ECO531

Managerial Economics

Submitted by: Submitted to:

Naureen Shabnam 11907578 Dr Pooja Kansra
Shivani Sharma 11907554
Harshit Chandna 11911510
Abhishek Singh 11907605

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Course Code: ECO531 Course Title: Managerial Economics
Course Instructor: Dr. Pooja Kansra
Academic Task No.: 03 Academic Task Title: Indian FMCG sector: An Analysis
of Monopolistic Competition
Date of Allotment: NA Date of
Submission:24/01/2020
Students` Roll no: RQ1943B36 Student’s Reg. no:
11911510
RQ1943B37 11907554
RQ1943B39 11907578
RQ1943B40 11907605

Learning Outcomes:
1. Learned about the various market structures.
2. FMCG sector analysis of monopolistic market.
Declaration:
I declare that this Assignment is our group work. I have not copied it from any other student’s
work or from any other source except where due acknowledgement is made explicitly in the
text, nor has any part been written for me by any other person.

Harshit Chandna (B36)-

Shivani Sharma (B37)-

Naureen Shabnam (B39)-

Abhishek Singh (B40)-

Evaluator’s comments (For Instructor’s use only)

General Observations Suggestions for Best part of assignment
Improvement

Evaluator’s Signature and Date:

Marks Obtained: _______________ Max. Marks: ______________

Peer Rating

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Roll Name Marks Marks Total marks Signature
Numbe allocated by allocated by
r students Teacher
B36 Harshit Chandna
B37 Shivani Sharma
B39 Naureen Shabnam
B40 Abhishek Singh

Introduction:-
Market structure focus on real-world competition. Market structure refers to characteristics of
the market within which firms operate. Market structure involves number of firms in the
market with the barrier in entry and exit. Perfect competition market has infinite number of
firms and monopoly market has single firm both are opposites of each other. Monopolistic
and oligopoly lie between these two-market structures. Differentiated products are sold under
Monopolistic market structure. There is barrier on entry or exit of the firms.
Examples of monopolistic market structure are-
Restaurants- they compete on quality of food and price the key element in restaurants is
product differentiation and they have relatively low barrier in entry and exit.
Characteristics of Monopolistic Market:
1. Many sellers they do not face rivalry.
2. Product differentiation goods sold are not homogeneous.
3. Multiple dimensions of competition
4. Ease of entry of new firms in the long run because there is no barrier to entry
5. Inelastic demand
6. Normal profits in long run and super normal profits in short run

Diagram of monopolistic market in short run and long run -

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FMCG Sector
Products which are quickly converted and have low cost are known as Fast Moving
Consumer Goods (FMCG). FMCG products are replaced within a year. Examples includes a
wide range of consumer products such as toiletries, soap, cosmetics, tooth cleaning products
etc.
India’s FMCG sector is the fourth largest sector in the economy and creates employment for
more than three million people and 14 million in total. On the basis of price goods are
divided into three segments- low priced, mid-priced/ mass or popular and high-priced/
premium end. Lower segments of the market drive volumes. The premium segment is less
price-sensitive and more brand conscious.
Subsectors of FMCG sector are-

FMCG

Household Personal Food and

care care beverages
The Evolution of Indian FMCG market
Fast moving consumer goods which are popularly known as FMCG are the goods purchased
by the consumers for their personal use and being purchased repeatedly. These products are
being bought on daily or weekly basis in small quantity.
The prices of these products on per unit basis are low while the consumption of such products
is very high as these are the requirement of every one and consumers are large in number.
Considering Indian population then it is quite huge population with value of over 120 crores.
A separate well established sector is present in India sector called as FMCG.
India from always had been the country with a big chunk of world population, be it the
1950’s or the 21st century. In that sense, the FMCG related market’s potential had always
been very high. However specifically from 1950s to the 80s the investments in the FMCG.
Industries were initially very limited due to low purchasing power and the favouring of
government for the small-scale sector. The consumer markets in India are constantly
evolving.
Various Phases of Indian FMCG sector:-
The Ist phase of consumer oriented market evolution in the 1980s & 1990s was characterized
by certain major structural changes i.e. Changes in distribution of Income, Increased

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availability of product , increase in competition, increased media attention and improved
advertising techniques for impacting lifestyle. These helped in raising the levels of consumer
awareness and tendency to consume.
The later pd. of 1990s witnessed a sudden surge in consumer owned finance products
responsible for steady financial sector reforms in the economy and creative-innovative
marketing. The consumer markets in India had entered the second phase of evolution during
the turn of the century.
The Fast Moving Consumer Goods sector is considered to be the fourth largest sector in the
economy having a total market size in excess of rupees 60,000 Cr. This particular industry
essentially comprises of Consumer Non-Durable products (CND) and responsible in catering
the everyday wants of the population.
Torch Bearers of FMCG sector
Hindustan Lever Limited (HLL) was most probably the only Multi National Company that
stuck around and had the manufacturing base in the region of India. At that time, the major
focus of the organised players like HLL was largely for urbane but there too the consumers
had just limited choices.
However the entry of Nirma changed the whole Indian FMCG scene at much extent. The
company focused over the ‘value for money’ concept and made FMCG products like
detergents very affordable even for the lower section of the society. Nirma became a huge
success story and laid the well-defined roadmap for others to follow. 200 MNC’s like HLL,
which were not aware till then, got to know about the new market realities and noticed the
potential of the rural India. The relaxation of norms from government side also encouraged
these companies to opt for economies of scale to make FMCG products more affordable.
Consequently, today soaps and detergents related products have almost 90% penetrated in
India.
Post liberalisation not only become responsible for higher number of domestic choices but
also been responsible for imported products. The lowering in the trade barriers encouraged
Multinationals to come and invest in India for catering to 1 Bn Indians’ needs. Rise in the
standards of living in urban areas with the purchasing power of rural India saw companies
launching everything from a low end detergent to a high end sanitary napkin. Their strategy
became two-pronged in the last decade. One is to invest in expanding the distribution reach
across India for enabling the market expansion of FMCG products. Secondly for upgrading
the existing consumers to value added premium quality products and increase the
consumption of the existing product ranges. So all companies like HLL, Godrej Consumer,
Marico, Henkel, Reckitt Benckiser and Colgate, trying to outperform each other in getting to
the rural consumer first. Each of them has actually seen the significant increase in the retail
reach in medium sized towns and villages. One who could not do it by their own, have piggy
backed on other FMCG major distribution network (P&G-Marico).
Consequently, companies that have got into rural part of the India like chalk to cheese have
seen their sales as well as profits expanding. For example, presently 50% of all HLL sales
come from rural parts of India, and consequently, it is one of the biggest beneficiaries of this.
There are other players as well like Nestle, which have till date focused mostly over urban
India but have still seen quite a growth in the last decade. The company focused in the last
decade largely on value added products for the upper sections of the society. However, in the
recent couple of years, even these companies have started looking to reach consumers at the
slightly lower end. One of the drastic changes that hit the FMCG industry was the ‘sachet’
bug. In the tenure of last 3 years, detergent manufacturing companies, shampoo companies,
hair oil companies, biscuit companies, chocolate companies and others, have introduced the
products in smaller size packets, at lesser prices. This is the single big innovation for

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capturing new users and expands the market share for value added products in urban region
of India, and in general for FMCG products like detergents, oral care and soaps in rural India.
Another interesting phenomenon that hit the FMCG industry is the mushrooming and birth of
the regional companies, which posed a threat to bigger FMCG 201 companies like HLL. For
eg. the Jyothi Laboratories rise had actually given sleepless nights to Reckitt Benckiser, the
Ghari detergent slowly built itself to take on to Nirma as well as HLL in the detergents
domain, and finally, the rise of toothpaste ‘Anchor’ in oral care, which eventually become
synonymous with ‘cat’, which walked away with spoils when two monkeys were fighting
(HLL and Colgate).
Undoubtedly, all this is good for the consumers as they can now choose from variety of
products, from a number of brands and companies and that too at different price points. But
for the players who cater to the Indian consumer, the future could eventually bring a lot more
competition. In this environment, only the innovators will be able to survive. Focus will lead
to profitability.
From the investor’s point of view, Indian FMCG companies do have calibre to offer long-
term based growth opportunities but with the low penetration and consumption in most
product categories. To choose the best investment opportunities one need to look at the
shapers that have been constantly proactive as per the market needs and have built stronger,
efficient and intelligent distribution channels. Management vision regarding growth is the
key, as consumers heading forward are likely to become more sophisticated in their demand.
Effect OF FMCG SECTOR IN INDIA:
Business
- Direct business is assessed at roughly 6% of turnover, for example US$ 1.5 billion4 (Rs.
7,000 crores)
- Approximately 12-13 million retail locations in India, out of which 9 million are FMCG
kirana stores. Hence the segment is liable for the occupation of right around 13 million
individuals.
Financial Contribution
- Cascading Multiple Taxes by the FMCG sector(Import obligation, administration charge,
CST, annual expense). 30% income of the segment goes into both immediate and aberrant
expenses. assessed size of $25 billion (Rs. 120,000 crores), that would establish a
commitment to the exchequer of around US$ 6.5 billion (Rs. 31,000 crores).
Social Contribution
- Create work for individuals with lower instructive capabilities. FMCG firms have
additionally attempted some particular undertakings to coordinate with heartland and rustic
territories for the two data sources and for circulation just as to satisfy CSR.
Structure and characteristics of FMCG sector-
Competition: The market of FMCG is very competitive as they are coming up with new
ideas to beat each other. There are businesses taking lead and several emerging companies
trying hard to come forward and stand with FMCG companies. This encouraged the MNCs to
enter the Indian market and invest to fulfil the needs of consumers. Due to which there was
rise in disposal income of people in urban area and an increase in purchasing power in rural
area. Large scale companies such as HLL, Marico, Godrej etc have targeted rural public to
expand their retail chain in mid-town and villages.
Branding: creating strong brand is important for FMCG companies as the devote time and
money in building brand. Branding results in consumer loyalty and sales growth.
Leading FMCGs like Nestle, HUL, ITC etc holds market share of 70% of FMCGs revenue
they spend their 10% on advertising and brand promotion. Promotional strategy includes
tying up with top celebrity.

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Distribution Network: they have to make extensive distribution network to achieve high
level penetration in both rural and urban area. Once they are able to create strong supply
chain network, they will be having advantage over competitors. Even though FMCG
companies are big multinationals in India still face challenge in making their product
available at right quantity and at right time.
Contract manufacturing: A FMCG company concentrate on brand building, product
development and at the same time outsourcing their products. Moreover, with several items
reserved for the scale industry and with these SSI units enjoying tax incentives.
Large unorganized sector: The unorganized sector has a presence in FMCG sector. Small
companies from this sector have used their geographical advantages and regional presence to
reach out large consumer products have limited presence. Their low cost structure is an
advantage for them.
SWOT Analysis of FMCG Sector
Strengths: Weaknesses:

• Low operational costs • Low scope for investing in technology and

• established distribution networks in urban and achieving
rural areas economies of scale especially in small
• Presence of well-known brands in FMCG sectors
sector • Low exports levels
• Favourable governmental Policy:
 Indian Government has passed the
policies which aimed at achieving
international competitiveness through
lifting of the quantitative restrictions,
reducing excise duties, 100 per cent
exports.
• FDI: Automatic investment approval up to 100
per cent foreign equity or 100 per cent for NRI
and Overseas Corporate Bodies investment is
allowed for most of the food processing sector
except malted food, alcoholic beverages and
those reserved for small scale industries (SSI).
Opportunities: Threats:
•rural market isn’t exploited , changing life style
• increase in purchasing power of consumers • Removal of import restrictions resulting in
• Large domestic market with more population replacing of domestic brands
• High consumer goods spending • Tax
• India is the largest milk producer in the world, • Rural demand is cyclical in nature and also
yet only around 15 per cent of the milk is depends upon monsoon.
processed. Even investment opportunities exist
in value-added products like desserts, puddings
etc.
• Only about 10-12 per cent of output is
processed and consumed in packaged form, thus
highlighting the huge potential
• Lower price and smaller packs are also likely
to drive potential up trading for major FMCG

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products
• Rural demand etc.

Monopolistic market analysis of toothpaste industry-

Characteristics Examples Advantages to Disadvantages to
consumers consumers
Product The formulae for tooth  Wide range of  consumers
differentiation paste is same but many choice in pay more for
companies sell the similar product the same
tooth paste with slight  Product product with
variations in it differenciation slight
 Colour provide good variation and
 Taste quality product believes that
 Flavors Additional features in it has superior
 Tube structure addition to basic qualiy which
and size function. is more or less
 Packing style same.
Advertising with new  Misleading
terms to prove their advertisement
product is better than by the
competitors like all top company
brand are using the Too much product
above techniques to differentiation can
increase their sales and mislead the consumer
profits. while making
choices.
Many firms  give each firm  Competition  Difficult to
the freedom to leads to price choose among
set prices reduction different
without thinking  Compitition brands.
about increases  Firms gives
competitors.For product quality freedom to
ex- Pespsodent  More choice to each other to
could cut prices choose among set prices.
and increase different brands Sometimes
sales, without of many firms. firms may set
the fear of Can switch to different higher prices
compititors. brands of many firms for the
Firm’s reaction have for a change if they are products
negligence impact on bored. which firms
the market. E.g. the are already
impact of price change buying. And
by pepsodent will have consumer is
negligible impact on not willing to
market as there are change the
large number of buyers brand as he is
and sellers. used to that
brand.
E.g. many people are

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 used to Coalgate and
not willing to change
to other brand even if
the prices are
increased.
Free entry and In the long run there is  Consumer If any brand makes
exit free entry and exit. will get new exit and customer is
There are many firms variety of accustomed to that
who want to enter the product. product then they
market and sell unique  By entry of have to shift to new
product and in pursuits new company product. When new
to earn profits any firm competition player enter the
which is unable to increases and market they set low
recover costs can leave quality also prices and they later
the marketwithout improves. increases when the
incurring liquidation As entry costs are customers are used
costs. Eg sensodyne low therefore cost of to their product.The
entered Indian market production will also best example is
and at the same time be low then the price babool initiallyt they
loss making can leave of the product will charged low prices
the market .Eg .Loss also be low. and later increased
making Balsara tooth the prices.
paste exit the market by
selling its brands to
Dabur.
Independent Eachfirm  If company  In vice versa
decision making independently sets the wants to case if the
prices for its increase sales company
product. Without the it will lower increases
consideration what it the price and price then the
will have on customers customer has
compititors. The theory will be to pay more
states that any action benifited. for the same.
will have such  Independentl If price increases and
negligible effect on the y taking customer is
market demand that an decisions to accustomed to
Monopolistic firm can come up with particular brand it is
have. new variety difficult to change to
of products other brands.
Eg Close up can according to
independently take the customer
decision to increase needs.
price and quality of the
product without much
effect on the market
and competitors.

Analysis of Indian Cosmetic Market under FMCG Sector and Monopolistic

Competition:
Sr. Product Category Rs %
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 No. (Billion)
1 Shampoos 16.5 12
2 Skin Care 21 15
3 Color Cosmetics 3.5 3
4 Hair Dyes 7 5
5 Oral Care 22.5 16
6 Men Grooming 12.2 9
7 Personal Wash 55 39
8 Deodorants &Perfumes 3.1 1
Total 141.4 100

Indian cosmetic sector is largely dominated by international players who are holding their
place in the country’s cosmetic market from a long period of time and even some of them
hold their manufacturing facilities in the India.
Some of the majorly known international players are:
 Unilever HUL
 L’Oreal India
 Revlon
 La prairie Switzerland

International brand in India:

 Max mara
 Clarion pearls
 Patrice Milton
 Feral
 Canali
 Versace
 Salvatore farrago
 Bvlgari
 Dolce & Gabbana 177

Direct marketing companies are:

 Amway
 Ori flamme

Among the leading Indian brands there are many leading names which have established their
home in the market.
Some of these are:
 Cavin care
 Emami Care
 Emami limited
 Ayur herbals
 Dabur India
 Wipro
 P&G

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 Market share by different brands in Indian Fairness Cream market:
No. Brands % Value
1 HUL 76
2 Cavin Care 15
3 Godrej 3
4 Others 6
Total 100

Market share by different brands in Indian Antiseptic creams market:

No. Brands % Value
1 Emami 64
2 Boroline 21
3 Paras 12
4 Others 3
Total 100

Market share by different brands in Cold Creams/ Moisturizing Lotions

market:
No. Brands % Value
1 Ponds 38
2 Nivea 17
3 Others 45
Total 100

Market share by different brands in Hair Dryers and Colors market:

No. Brands % Value
1 L’oreal 38
2 Godrej 25
3 Henkel 7
4 Revlon 6
5 Others 24
Total 100

Market share by different brands in Hair Dryers and Colors market:

No. Brands % Value
1 HUL 58
2 Henkel 8
3 TTK 5
4 Others 29
Total 100

This Indian cosmetic sector is highly diversified with large blend of foreign as well as
Indian based players in the cosmetic market. And it can clearly be seen that the market
structure of the Indian Cosmetic industry is monopolistic market as:
 There are large number of the firms in the industry
 Differentiated products can be easily traced.

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  There is certain degree of control over the pricing of the goods
 More spending on the promotions and advertisement is being done.

Analysis of Indian Detergent Industry under FMCG Sector and

Monopolistic Competition:
As per the "Laundry Detergent Market in India (2018-2023)" report - The India detergent
market is expected to expand at a CAGR of 5% during the tenure of 2018-2023 periods
leading to rise in the consumer demand. Based on the type, hand wash oriented detergents
constitute the 82% of the market share whereas machine wash types of detergents have the
hold of the remaining. The demand concerned with hand wash detergents is quite high, since
only 33 per cent of the Indian population use washing machines and possess the requirement
of machine-wash detergents while the rest of the population use hand wash type of detergents
for washing clothes.
Market segment insights:
Among the list of major laundry detergent companies like Hindustan Unilever Ltd. (HUL),
Proctor and Gamble Home Products Ltd and Rohit Surfactants Pvt. Ltd. (RSPL). (P&G)
actually dominates the market and owe high customer satisfaction at national and regional
levels. Apart from such players, Nirma, Fena, Jyothy Laboratories and Reckitt Benckiser are
also operational in the market.

Among the leading laundry detergent brands, Ghari owns the largest market share at the time
period of 2014-2017, followed by Surf, and then Wheel. Due to its affordable price, Ghari
detergent became the most preferred among the masses, and holds a high market share. On
the contrary brands like Surf and Wheel fulfil the demands of the middle-market and
premium level consumers.
Companies in the Monopolistic competition in Detergent Industry and their market
share:
 Fena Pvt. Ltd.
 Godrej Consumer Products Ltd.
 Hindustan Unilever Ltd.
 Jyothy Laboratories Ltd.
 Nirma Ltd.
 Patanjali Ayurved
 Procter & Gamble Home Products Ltd.
 Reckitt Benckiser (India) Ltd.
 Rohit Surfactants Pvt. Ltd

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So it can be analysed that Detergent Industry is having the market structure of Monopolistic
Competition also on the same context based on the product pricing, laundry detergent
manufacturers in India often face stiff competition. In addition, there is not much scope of
product differentiation through the ingredients or process in the sector so one can find that
there is lots of differentiation in the packaging, presentation and promotion of the various
products. Thereby, product differentiation, and high competition act as deterrents to the
growth for the market players.
Practical application and relating concepts with Real world and Conclusion:
The Indian FMCG Market is a perfect example of monopolistic competition. It’s a
highly crowded market with an outsized number of national and global players
competing on margins. The stock turnover is high as FMCG products are frequently
consumed and have a brief shelf period. 
The most features of FMCG in light of monopolistic competition are
often viewed as follows:

Large Number of Sellers

In a monopolistic competitive market, there's abundance of sellers producing differentiated

products. The presence of huge number of sellers is highlighted by the very fact that the
Indian Soap and Detergent market has 700 companies competing to sell their products. the
main players across the world are: ITC Limited, Procter & Gamble and Hindustan Unilever
Limited.

Freedom of Entry and Exit

There are low barriers to entry and exit of firms in monopolistic competition. If the profits are
attractive, the firms can enter the industry. Increase in income in hands of both rural and
concrete consumers, gave a chance to the agricultural consumers to shift from unbranded
unorganized products to branded FMCG products. The growing demands, directed new firms
to enter the same market. When the competition increases the prevailing firms are forced to
scale back their price so as to satisfy the competition. Thus free entry and exit maintains
normal profits within the market within the longer span of your time as an example, Nirma
was launched within the detergent industry at a coffee price targeted to cater to the
requirements of middle-priced and popular segment.

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The success of Nirma forced HUL to launch a good lower priced product. Thus, Wheel and
Rin were introduced by HUL to take care of its market share.

Selling Costs

Due to product differentiation in monopolistic competition, firms are required to incur some
additional costs like advertising, sale promotions, salaries of selling staff etc. to market the
merchandise, the most aim is to tell , persuade and remind the buyers of the supply of the
merchandise . The strategy of aggressive advertising is adopted. Gamble & HUL and Procter
are two renowned firms for portrayal of advertisement war. Aggressive television
commercials were shown targeting each other’s brand. Even in print the costs of
detergents like Tide and Rin were compared to influence the purchasers buying habits. It
is highly believed that advertisements are factual and help buyers make an informed choice.

Product Differentiation

It is considered the foremost important feature of monopolistic competition. The products in

monopoly are homogenous in nature whereas in monopolistic sell is heterogeneous in nature.
The products are close substitutes; however every seller tries to differentiate his product from
the competitor’s product. They may be different in terms of colour, packaging, features,
pricing, size and shape. as an example , Ariel, the detergent laundry line for P&G, is out
there during a sort of forms. Ariel Colour may be a detergent used mainly to guard colour of
garments, Ariel Stain remover may be a stain pre-treatment product, Ariel Quickwash is
employed to scrub clothes within the quick wash cycle then on. Therefore, Ariel has
been ready to expand its laundry line counting on the utilization of the detergent. By adding
various features to the prevailing product, Ariel has been ready to distinguish itself from the
competitor.

Absence of Interdependence

The firms operate the idea of their own marketing policies and production. No firm is
influenced by the opposite firm. Since an outsized number of firms enter the market, the
dimensions of every firm vary. Thus, no firm depends on the other.

Falling Demand Curve

A firm in monopolistic competition features a downward sloping demand curve. This is

often mainly because the sellers are the worth makers i.e. they're influential enough to
affect the worth of the merchandise. The demand curve is very elastic as substitutes are
available. This means one can sell more at low prices and vice-versa.
Links to the other readings/References:
https://www.researchandmarkets.com/research/hnr2ff/indias_laundry?w=4
marketwatch.com/press-release/indias-laundry-detergent-market-2018-2019-2023---
hindustan-unilever-rohit-surfactants-and-proctor-gamble-home-products-dominate---
researchandmarketscom-2019-03-22/
https://www.slideshare.net/TrishaSinhaRoy/is-detergent-market-monopolistically-
competitive
https://www.indianmirror.com/indian-industries/soap.html
https://stonebrakerracing.com/2017/09/17/market-leader-in-soaps-and-detergents-industry-
marketing-essay/

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https://www.wallstreetmojo.com/monopolistic-competition-examples/
https://www.slideshare.net/lovee911/economical-analysis-of-cosmetic-industry

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