Tuesday, November 24, 2015
Examination
May-2014
MANAGERIAL
ECONOMICS
MBA
105
Time: 3 Hrs. Max.
Marks: 60
SECTION-A
Q1.
Write short notes on the following
(any five):
(a)
Role of
Managerial Economics in decision making.
(b)
Factors
determining the elasticity of demand.
(c)
Revenue curves
under different market forms.
(d)
Degrees of Price
Discrimination.
(e)
Balanced Budget
and Foreign Trade Multiplier.
(f)
Any to methods
of measurement of National Income.
SECTION-B
Q2. (a)
“Managerial Economics is the integration of economic theory with business
practice for the purpose of facilitating decision making and forward planning
by the management.” Explain.
Q3. (a)
Despite its pitfalls forecasting is indispensable to a business firm. Discuss
the importance of forecasting in light of this statement.
(b)
Explain the law of variable proportions with its various. What are the basic
assumptions behind this law.
Q4. (a)
Distinguish economies from diseconomies of scale, and suggest possible causes
of each.
(b) To what extent does the kinked demand curve help
in explaining price rigidity under oligopoly?
Q5. (a)
National Income does not necessarily refer to income produced within the
borders of a country. In the context of this statement explain the difference
between GNP and GDP.
(b) Globalization has magnified the effects of
business cycles. Discuss in the light of US recession and its impacts on the
Indian economy.
SECTION-C
Q6.
Answer the questions following the paragraph titled- ‘David fights Goliath: the
Nirma Story,
The story of Nirma is classic example of the success
of India entrepreneurship is the face of still opposition by big players in the
market. Nirma entered the detergents industry with its product based completely
on home-ground research and development, clashed head on with the giant multinationals,
and wrote a new chapter in the India corporate history.
Indian Soaps and detergents industry. The Indian
soaps and detergents industry is characterized by the coexistence of a number
of small scale manufacturers of large companies (including MNCs). The late
1960s saw the detergent powder market featured mainly the premium segment
dominated by big players, and small players restricted to a smaller share of
the market. Presently there are four price-based segments. There are a large
number of players in the unorganized sector which together have 25% of market
share; this apart, the market features big brands like HLL, P& G and Nirma,
with Nirma as the leader with a 38% share.
On the demand side the fabric wash industry in India
is characterized by low per capita consumption and substantial potential in
rural markets (in terms of category penetration and per capita consumption).
The industry is divided into laundry, soaps, synthetic detergents cakes and
powder. The market for soaps and
detergents has increased manifold, thanks to factors like changing
lifestyle of consumers, growing purchasing power, increased awareness about
personal hygiene, responsiveness to brands offering superior value and
penetration of media.
Emergence of David: In 1960s and 1970s the domestic
market saw establish companies selling laundry detergent in the form of bars to
most Indians; detergent was considered a luxury meant for the upper classes.
This was the reason behind the inception of a low cost detergent like Nirma.
Founder of Nirma, Dr. Karsanbhai Patel, a qualified
graduate, bet that the Indian masses would buy powdered detergent if it were
affordable. In the summer of 1969 he set up his first small detergent-making
unit in the backyard of his home in Ahmadabad. He priced the detergent at Rs. 3
per kg, when the available cheapest brand in the market was Rs. 13 per kg.
Every packet of Nirma that patel sold to his consumers came with a money back
guarantee. In a short span of time Nirma
created an entirely new market segment and quickly emerged as a household
brand.
Hindustan Lever Limited (HLL) was leading the FMCG
in detergent powder market with its premium produce Surf. HLL had positioned
surf as a premium product of the elite segment, accessible to a select few, due
to its high price. HLL used high quality (and high price) ingredients like
Active Detergent(AD), builder, buffer, etc. to ensure a superior wash. Nirmal
powder confirmed to none of HLL’s carefully developed product formulate. It did
not contain any ingredient to improve the whiteness of fabric and the level of
AD it used was half that of Surf. It also did not have any perfume agent.
Because of all these reasons, it was able to keep the price of the detergent
low.
Product Differentiation: Nirma successfully
countered competition from HLL and carved a niche for itself in the lower-end
of the detergent and toilet soap, market. The brand name became almost
synonymous with low priced detergents and toilet soaps, However, Nirma realized
that it would have to launch products for the upper end of the market to retain
its middle class consumers, who would graduate to the upper end. IN 1990 Nirma
entered the toilet soap market to target the premium segment and today it is
the second largest toilet soap brand in India.
To stand up against Nirma that the kept growing in
both volume and market share, HLL had to defined Surf with all its might. HLL
had been operating a differentiation led strategy, highlighting the distinctive
merits of Surf as an detergent and marketing it as premium product. This policy
was successful for who decades by Nirma compelled HLL to change strategy.
Products: since the launch of Nirma detergent powder
in 1969, the Nirma portfolio has expanded to include fabric care products,
personal care products, food products, packaging and chemicals. In the fabric
care category, Nirma has three products for the lower and market. The Nirma
Yellow Washing Power is available in pack size of 30gms, 200gms, 500gms and
1kg, and ranked as the largest selling single detergent brand in the world. The
Nirma Detergent Cake came sixteen years after the introduction of the detergent
power. Its success was almost a foregone conclusion. With the launch of the
high-TEM content Nirma Beauty Soap, Nirma has already started expansion of its
product portfolio. To counter the success of Nirma Beauty Soap, HLL launched
Breeze. Nirma countered this by launching another brand, Nirma.
Price
Nirma provides a fine example for a price-led
marketing strategy that shattered the near monopoly of HLL. The company had
built cost leadership right from the beginning and enjoyed concessions as an
SSI unit. Moreover it chose the price conscious segment as its market. Nirma
relied on low cost technology, process and raw materials. Immediately after its
launch, the lower prices product became a rage with the middle-income customer,
who was finding it difficult to make both ends meet the high priced Surf. Nirma
also had an impact on upper middle income and higher income families, which
used Nirma for washing their inexpensive garments and lkine.
How did HLL respond? Initially it reacted by
launching sales promotion campaigns on Surf, by offering a bucket as subsidized
price for every 1kg of surf, or by trading premium brands of toilet soap with
every kilogram of Surf. HLL then launched a head-on attack on Nirma, without
naming it (though it was obvious) they came up with an advertising commercial
comparing 1 kg of Surf with 1 kg of low priced yellow washing powder and hence
it was economical to by Surf.
The conclusion is that Nirma gave a new connotation
to differentiating by creating a similar product available at much lower price.
It took a “premium” product form the classes to the masses. Its price-lead
strategy was so successful that even the market leader was forced to review its
strategy.
1.
Would you regard
detergents as an industry or a product group? Justify.
2.
Which features
of monopolistic competition are exhibited in the above case?
3.
As a managerial
encomiast can you visualize long term sustenance of a company that sells a
product that has lower quality but also lower price in comparison to its rival
companies?
4.
Can success of
Nirma be extended to other product groups?
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