Trang 1 FOREIGN TRADE UNIVERSITYMajor: International Economics---o0o---Topic: Trang 3 TABLE OF CONTENTSINTRODUCTION...4A BRIEF LOOK AT THE VIETNAM BEVERAGE INDUSTRY………5CHAPTER 1: BASIS
FOREIGN TRADE UNIVERSITY Major: International Economics -o0o - Topic: A COMPREHENSIVE ANALYSIS OF PRICE ELASTICITY OF DEMAND FOR SOFT DRINKS : IMPLICATIONS FOR PRICING STRATEGIES Instructor : Nguyễn Thị Tường Anh Class : KTEE201.4 GROUP MEMBER No Name Trần Công Dũng Nguyễn Duy Hiệp Student ID 2212450018 2212450036 TABLE OF CONTENTS INTRODUCTION A BRIEF LOOK AT THE VIETNAM BEVERAGE INDUSTRY……………5 CHAPTER 1: BASIS ANALYZE PRICE ELASTICITY OF DEMAND…….7 Price Elasticity of Demand CHAPTER ANALYSIS 10 Availability of Substitutes 10 Proportion of income spent…………………………………………………… 11 Price Sensitivity…………………………………………………………………12 Brand Loyalty………………………………………………………………… 13 Implications for Pricing Strategies…………………………………………… 14 CHAPTER 3: CONCLUSION………………………………………………….16 REFFERENCES…………………………………………………………………17 INTRODUCTION It is undeniable that soft drinks are one of the most consumed commodities in Vietnam each year They have become a significant influence in the Vietnamese market The soft drink market is also one of the relatively stable and rapidly developing markets, with both local and international brands competing for market share In recent years, the production of soft drinks has been steadily increasing, showing no signs of slowing down in the near future This is primarily due to the changing consumer preferences and lifestyle trends Notably, customers now seek healthier options and products made from natural sources or fruits, which are gaining popularity As a result, many brands are adapting their product lines to better meet consumer demands These changes will impact both pricing and the way consumers perceive the current products Hence, we have chosen the topic "Analyzing Price Elasticity of Demand for Soft Drinks: Implications for Pricing Strategies" to provide readers with insights into the soft drink market and how pricing affects the products We hope that this article can enhance your understanding of microeconomics and offer a fresh perspective on this subject Thank you for your valuable time, and we sincerely appreciate your input and contributions A BRIEF LOOK AT THE VIETNAM BEVERAGE INDUSTRY According to the latest reports, in 2022, the production of beverages in Vietnam experienced a slight increase compared to 2021, with a total production volume reaching approximately 10 million liters Similar to other beverage products, the production of beverages faced difficulties in 2022, including: - Surging input costs: fuel, plastic packaging, paper, aluminum prices, sugar, etc - Profit margins of manufacturing businesses decreased compared to the same period last year The five leading enterprise in beverage production in VietNam are: PepsiCo, Tan Hiep Phat Group, Coca-Cola Co, JG Summit Holdings Inc and Suntory Holdings Ltd Pepsico maintains its leadership position in the beverage segment (by value) As for segments, Pepsico also leads in segments namely carbonated drinks, fruit juices, bottled water, and sports drinks 2nd place in 2022 belongs to, Coca-cola Vietnam; which accounted for a large market share in the segments of carbonated drinks, bottled water, and fruit juices Document continues below Discover more from: Microeconomics Trường Đại học Ngoại… 570 documents Go to course Kinh Tế Vi Mô - AAA Class 18 - Lý thuyết Microeconomics 100% (36) Test-Bank- chap 1-7 22 Microeconomics Bai tap cung cau co gian Many required calculatin… Microeconomics 93% (15) Kinh Tế Vi Mô - AAA Class - Bài tập Tự luận Microeconomics 10 100% (8) Calculating exercises chapter Microeconomics 100% (24) 91% (23) Unit2 demand&supply njknjnj Microeconomics 100% (6) CHAPTER 1: BASIS ANALYZE PRICE ELASTICITY OF DEMAND Price Elasticity of Demand Definition Price elasticity of demand is a measurement of the change in the consumption of a product in relation to a change in its price Expressed mathematically, it is: Price Elasticity of Demand = Percentage Change in Quantity Demanded ÷ Percentage Change in Price Economists use price elasticity to understand how supply and demand for a product change when its price changes Like demand, supply also has an elasticity, known as price elasticity of supply Price elasticity of supply refers to the relationship between change in supply and change in price It’s calculated by dividing the percentage change in quantity supplied by the percentage change in price Together, the two elasticities combine to determine what goods are produced at what prices Determinants of Price Elasticity of Demand Availability of Substitutes: If there are close substitutes available for a product, consumers have more options to choose form In such cases, the demand for a product tends to be more elastic as consumers can easily switch to alternative products if the price of the current product changes For example, when people have options for buying mobile phones: Androids and iPhones If the price of iPhones goes up, people will immediately switch to Androids, therefore the demand for coffee will fall and vice versa This is because they are considered good substitutes for each other sAvailable substitutes for a good or service makes an item more sensitive to price changes If the price of Android phones increases by 10%, this could shift demand from Androids to iPhones, for instance Necessity or Luxury Good: The nature of the product also affects its price elasticity of demand Necessity goods, such as food or basic healthcare, tend to have inelastic demand because consumers are less likely to reduce their consumption even if prices rise On the other hand, luxury goods or nonessential items often have more elastic demand as consumers are more sensitive to price changes and can easily reduce their consumption Proportion of Income Spent: The proportion of income spent on a product influences its price elasticity of demand Goods that represent a significant portion of consumers' income, such as houses or cars, tend to have more elastic demand Consumers are more likely to adjust their consumption if the price changes, as it has a substantial impact on their overall budget During a period of job loss, people may save their money rather than upgrading their smartphones or buying designer purses, leading to a significant change in the consumption of luxury goods Time Horizon: The elasticity of demand can also vary depending on the time horizon considered In the short run, consumers may have limited options to adjust their consumption patterns, leading to relatively inelastic demand However, in the long run, consumers can make more significant adjustments, and demand becomes more elastic Brand Loyalty: Products with strong brand loyalty often exhibit inelastic demand Consumers who are loyal to a particular brand are less likely to switch to alternatives, even if there are price changes Therefore, the price elasticity of demand for such products tends to be lower Market Definition: The elasticity of demand can also be influenced by how narrowly or broadly the market is defined Narrowly defined markets, such as specific brands or models, tend to have more elastic demand as consumers have more readily available alternatives In contrast, broadly defined markets, such as entire product categories, may have more inelastic demand as it becomes harder for consumers to find close substitutes CHAPTER ANALYSIS Analysis Availability of Substitutes Viet Nam has a really competitive market in terms of soft drinks, with products ranging from carbonated soft drinks to ready-to-go coffee For this reason, a large number of companies have emerged to accommodate the rising demands for soft drinks The image below shows the leading enterprises in soft drinks industry in Viet Nam With a variety of options readily available at their disposal, Vietnamese customers can easily satisfy their tastes by switching between different brands and types of 10 soft drinks This increased substitutability makes the demand for soft drinks more elastic If the price of soft drinks increases, consumers can easily switch to substitute beverages, resulting in a larger decrease in the quantity demanded Conversely, if the price of a soft drink decreases, consumers may be more inclined to switch back to another one, leading to a larger increase in quantity demanded Proportion of income spent Soft drinks are considered non-essential products in Viet Nam, which means that people not need soft drinks to operate on a daily basis It is also noteworthy that soft drinks not take a significant amount of income of a person, so they tend to be quite inelastic in general However, since Viet Nam is a tropical country, in scorching summer, soft drinks may be more favourable compared to normal drinks In fact, according to Vnexpress, Vietnamese people spend more on drinks than on their main meals The image below shows how much a vietnamese person is willing to pay for drinks 11 12 Price sensitivity The soft drink industry is experiencing significant growth in revenue and profitability, making it a promising sector in the economy's future As a result, many businesses and soft drink manufacturers have emerged, constantly improving the quality of their products and offering competitive prices in the market It is clear that the prices of various soft drink options have been steadily increasing over the years, but never exceeding a 10% rise from their initial prices Interestingly, this price hike has not hindered the consumption process On the contrary, consumer buying power has been swiftly on the rise Consequently, this has sparked a remarkable surge in the production of soft drinks Example: 2021 Coca-cola price: 220.000đ/ 24 cans => Total Revenue: $38.655B 2023 Coca-cola price: 280.000đ/ 24 cans => Total Revenue: $43.493B According to statistics from the Association of Soft Drink in Vietnam, the consumption figures are steadily increasing From 2017 until now, the numbers have skyrocketed from 20 billion to 50 billion Vietnamese dong This indicates a highly competitive and fiercely contested market 13 Brand Loyalty Brand loyalty refers to a consumer's unwavering commitment to a particular brand or product In essence, it is the consumer's behavior of repeatedly purchasing and advocating for a specific brand Brand loyalty is a crucial factor for businesses as it helps drive sales, increase customer satisfaction and build a positive brand reputation This holds particularly true for the beverage market when considering whether price changes dissatisfy consumers or not Table 1: Brand preference of soft drinks Table 2: Factors influencing the purchase of soft drinks Source: Survey on 15 October 2017 by Dr Stalin Out of the 150 respondents, majority of the respondents purchase soft drinks on brand image, 21.33% of respondents purchase with considering price and 20% of respondents consider quality for making purchase decision 14 Implications for Pricing Strategies Competitive Pricing: Given the relatively elastic demand for soft drinks in Vietnam, companies need to be mindful of their pricing strategies to remain competitive Pricing soft drinks too high compared to substitute beverages may result in a significant shift in demand towards substitutes It is crucial for companies to monitor the pricing of substitute beverages and ensure that their soft drinks offer competitive value for money to attract and retain customers The price for soft drinks should scale according to the net weight of the bottle itself Take Coke as a prime example, Coca Cola is the leading enterprise in the soft drinks industry, and the price for a bottle of 330ml stays at 6.000VND per bottle The capacity and price of Coke has set the standards for other soft drinks products, with prices ranging from 6.000 VND to 8.000VND based on the demand for each flavour Market Research and Consumer Insights: Conducting regular market research and gathering consumer insights is crucial for soft drink companies to understand changing preferences, price sensitivities, and demand dynamics in Vietnam By staying updated on consumer trends and preferences, companies can tailor their pricing strategies to meet consumer expectations and maintain a competitive edge For instance, the trends for 2023 is functional drinks with active nutrition Products concepts that serve this Active Nutrition trend includes: alternative, low-sugar energy drinks BCAA & EAA enriched drinks functional juice shots Tea drinks Caffeine drinks Protein drinks Vital drinks & near water calorie-reduced drinks Value-added Differentiation: Soft drink companies can differentiate their products by focusing on value-added attributes that go beyond price This can include promoting health benefits, unique flavors, sustainable packaging or local ingredients By highlighting these distinctive features, companies can attract 15 consumers who are willing to pay premium for specific qualities and reduce the emphasis on price alone Many natural bottled waters come from truly unique sources as water enthusiast Michael Mascha describes in his writings on natural Fine Waters Besides for rare types of natural spring water, there are also glacier waters, rain water, iceberg water, aquifer sourced water, and many others This can make the price much higher than ordinary brands (which can go up to $1390 per liter) because transportation, measures to offset the carbon footprint, purity maintenance, and ensuring the sustainability of the sources can be expensive Promotional Pricing and Bundling: Companies can utilize promotional pricing and bundling strategies to stimulate demand and increase sales This can include offering discounts, special offers, or value packs to incentivize consumers to choose soft drinks over substitute beverages By providing attractive pricing and packaging options, companies can influence consumer choices and encourage repeat purchases Promotional Pricing Examples: Flash Sales Buy One, Get One Free (BOGOF) Loyalty Programs Seasonal Sales 16 CHAPTER 3: CONCLUSION In conclusion, the analysis of price elasticity of demand for soft drinks reveals important implications for pricing strategies in the industry By carefully considering how consumers respond to changes in price, soft drink companies can make informed decisions to maximize their revenue and market share Understanding whether demand for soft drinks is elastic or inelastic allows companies to adjust their prices strategically Lowering prices can attract pricesensitive consumers, leading to a larger increase in quantity demanded and potentially higher overall revenue On the other hand, increasing prices may have a smaller impact on quantity demanded for products with inelastic demand, enabling companies to capture higher profits Considering cross-price elasticity, which examines the impact of complementary or substitute goods, provides additional insights for pricing decisions Soft drink companies can assess how changes in the prices of related beverages affect the demand for their products, enabling them to adjust their prices accordingly to maintain competitiveness Furthermore, market segmentation based on price elasticity helps identify specific consumer segments with different responsiveness to price changes By tailoring pricing and marketing strategies to these segments, companies can effectively meet the diverse preferences and behaviors of their target customers It is essential to acknowledge the limitations and challenges associated with measuring and applying price elasticity in practice The dynamics of consumer preferences, market conditions, and other external factors necessitate continuous monitoring and adaptation of pricing strategies to stay relevant and responsive to changing trends Overall, a comprehensive understanding of price elasticity of demand empowers soft drink companies to make informed decisions that optimize their competitiveness, maximize profitability, and cater to the varying needs of consumers in this ever-evolving industry By striking the right balance between price and consumer demand, companies can effectively navigate the competitive landscape and achieve long-term success 17 REFERENCES Soft Drinks trend 2023 – What will shape the market this year: https://www.austriajuice.com/news-blog/soft-drink-trends Price Elasticity of Demand Meaning, Types, Factors that Impact It: https://www.investopedia.com/terms/p/priceelasticity.asp VnExpress report of Vietnamese people’s spendings on Soft Drinks: https://e.vnexpress.net/news/business/data-speaks/many-vietnamese-spendmore-on-drinks-than-main-meals-report-4563606.html#:~:text=Forty %2Dfour%20percent%20of%20Vietnamese,meal%2C%20a%20new %20survey%20found MarketIntello’s report of Vietnam’s soft drinks consumer behavior: https://www.slideshare.net/marketintello/vietnams-soft-drink-consumerbehavior Overview and Prospect of Vietnam’s beverage market in 2022: https://viracresearch.com/overview-and-prospect-of-vietnam-beveragemarket/ Soft-drinks Vietnam: https://www.statista.com/outlook/cmo/non-alcoholic- drinks/soft-drinks/vietnam Giá nước giải khát thị trường tiêu thụ Việt Nam: https://khaisanfood.vn/gia-nuoc-giai-khat-va-thi-truong-tieu-thu-tai-vietnam/#ftoc-heading-1 Coca-Cola Price: https://beecost.vn/bang-gia-coca-cola.html The Most Expensive Water Bottle: https://svalbardi.com/blogs/news/what-is- the-most-expensive-water-in-the-world 18 More from: Microeconomics Trường Đại học Ngoại… 570 documents Go to course Kinh Tế Vi Mô - AAA Class 18 - Lý thuyết Microeconomics 100% (36) Test-Bank- chap 1-7 22 Microeconomics 100% (24) Bai tap cung cau co gian Many required calculatin… Microeconomics 100% (8) Calculating exercises chapter Microeconomics Recommended for you 93% (15)