76% 21.17% 9.87% 31.06% 14.74% 11.79%
Tide 9.30% 2.74% 21.32% 5.36% 32.72% 18.43% 10.12% Tide 7.62% 3.76% 21.16% 9.87% 31.06% 14.74% 11.79%
Wheel 9.30% 2.74% 21.34% 5.37% 32.72% 18.42% 10.12% Wheel 7.61% 3.77% 21.20% 9.87% 31.04% 14.73% 11.78%
 Every period, about 800 shoppers purchase detergent powder from the Reliance Mart where the
Q7 data was collected for the construction of the transition matrices. The store manager is interested in
finding the customer lifetime value (CLV) of the revenue for Sudz under promotion (10% discount on
price) and under no promotion for four periods, using discount factor of .9999

Sudz Price 0.055

No. of customers 800  Customer Lifetime Value is the value of customers
No Promotion Promotion
relationship, essentially CLV is an estimation of how
Period much money your customer will spend during the
MS Revenue MS Revenue
1 5.77% 2.54 8.34% 3.30 entire relationship
2 5.55% 2.44 9.22% 3.65  CLV for revenue (no promotion) is ₹ 2.33/ gm
3 5.45% 2.40 9.60% 3.80  CLV for revenue (with promotion) is ₹ 3.28/ gm
4 5.40% 2.38 9.76% 3.86
CLV ₹2.33 ₹3.28

Assuming ~225 gms purchase of Sudz per customer/ month, the CLV can also be expressed as ₹ 524 and ₹ 738 per
customer without and with promotions respectively
 Q8. If Parul decides to advertise Sudz using promotion periods, what should be the
Q8 maximum budget that she can allocate for advertising? Use CLV calculation from previous
questions to answer and assume that the profit is 20% of the revenue

Sudz Price 0.055

No. of customers800

Promotion  The advertisement budget should be less

Period
MS Profit- With Discount Profit- Without Discount than the extra value generated.
1 8.34% 0.66 0.73
2 9.22% 0.73 0.81  The advertising budget should not
3 9.60% 0.76 0.84 exceed ₹ 0.66 per gm for sales under
4 9.76% 0.77 0.86 promotion with discount and ₹ 73 per
CLV ₹0.66 ₹0.73 gm for sales without any discount
End of Presentation
Results of Brand Test

Average rankings for various product attributes (2010-2011)

Mean FRAGRANCE Mean LATHER Mean HARD ON Overall All Ranking
Brand
(i) (ii) HANDS/FABRIC (iii) (i x ii x iii)

HENKO 5.4 5.1 5.8 159.73

TIDE 5.3 4.8 5.5 139.92
ARIEL 4 5.6 5.6 125.44
SUDZ 4.5 4.1 5.5 101.48
WHEEL 4.3 4.1 5 88.15
SURF 3.1 4.9 5.3 80.51
RIN 3.2 3.4 4.5 48.96