AN EMPIRICAL STUDY TO FIND OUT THE OPTIMAL PRICE FOR HOT TEA

SHOP CONSUMED TEA AND MEASURING THE VALUE FOR MONEY

PERCEPTION (VFM INDEXING) OF MIRZAPORE BOP

by

Umme Salma
ID: 0410167

An Internship Report Presented in Partial Fulfillment

of the Requirements for the Degree
Bachelor of Business Administration

Supervised By

Mr. Aminur Rahman

Associate Professor
School of Business

INDEPENDENT UNIVERSITY, BANGLADESH

May 2008
 Letter of Transmittal

May ,2008

To
Aminur Rahman
Associate Professor
School of Business
Independent University, Bangladesh
Dhaka

Subject: Submission of final report on “An Empirical Study to find Out the Optimal Price
for Hot Tea Shop Consumed tea And Measuring the Value for Money Perception (VFM
Indexing) of Mirzapore BOP”

Dear Sir,

It’s my great pleasure to place my internship report for your kind approval.

My internship report is on “An Empirical Study to find Out the Optimal Price for Hot Tea
Shop Consumed tea And Measuring the Value for Money Perception (VFM Indexing) of
Mirzapore BOP”. The observations and result of my study are embodied on this report. In
addition to my careful study, this report has been a worth while review allowing me to go
for in-depth analysis about real situation. This study allows to know about the optimal
pricing policy of hot teas shop consumed tea.

I would be always available for answering any queries on this report.

I request your kind excuse for the mistakes that may take place in this report instead of
my best effort.

Thanking you

Sincerely yours

………………….

Umme Salma
ID#0410167
BBA
Major in Economics
Independe3nt University, Bangladesh
 DECLARATION

May, 2008

Dear Sir,

I, Umme Salma, student of (Economics) Bachelor of Business Administration of

Independent University, Bangladesh hereby declare that the internship report of “An
Empirical Study to find Out The Optimal Price For Hot Tea Shop Consumed tea And
Measuring The Value For Money Perception (VFM Indexing) of Mirzapore BOP” is an
original and bonafide work done by me for partial fulfillment of Bachelor in Business
Administration degree, as a part of academic curriculum. It has not been submitted by me
before for any other degree.

…………………………..
Umme Salma
ID#0410167
BBA
Major in Economics
Independe3nt University, Bangladesh
 Acknowledgement

While I was preparing this internship report I had to take assistance and guidance

from a number of persons to whom I am deeply indebted. At first I would like to express

my gratitude to my esteemed teacher and supervisor Mr. Aminur Rahman for providing

detailed feedback and advice on the research project. He always gave me his suggestions

that were crucial in making the study as flawless as possible.

I truly believe that saying, “Thank You “to all individuals of M.M.Ispahani Ltd. is not

good enough to honor their support that I have been provided in preparing my report. My

extreme gratitude goes to Mr. M Salman Ispahani for giving me the opportunity to do my

internship in this organization.

I also like to acknowledge Miss Fowzia Yasmeen, Manager Supply chain & Head of

Market research, for precious support all the time. My appreciation also goes to Ashraf

Uddin Ahmed, Deputy Manager, market Research, who is the supervisor of this research

for his day to day monitoring, supervision and maximum assistance for the last 3 months.

After all, the cooperation of my intern mate, Yaser Ahmed is worth mentioning.

Finally, I would like to give thanks to all the respondents for their participant and data

collector teams to assist me sincerely.

Umme Salma

ID#0410167
 AN EMPIRICAL STUDY TO FIND OUT THE OPTIMAL PRICE FOR HOT TEA
SHOP CONSUMED TEA AND MEASURING THE VALUE FOR MONEY
PERCEPTION (VFM INDEXING) OF MIRZAPORE BOP

Abstract

This study has been designed to measure the price sensitivity of an “Ideal Tea” of the

Mirzapore BOP user (HTS). Price sensitivity Meter has been deployed to measure the

price sensitivity. The psychological gap between the Value of Mirzapore Bop and its

assigned price has been gauged by using Value for Money Index and Value of

Product/Brand – Value of Price Index. By operating the “Price Sensitivity Meter” the

optimal price point for an ideal tea leaf (1kg) has been derived which is Tk 142.5. The

results of VFM index shows that there is a negative psychological gap between the value

of brand and the value of price which ultimately suggests price cut. But people don't

always buy based on the lowest price, but they do like to feel they're getting a good deal.

If an entrepreneur’s aim is to give his customers value for their money then his/her

asking PRICE should represent the VALUE customers place on his/her product or

service. The Value for money index shows hot tea shop owners has negative

psychological gap, they feel like they are getting a bad deal. The best thing to combat

with this depressing condition is to uphold consumers’ perception of the value of

Mirzapore BOP than to reduce price. As, Steven Bradley says “Don't try to give your

customers the best price. Give them the best value for the price.”
 Backdrop

M. M. Ispahani Limited having the motto “Growing Tradition” is leading the market

with almost 45% share among the packaged tea marketers in Bangladesh. Ispahani

offered variety of tea in the market maintaining good quality. Mirzapore Best Leaf is the

leading brands for household consumers. But the Mirzapore BOP which is delivered to

the Hot Tea Shop (HTS) consumers has been unable to grab the major market share. The

tea market is a fragmented one with various other players combating to grab the market

share. Some of the key brands, especially Hot Tea Shop (HTS) consumed tea, are

thrusting for space in the consumer purchase basket as well as retailer shelf space.

Among the household consuming brands, MBL is far ahead from the competitors, but

BOP facing challenges from different competitors in different regions. In HTS category,

most of the time consumers don’t want to compromise with price and they don’t have

that much brand loyalty as well.

Junior Divisional Managers’ weekly reports of M.M. Ispahani reveal that the overall

demand for Mirzapore BOP is decreasing. Commensurately, the market share of BOP is

falling. Some of the junior divisional managers point out to reduce price with

maintaining quality. Others are suggesting for improving quality to justify the current

price. Thus, Ispahani have to concentrate on the competitive weapon, the pricing strategy,

to determine the best pricing policy by measuring the responsiveness or sensitivity to

changes in prices to maximize profits. This study has been designed to measure the price

sensitivity of an “Ideal Tea” among the BOP user HTSs. The meat of the paper would
also gauge the value for money perception of Mirzapore BOP. To dig out whether

Ispahani should go for price cut or upholding its value.

Organizational Overview

“Ispahani- Growing Tradition”, using the motto, M.M.Ispahani Ltd. , a renowned

conglomerate consists of different business enterprise engaged in diverse business

activities with quality product. Tea is the driving product of “Ispahani” family. Beside

this, Ispahani has stepped into the textile, energy, food, shipping, real estate, and jute and

engineering industry.

The policy maker of the Ispahani feel that the company can make more money and

sustain its marketing department profitably on the goodwill its has gained in the market.

This believe is sub stained over the time and now it can be generally said that the

goodwill is probably its single most important assets.

The company’s main area of concentration is the consumer tea packs that are fewer

prices sensitive and hence yield a better margin. The current marketing strategy of

Ispahani focuses on pushing only one brand. The basic aim of the company benefits is to

popularize only one of its best brands in the market. The company believes in delivering

the best quality tea at affordable to the consumer. It seems like “putting all eggs into the

same basket”. There is a proverb- “Don’t put your all eggs in the same basket”. Ispahani

is just ignoring the concentration on trade pack (price sensitive) which serves the hot tea

shop market. As a result one employees of sales depot of Ispahani reports the trade pack

is loosing its demand.

Although Ispahani spent a lot of money on advertisement and promotional activities,

these can’t pull the customers accordingly. It seems like Ispahani is just on its reputation
which has been earned earlier. But to pull the customers, no new promotional tool has

contributed much. Infact, the advertisement of Ispahani is below average.

Recently in this shaken agro-based economy of Bangladesh, to boost the agricultural

sector, Ispahani has come up with its new product- Ispahani seeds with a view to serve

the nation. In a way, Ispahani would help to build food sovereignty. Besides these,

Ispahani’s Market research division always devoted to introduce new business sector to

open up the employment opportunity. Inflationary pressure and at the same time

unemployment is going ahead to the path of stagflation. So, this type of endeavor of

Ispahani to make the employment opportunity is worthy.

Although Ispahani has footstep on several industry, Tea is the driving product of

“Ispahani” family Ispahani tea is a household name across the Bangladesh. The family

has been involved in the business since 183 years. Now its is almost a hundred corer

business. Ispahani is diversified into tea production. It owns four finest tea garden in the

country- Mirzapur, Gazipur, Zareen and Neptune Tea Estates Presently Ispahani tea is a

domestic leader. Mirzapore Best Leaf is the leading brands for household market. But in

the hot tea shop market to whom Ispahani cater Mirzapore BOP, the picture is not

lucrative for Ispahani tea.

Problem definition

Mirzapore BOP is loosing its demand. “What’s the scenario behind that?” is the core

question of the tea department of M.M. Ispahani Ltd. Two doors are open up for the

Mirzapore BOP

Option-1: Reducing price with maintaining quality

Option-2: Improving quality or perceived value to justify the current price

 But the key question is what would be the appropriate one. Generally the Hot tea shop

owners are very much price sensitive. They switch to other brand if there is price

increment of 4-5 tk in their current used brand. So if they are very much price sensitive

price cut would be the best option. So to gauge their price sensitivity is a must to point

out their optimal pricing policy. So to for the first option to gauge the “Price sensitivity”

is a must.

Another thing has to be known is that do the quality of Mirzapore BOP is justifying its

price. What is the gap between the value of the Mirzapore brand considering its quality

and the value of its price? If there is negative Psychological gap that would indicate there

is need to uphold its value. So, in this backdrop price optimization research is required.

Objective

Price can be seen as a driver of profit. One way to determine the best price for product

is to measure the price sensitivity. A clear understanding of consumer sensitivity to a

brand’s price and profit margin helps asses whether price increases will generally be

profitable or unprofitable.

In sum, the objective of the study is to measure the price sensitivity, optimal pricing

policy to help out maximizing revenue

This research would deal with issues

The price sensitivity of an ideal tea brand according to the currently

Mirzapore BOP users to know their price sensitivity of Hot tea shop

consumed tea.

The VFM index of Mirzapore BOP- Is there any positive or negative gap

between the value of Mirzapore BOP and the Value of its Market Retail

Price?

If there is positive gap then how much price hike is possible? In contrast if

there is negative gap then how much price cut is necessary to retain

customers?

Price Optimization Research

Pricing researches usually enable the business to do market simulations (such as price

elasticity test of the business and competitors' products) in order to determine profit

maximizing pricing level. Some of the pricing methods: BPTO (Brand Price Trade Off),

Conjoint, PSM (Price-Sensitivity Meter), and Gabor-Ganger.

In this pricing research econometric modeling would be deployed. The proposed

aggregate model is “Value-Price Perception” developed by Market research Society

(MRS), in consultation with leading researchers and research organizations of

international repute. The model has been successfully used in case of pricing studies for

leading companies worldwide, as well as for some in Bangladesh. The model has been

successfully used in case of pricing studies for Unilever Bangladesh, Social Marketing

Company, and BATS. Another model which will be operated in this study is “Price

Sensitivity Meter” which has been introduced by Dutch economist P Van westendrop.

Price Sensitivity Meter (PSM) is one of the widely used techniques among market

researchers. The PSM method provides firms with a range of demand functions that could

be used to gain a better understanding of customers’ price elasticity . The Price

Sensitivity Meter is based on respondents’ answers to four price-related questions

 A pricing research for the proposed study (keeping the key objective in mind) must

consider the following constraints:

a)Ad-hoc data, rather than existing continuous data, will be used (if previous,

continuous data exist, it is easy to carry out a trend analysis of price changes and predict

an impact);

b) The pricing research will cover brands being used currently (offering more

flexibility in downward review of price, rather than upwards, as opposed to new

product/concept (in case of which, the tendency to try a new product offers

greater flexibility- both ways - for pricing).

Review of literature

Price sensitivity

Price sensitivity is how consumers respond in their buying decisions to a change in

price. The more sensitive consumers are to price changes, the more demand varies with

prices. High price sensitivity suggests that when the price of a brand/product goes up,

consumers will buy a great deal less of it or switch to substitute and when the price of

that brand/product goes down, consumers will buy a great deal more or retain (Cant and

Botha, 2000). Very low price sensitivity implies just the opposite, that changes in price

have little influence on demand. So, in case of price sensitive products, revenue can be

increased by price cut. Price hike can raise revenue when the demand for the product is

fewer prices sensitive.

Price sensitivity Meter

Price sensitivity meter is a research method for establishing the range of prices that

buyers are willing to pay for a product or service (Dictionary of marketing term,
American Marketing Association). To gauge the price sensitivity of an ideal tea leaf

“Price sensitivity Meter” has been deployed in this study. Price Sensitivity Meter was

developed in the 1970s by Dutch economist Peter H. Van Westendrop to examine

patterns of price consciousness. His method includes four questions related to each

respondent’s expectation for a product’s price. Rather than asking a direct approach, such

as asking “How much would you pay for this product?” The van westendrop approach is

to “surround the market price” by asking four price-value relational questions

. At what price would you consider the product to be so expensive that you would not

consider buying it? (Too expensive)

1) At what price would you consider the product to be priced so low that you would

feel the quality couldn’t be very good? (Too inexpensive)

2) At what price would you consider the product starting to get expensive, so that it

is not out of the question, but you would have to give some thought to buying it?

(Expensive)

3) At what price would you consider the product to be a bargain—a great buy for the

money? (inexpensive)

The questions can provide useful diagnostics.

The theory behind the Van Westendrop model , as articulated by Canadian pricing

Specialist Paul Hunt, rests on two psychological percepts:

“Theory of Reasonable Prices” which assumes buyers can examine an item and

formulate a rough notion of what they would expect the item to cost or at least the range

into which they would expect it to fall.

“Price Signaling Quality” which assumes that some prices are “too low” and those

buyers will avoid products that are in this category, fearing poor quality.

RAP
PMC PME

The PSM model clearly indicates the following outputs:

• Point of Marginal Cheapness (PMC): The minimum price level beyond which the

target customers would raise the question about the quality of the product and will

reject it.

• Point of Marginal Expensiveness (PME): The maximum price level from the

target customers would not purchase the product only because of high price.

• Optimum Price Point (OPP): the price point, at which, the product will attract

maximum number of customers.

Given the responses to these four questions, PSM analysis produces five price

benchmarks:

1. The Perceived Normal Price – where equal numbers of people consider the offering

inexpensive vs. expensive.

2. The Penetration Price – the price which maximizes the number of people who would

consider the offering – that is, the price at which the fewest people would consider the

offering either too expensive or too cheap.

3. The Highest Reasonable Price – the price at which equal numbers of people consider

the offering too expensive vs. "not expensive". At any higher price, decreasing

volume overcomes increasing revenue.

4. The Lowest Reasonable Price – the price at which equal numbers of people consider

the offering “too cheap” and "not cheap". At any lower price, decreasing revenue

overcomes potential volume increases.

5. The difference between the The Lowest Reasonable Price and the Highest Reasonable

Price is considered the Range of Pricing Option.

This approach yields "willingness to pay" results rather than likelihood of purchase, as

conjoint analysis delivers. The PSM method provides firms with a range of demand

functions that could be used to gain a better understanding of customers’ price elasticity.

Price is a benchmark against which a potential buyer assesses their “willingness-to-pay”

for a product or service. Sellers offer prices; buyers have a willingness-to-pay. The

challenge is to bring price and willingness-to-pay together in such a way that both parties

benefit. From a seller’s perspective, if the price is too high then potential customers aren’t

willing to purchase, compromising revenue. Setting the price too low help buyers while

sellers leave money on the table. This article presents some of the issues to consider in

developing a price – taking willingness-to pay-into account. It describes the major tools

for establishing price, with emphasis on price measurement involving direct customer

feedback.
 Execution of the method

A simple and easily executable method. The first step in the PSM is to ask respondents

the following four price related questions:

4) At what price would you consider the product to be so expensive that you would

not consider buying it? (Too expensive)

5) At what price would you consider the product to be priced so low that you would

feel the quality couldn’t be very good? (Too inexpensive/Too cheap)

6) At what price would you consider the product starting to get expensive, so that it

is not out of the question, but you would have to give some thought to buying it?

(Expensive/Not cheap)

7) At what price would you consider the product to be a bargain—a great buy for the

money? (inexpensive/not expensive)

The range of price is given to the buyers. The they point out the too inexpensive, too

expensive, expensive, inexpensive price point. The answers of all the respondents’ give

cumulative price points. Price points are plotted in the horizontal axis and the percent

respondents are plotted in the horizontal axis.

 The chart above is typical depiction of the curves created by the frequency distribution

plot . It is expected that “ too expensive’ and Too inexpensive” curves will fall below

their “ expensive “ and “inexpensive” counterparts. This relation is intuitive; more people

will respond that $8 is just expensive than will respond that $8 is “too expensive”

The key intersections on the curves, which are used to interpret price perceptions, are

then plotted. These key intersections are described in the following chart .
 The PSM is often thought of as a tool for selecting the “Optimal Price Point” for a

product.

Price-Value Mapping organizes and launches discussions that explore the pricing side of

the value equation benefits- received for price -paid. The information and insights that

price value mapping produced are significant:

Individual opinions of price sensitivity

Group- wide estimates of the

Range of acceptable price

Optimum price point

In this method, the optimal price point for a product is the point at which the same

number of respondents indicate that the price is too expensive as those who indicate that
the price is too cheap. Many pricing researchers question that this is the definitive

optimal price for a product.1

Limitation of price sensitivity Meter

There are concerns with this method. First, this method relies on respondents’

experience levels in the market, which may not be accurate oftentimes. Second, results

will vary as the market itself changes. In addition, consumer price perceptions are not

equal to purchase intentions. However, it is easy to execute and easy to understand and is

valuable as a tool for gauging consumers’ price perceptions and expectations.

Another limitation of this approach to pricing research is that respondents’ ability to

answer these questions is dependent upon their having a good reference price. For almost

any product that is not a direct line extension, respondents will not have a good reference

price. In a large sense, PSM becomes a test of price awareness rather than a measure of

price sensitivity.

The lack of a good reference price, or respondents’ use of an inappropriate

reference price, often causes the underestimation of a product’s ability to command a

premium price. Van Westendrop himself made the following statement regarding

PSM:

Value for Money (VFM) Perception

Value for money is a perception, or to put it more simply, a feeling. It is the state of

mind that a customer has when they consume the products .The owner’s opinion of

his/her business’s value for money is meaningless, it doesn’t count. The only opinion that
counts is that of the silent majority of customers — who vote with their wallets and

purses.

It's a common fallacy that people buy based on price. Well some do, but most

people buy based on value or rather their perception of value.

“A better option is to charge what you will and offer more value for that price. Give
customers the perception that your products and services are a better value than the
competition and you have a good chance of selling to them. “Back that up with real value
to maintain that perception and you'll create some loyal customers who buy again and
again and again.Don't try to give your customers the best price. Give them the best value
for the price (Bradley, 2006).”
.
People don't always buy based on the lowest price, but they do like to feel they're

getting a good deal. If an entrepreneur’s aim is to give your customers value for their

money... then his/her asking PRICE should represent the VALUE customers place on

his/her product or service. If the price asked for doesn't feel right, in relation to the value

delivered, customers are not going to buy. If the customer thinks that what the salesman

is offering them isn't worth much, then how can he ever hope to charge a high price?

Psychology Can Add Value

Customers expect a "fair" price. But "fair" is in the mind of the beholder. One can buy

a six ounce bottle of a very nice smelling perfume at a small store for Tk500. If one go to

a fine department store, where it will cost him Tk 2500. Why the 4000% difference in

price? They both smell very nice. The difference isn't so much in the bottle as in the

minds of the women who buy for Tk 2500. They know that perfume bought from a large

departmental store gives them a number of psychological "value-added" features -- they

know their friends will recognize the scent and admire them for their good taste; they

know they will feel good about themselves when they wear it; and they know that it is

part of the overall special image which they project to their husband, friends, and
business associates. In short, they are willing to pay for benefits which are not even

in the bottle of Chanel, but in people's minds.

“The key is to communicate the VALUE message. And you must communicate it so
strongly that the price seems reasonable in relation to the product or service you're
offering (Peebles 2001).”

Value for Money (VFM) Perception is the “foundation stone” of the aggregate

model, because, by using indirect probing methods (at data collection level, without

reference to price), it helps to understand the satisfaction/ dissatisfaction level of the

consumers of a given product/brand regarding the value of the product/brand, as

perceived by them, and its price (when co-related by the model, at the analysis stage). If a

“positive gap” is found to exist, i.e., the consumers are more than happy with the

product/brand vis-à-vis the price they are paying, the product/brand enjoys a strong

image and there is a good chance for price hike.

On the other extreme, if the consumers are dissatisfied, there are greater chances for a

downward revision achieving success.

The VFM model itself is based on two elements:

 Value for Money Index

 Value of Product/Brand – Value of Price Index

The first index, by measuring the level of VFM assigned to a product/brand by its

current/potential users on a 7-point scale, helps to understand its position in terms of

VFM both stand-alone as well as in comparison with other brands of interest.

The second index brings in the price factor and, through conjoint and co-relation

analyses, measure the gap between the value assigned to the brand and the value assigned
to the price. If there is a positive difference, price hike is possible and vice versa (or

inflationary trends will affect a brand or not).

A few examples of the econometric modeling outputs are given below. Each output will

have as many sub-outputs as required to see through the “prism” of survey center type,

product/brand, SEC, etc.

A)The VFM Index

The Value For Money (VFM) Index

Highest priced brand

VFM- - - VFM- - VFM- VFM VFM+ VFM++ VFM+++

Figures in parentheses are %

Brand X: (15) (4) (1) (3) (10) (17) (50)

Brand Y: (18) (3) (6) (1) (5) (31) (36)

Brand Z: (5) (6) (1) (1) (6) (34) (47)

Brand A: (7) (3) (4) (0) (6) (25) (55)

Lowest priced brand

Fig. 1: Current consumers of Tea

The above index shows, for example, that brand “A” enjoys a relatively very high

VFM, having a significant “positive gap”, which could be increased by price cut, or even

allow successful price hike. On the other hand, Brand "X" has a significant negative

VFM, indicating the possibility of converting the (-) to (+) through price cut.

B) VFM-Price Perception Index

Value of product/Brand- Value of Price index

This index shows “Psychological gap” between the value of brad and the value of price.

The brand which has positive gap could easily go for price hike and vice versa.

T h e V F M -P rice P e rcep tio n In d ex

B ran d s
A Z
1 .0 0 Y 1 .05

0 .75 X
V a lu e
of th e 0 .50
(+ ) b ran d

V a lu e 0 .10
(-) of th e
p ric e
0 .40
0 .5 0
0 .60

C u r re n t P r ice (T k.): 7 .0 6 .0 4 .0 3 .5
N e t V a lu e : + 0 .5 0 +0 .65 + 0.65 -0 .1 0

F ig . 2 : C u rren t co n su m ers o f T ea

The above index shows, for instance, that brand “A” has a positive “psychological

gap” between the value of brand and the value of price. In other words (very simply said)

the very acceptable price of brand “A” could easily have been Tk. 7.00 + 0.50 = Tk. 7.50.

On the other hand, the 'psychological gap" in case of brand "X" is -0.10, which means

that the price can be cut at least to this extent in order to stabilizing the value of brand

and the value of price index.

VFM Index (Value for money Index):

 Value for money indicates how satisfied/dissatisfied consumers are with their mostly

used brand, keeping in mind quality and all other aspects which they consider in case of

tea, on the one hand, and the price, on the other.

By measuring the level of VFM assigned to brand by its current users on a 7- point

scale, helps to understand its position in terms of VFM both stand-alone as well as in

comparison with other brands of interest. The brand which enjoys a relatively very high

VFM, having a significant “Positive gap”, which could be increased by price cut, or even

allow successful price hike. On the other hand, brad which has a significant negative

VFM, indicating the possibility of converting the (-) to (+) through price cut.

Extremely Very low Low VFM Just right High VFM Very high Extremely

Low VFM VFM VFM VFM High VFM

(1) (2) (3) (4) (5) (6) (7)

Research Design

Target group definition:

Hot tea shop owners

Currently using Mirzapore BOP

Individual consumers are not that much price sensitive. Even they don’t notice 1-5

tk increase in tea pack as this is habitual good for them and the proportion of tea

expenditure on their budget is very negligible. So they are not that much price

sensitive (Habitual goods and the goods which has very small share in budget is price
 inelastic). But to hot tea shop owners a little increase in tea pack price means a lot as

significant portion of their budget contain expenditure on tea. They are trading with

tea, they livelihood determined by their hot tea shop. So, the data mining should be

done on the hot tea shop owners. But the hot tea shop owners who are using

Mirzapore BOP are the target group. Because this pricing research would deal with

the psychological issues of Mirzapore Bop users- The value for Money they assigned

for MirzaporeBOP.

Data Mining

Generally, data mining (sometimes called data or knowledge discovery) is the process

of analyzing data from different perspectives and summarizing it into useful information.

As the target group is the Mirzapore BOP buyer who sell tea on street side tea stall.

They are not that much educated. They most of the time provide irrelevant data. To

transform those data into useful information the researcher has to go through data mining.

It is like digging out the answer of the questionnaire from their data mine. The researcher

has to mine the data. Probing of answers lead to data mining. Its very hard to make them

understand especially the four related question on “Price Sensitivity Meter” as they are

much intricate.

Type of the Study

This study is a Quantitative one. This research is designed to dig out the optimal price

for an ideal tea brand according to the hot tea shop owners. For this a “Price Sensitivity

Meter has been

deployed”. This is a quantitative outlook of this research paper.

 Again the intent of this research paper is to analyzing the psychological gap between

the Value of Mirzapore Bop and its assigned price. To gauge this VFM indexing has

been exercised. This way the Qualitative aspect of psychological gap has been quantified

through index.

Data Collection Method

- Structured questionnaire ad open-end questionnaire will be deployed for

face-to –face interview to obtain data

Sampling

Sampling Type

Sampling Convenience Sampling

Snowballing Sampling

Considering the availability of respondent convenience sampling method will be

deployed for this study.

As the sample is currently Mirzapore BOP users, so one hot tea shop owner who are

currently using Mirzapore BOP can refer other Hot tea shop owners who are using the

same brand. Considering this probability snowballing sampling method has also been

applied.

Sample size

100 respondents will be interviewed to have the statistically representative sample. As

the Mirzapore BOP users are diminishing day by day due to several complains ( reported

by sales depot person- Motijheel depot), it was hard to find Mirzapore BOP users as well

as data mining takes almost thrice time than just to interrogate.

Geographical coverage:

• Dhaka city

• Adjacent area of Dhaka City: Savar, Tongi

Time Frame

Activity # days Cumulated

required days

1. Draft survey instruments and project calendar 2 2

2. Field test of instruments 2 4

3. Field Training and selection of personnel 3 7

4. Data Collection & checks 20 27

5. Data Processing 15 42

6. Analysis & Report Preparation 7 49

7. Draft report submission 1 50

8. Final Report and presentation (after receiving 10

comments/queries from clients)

Calendar of activities/Gantt Chart

Interpretation of the Data

Seven crucial statements have been measured through 5-point likert scale. The mean

score of the first statement “I am satisfied with my current used tea” is 3.85 which

indicates, in general, the hot tea shop owners agree with this statement. The mean score

of the second statement “Its current price fully corresponds to its quality” which point

out, on the whole, hot tea shop owners are somewhat agree with this statement. In other

words, most of the current user’s think that the price should be cut down to match its

utility considering its quality. The statement “If the price of this brand is increased a
little bit more, I will switch to another brand” contains 4.27 mean score which reveals

that customers will not be retained to their currently used brand Mirzapore BOP. From

another angle it can be viewed that the hot tea shop owners are much more price

sensitive. They are so much price sensitive that little bit increment in price will deduce

the market share. But the users agreed (mean score 4.28) with the statement that “I think

price is an indicator of a product’s quality. The hot tea shop owners believe that price is

an indicator of a product’s quality but most of them are not willing to buy their current

used tea leaf ( Mirzapore BOP) with a bit higher price considering its quality rather If the

price of this brand is increased a little bit more, most of them will switch to another

brand. This is pointed on the basis of the mean score of the statement “I am willing to

buy my current used tea leaf with a bit higher price considering its quality”. The mean

score of this statement is 2.96 which clearly points out those consumers are not willing to

buy its current tea leaf with a higher price. Which indicate the tea leaf’s quality is not

well enough to retain its customer with a bit increased price.

But the mean score of the statement “I am already looking for a lower price, even if

the quality is also lower than this one” is 1.91 which simultaneously reveals that hot tea

shop owners will not considerably compromise with the quality. They are not seeking

inferior brand though that is low priced. The last statement “I am thinking of changing

this brand due to reasons other than price” is 1.43. To dig out the depth of this

statement the core question is what are the reasons other than price which push the

consumers to think about changing the brand.

The reasons which was mentioned-

a) Inferior quality
 b) Inconsistent quality

c) Leaf decomposition is time consuming

d) Leaker is not good.

From the analysis of the mean scores of the given seven statements illustrate that

Mirzapore BOP users somewhat satisfied with the Mirzapore BOP. But they don’t not

fully agree that its current price fully corresponds to its quality. So if the price of this

brand is increased a little bit more, consumers will naturally switch to another brand.

Commensurately, the mean score of the statement “If the price of this brand is increased a

little bit more, I will switch to another brand” is 4.27. Interestingly the consumers think

price is an indicator of a product’s quality but they are not willing to pay extra

considering its quality. The hot tea shop owners are much more price sensitive than

household consumers. But the light of hope is maximum hot tea shop owners are not

already looking for a lower price, even if the quality is also lower than this one. But some

consumers complaints about the quality of the Mirzapore BOP. So 11% hot tea shop

owners will not be retained as they told which is an alarming issue for M.M. Ispahani.

Interpretation of the question #8(a)

Total 11 respondents out of 100 are thinking of changing this brand due to reasons

other than price. Among them 18.2% give the reason as Leaf decomposition is time

consuming. 9.1% claim Leaker is not good. 63.6% allege that quality is inferior. 27.3%

point out quality is not consistent.

82% respondent state that if the price of this brand is increased a little bit more, they

will switch to another brand. Now the core question is - How much that “bit more” be?

36% will switch it price increased with Tk Up to 5.00

64% will switch it price increased with Tk. Above 5.00

24% hot tea shop owners said that you said, they are already looking for a lower

priced tea. Exactly what price would be acceptable to them ?

Acceptable Price % of respondents

Taka 120 to 125 16.7

Taka 126 to 135 70.8

Above 135.00 taka 12.5

On average, the acceptable price is 132.04

For Mirzapore BOP, the acceptable price is around 132 which is much more below than

its current MRP.

Hot tea shop owners are much price sensitive than household consumers. Thus the

sample of this study contains only the hot tea shop owners; if the price increases a little

bit they will switch to another brand. The study reveals that 82% respondent state that if

the price of this brand is increased a little bit more; they will switch to another brand.

Now the core question is - How much that “bit more” be? 36% will switch it price

increased with Up to 5.00 tk & 64% will switch it price increased with. above 5.00 tk..

But another driving force of loosing the Mirzapore BOP consumer is its deteriorating

quality. 11 respondents out of 100 are thinking of changing this brand due to reasons

other than price. The reasons are Inferior quality, inconsistent quality, Leaf

decomposition is time consuming

24% Hot tea shop owners said that You said, they are already looking for a lower priced

tea. Exactly what price would be acceptable to them? On average, the acceptable price is

132.04

Interpretation of the “Price Sensitivity Meter”

A price sensitivity Meter has been employed to determine the sensitivity of the hot tea

shop owners to the price. Price sensitivity here is defined as the change in individual

consumer willingness to buy in response to a price change, Price sensitivity thus differs

from price elasticity of demand. The latter relates proportionate change in quantity to that

in price.

The PSM enables maximum and minimum prices to be identified and defines an

acceptable pricing range to consumers.

Price Sensitivity meter

120
100
Cumulative %

expensive
80
too inexp
60
inexp
40
PMC PME too exp
20 OPP
0
0
0

16
13

13

13

13

14

14

15

15

16

e
to

ov
up

ab

Price

How PSM is constructed

The core objective of deploying the price sensitivity meter is to gauge the most

acceptable price range and obtain a optimal price point. To dig up this information the
following four questions were asked which can be considered as the pillars of the “price

Sensitivity Meter”.

1) For a standard “Tea” (1 kg), at which price point you will consider the price as

“expensive” but you still purchase it? ( expensive)

2) What is the minimum price level, for which you will consider that you have got a

good bargain? (Inexpensive)

3) At what price would you consider the product to be so expensive that you would not

consider buying it? This question dig out at which price level you will consider the price

as “too expensive” and you will stop buying it only for high price? (Too expensive)

4) At which minimum price level you will raise the question about the “quality” of the

product and stop buying it considering the product “inferior”? (Too inexpensive)

The four questions were asked considering an ideal tea leaf (1 kg.) to the consumers.

They were asked to assign price point keeping mind a standard tea leaf (1 Kg) to them.

• Point of Marginal Cheapness (PMC): The minimum price level beyond which the

target customers would raise the question about the quality of the product and will

reject it.

By operating the “Price Sensitivity Meter” the PMC point has been derived. The

above graph shows the PMC is 136 for the ideal/superior tea leaf which point out that

if per Kg. tea leaf is sold below 136 the Hot Tea shop owners will raise their eye –

brows. They would raise the question about the quality of tea. Eventually they will

reject that tea leaf at this price.

• Point of Marginal Expensiveness (PME): The maximum price level from the

target customers would not purchase the product only because of high price.
 “Price Sensitivity Meter” I have computed that PME is 152 which imply that from

the price 152 the Hot Tea Shop Owners would not purchase only because of high

price.

• Optimum Price Point (OPP): The price point, at which, the product will attract

maximum number of customers. The optimum price point which the researcher

has gauged through “Price sensitivity Meter” is 142.5 per Kg. So, for a standard

brand (1 kg. tea leaf) priced 142.5 is the price point, at which the brand will

attract maximum number of customers.

• Rang of Acceptable Price( RAP): The safest range of pricing a product is 136-152

So the four points expensive, inexpensive, too expensive and too inexpensive are

considered as spade which digs out the optimal price point and the acceptable price

range.

Interpretation of Value for money index

T h e V alu e F o r M o n e y (V F M ) In d ex
H igh est p riced b ran d

VFM - - - VFM - - VFM - VFM VFM + VFM ++ VFM +++

F igu res in p aren theses are %

B O P : (1 ) (1 ) (39 ) (3 0 ) (1 5 ) (1 0 ) (4 )

L o w est p riced b ran d

This index, by measuring the level of VFM assigned to Mirzapore BOP by its current

users (Hot tea shop owners) on a 7-point scale, helps to understand its position in terms

of VFM. Value for money indicates how satisfied/dissatisfied Hot Tea Shop Owners are

with their currently used Mirzapore BOP, keeping in mind quality and all other aspects

which you consider in case of tea, on the one hand, and the price, on the other.

30% Hot Tea Shop Owners go for “ Just right VFM”. Major portion of the

respondents (39%) has low VFM which means considering quality and all other aspects

important to the respondents, on the one hand, and the price that they are paying for it, on

the other. “Mirzapore BOP” has dissatisfactory factor. In other words According to them

Price that they are paying for Mirzapore BOP , outweigh its utility. One respondent has

very low VFM and one respondent has extremely low VFM which indicates according to

them The Quoted price of “Mirzapore BOP” does not go with the quality, the brand is

higly priced. So, 41% respondents has negative psychological gap. 30% respondents have

“just right VFM”. From another angel it can be said 30% consider Mizapore BOP’s

current price fully corresponds to its quality.29% Hot teas shop owners has positive

psychological gap. But the majority 41% consumers have a “negative gap” is found to

exist, i.e., the consumers are not happy with the product/brand vis-à-vis the price they

are paying, the product/brand experiences poor image indicating the possibility of

converting the (-) to (+) through price cut.

 Interpretation of VFM- Price Perception Index

The VFM-Price Perception Index

Mirzapore
BOP

Value of
the brand
45.48
(+)

Value of
(-) the price
56.36

Current Price (tk) 145

Net Value -10.88

The above index shows, brand “Mirzapore BOP” has a negative “psychological gap”

between the value of brand and the value of price which means that the price can be cut at

least to this extent in order to stabilizing the value of brand and the value of price index.

The value of the brand- Mirzapore BOP is assigned as 45.48 by the respondents while

Value of the price is 56.36. So. There is a negative psychological gap which suggest there

should be price cut by (56.36-45.48), -10.88 tk.

Value for money index shows there is a negative gap between value of the brand and

value of the price and the gap is -10.88 which reveal to the consumers value of the price

is much higher than value of the brand. It ultimately suggests cutting price by 10.88. The
willingness to pay for Mirzapore BOP (1 kg) of the hot tea shop owner is (145-10.88)

134 Tk while the current Market retail price is 145. After deploying the Price

Sensitivity Meter the optimal price point is calculated this is 142.5 Consumers are

willing to pay up to 152 tk per kg for the tea leaf which has superior quality, which is an

ideal one. And the optimal price point is 142.5 per kg for an ideal tea leaf. So it indicates

if the tea leaf has good positioning in the consumers’ mind, i.e. if consumers’ consider

the tea leaf has positive psychological gap ( value of brand> value of price), they are

willing to pay more. So though the VFM index shows brand “Mirzapore BOP” has a

negative “psychological gap” between the value of brand and the value of price and

suggests to price cut. But this may not be the only solution. The other optimistic path is

open up. If the M.M. Ispahani can uphold the value of “Mirzapore BOP” then this

negative psychological gap can be turned into the positive one.

People don't always buy based on the lowest price, but they do like to feel they're

getting a good deal. If an entrepreneur’s aim is to give his customers value for their

money then his/her asking PRICE should represent the VALUE customers place on

his/her product or service. If the price asked for doesn't feel right, in relation to the value

delivered, customers are not going to buy. If the customer thinks that what the

M.M.Ispahani is offering them isn't worth much, then how can it ever hope to charge a

high price?

Significance of the study

Ispahani offered variety of tea in the market maintaining good quality. Mirzapore

Best Leaf is the leading brand for household but the picture is not vibrant in the HTS

market. Mirzapore BOP which is served to the Hot Tea Shop (HTS) consumers is not the
market leader. The tea market is a fragmented one with various other players combating

to grab the market share. Some of the key brands, especially Hot Tea Shop (HTS)

consumed tea, are thrusting for space in the consumer purchase basket as well as retailer

shelf space. Among the household consuming brands, MBL is far ahead from the

competitors, but BOP facing challenges from different competitors in different regions.

In HTS category, most of the time consumers don’t want to compromise with price and

they have no brand loyalty as well.

Junior Divisional Managers’ weekly report reveal that most of the time HTS owners

pointing to reduce price with maintaining quality. Thus, Ispahani have to concentrate on

the competitive weapon, the pricing strategy, to determine the best pricing policy by

measuring the responsiveness or sensitivity to changes in prices to maximize profits.

. Core of the paper would contain the value for money of Mirzapore BOP to gauge the

psychological gap between the Value of Mirzapore BOP considering its quality, utility in

one hand and the value of Price on the other hand. If there is negative gap, price cut is a

must as suggested by junior divisional Managers. Now the core question is how much

price cut is essential to retain consumers. The answer of this question will be considered

through VFM indexing. Beside this, this research would help out to gauge the Price

sensitivity of an ideal tea brand according to hot tea shop owners who are currently using

Mirzapore BOP. Finally, the result of the optimal price point for an ideal tea pack (1kg)

would give an idea about the willingness to pay for an ideal tea pack. The comparison

between the willingness to pay for an ideal or perfect tea bag and willingness to pay for

Mirzapore BOP would construct the answer how much far behind Mirzapore BOP is

from an ideal tea pack from the view point of Hot Tea Shop Owners.
 Validity

According to Wiederheims-Paul and Eriksson (1989), existing definitions of the term

validity are quite vague why the authors have chosen to define it as the ability to measure

that which was intended to be measured. If the gathered data does not answer to the

purpose, even though the data might be reliable, it is not valid (Svenning, 1997).

Repeating the purpose of this thesis, we want to investigate the price sensitivity of ideal

tea leaf and value foe money of Mirzapore BOP.

Validity is commonly divided into internal and external validity (Wiederheims-Paul &

Eriksson, 1989; Svenning, 1997). Internal validity is concerned with the targeting of the

right sample and the usage of a proper measuring method. External validity is achieved

when it is possible to draw general conclusions from a study, applying for the whole

population or as common theory.

In order for our study to obtain highest possible validity, we chose the hot tea shop

owners currently who are using Mirzapore BOP. Because the users can better define the

product. Mirzapore user’s value for money perception is required for this study. In a way,

the internal validity of this study is confirmed. But it is not possible to draw the general

conclusion from this study as the sample size is very small comparing the population.

The use of Van Westendrop Price Sensitivity Meter (PSM) exercise to determine the

market value of products, services, and market intangibles (such as brand) have been

documented and validated in many cases ranging from consumer products to NASA

studies for the Kennedy space Center.

Limitation

Small sample Size

 sample size is very small to gauge the “ Price sensitivity”. Small size has belittled

the accuracy.

Target group

It was very difficult to pull the answers from this not well educated segment. The

target group was hot tea shop owners and most of them are reluctant to participate

properly. In sum they were not co-operative. This non cooperativeness somehow impedes

the depiction of real picture.

Probing or data mining

Data mining is a complicated job. As the sample is not learned enough to

participate in judicial way, the sample was being probed.

The negative attitude toward this research

As the research was a pricing research, the participants had negative attitude

towards the questions posed on them. The prices of necessity products are stubbornly

rising to empty the consumer product. In this Backdrop of Bangladesh economy, any sort

of pricing research would get this sort of negative attitude. So this research is not

exceptional case.

Conclusion

By operating the “Price Sensitivity Meter” the optimal price point for an ideal tea

leaf (1kg) has been derived. For an ideal tea leaf (1kg), Hot Tea shop owners will raise

their eye brows if that is sold below Tk136. From the price Tk152 the Hot Tea Shop

Owners would not purchase only because of high price. So, the safest range of pricing a

product is 136-152. Four points expensive, inexpensive, too expensive and too
inexpensive in this model are considered as spade which digs out the optimal price point

which is 142.5 for an ideal tea leaf (1kg) according to Mirzapore BOP user.

The results of VFM index shows that there is a negative psychological gap between

the value of brand and the value of price which ultimately suggests price cut. The gap is -

10.88 which suggest price cut of 11 . The current Market retail price of BOP is 145. The

price cut of 11 will results in Tk 134 per Kg.

One concerning issue the optimal price of Mirzapore BOP is 134 tk per kg whereas for

an ideal/perfect tea leaf HTS owners would raise their eye-brows if per kg is sold under

136 which clearly reveals that Hot tea shop owners are not considering the Mirzapore

BOP is an ideal or perfect one. Moreover, the VFM index illustrates the negative

psychological gap which is definitely an alarming scenario for Mirzapore BOP.

The Value for money index shows hot tea shop owners has negative psychological

gap, they feel like they are getting a bad deal. The best thing to combat with this

depressing condition is to uphold consumers’ perception of the value of Mirzapore BOP

than to reduce price. As, Steven Bradley says “Don't try to give your customers the best

price. Give them the best value for the price.”

Suggestion for further study

Futher study on the issue of value is required. More over, the price elasiticity

indexing and Brand-price trade- off model can better depict the scenarion. So the study

using price elasiticity indexing and Brand-price trade- off model is required to coclude

any pricing decision.

 Appendix

Questionnaire

Dear Sir:

I'm a private market researcher. I would require some information regarding Tea from

you. All sorts of information provided by you would be used only for research purpose

and also be maintained confidentiality. Your cooperation would be highly appreciated.

Thanks and regards,

Name of Interviewer:

Place of interview:

Date & Time of interview:

Name of the respondent:

Address:

Phone Number (if any):

Q1. Age of the respondent:---------------------

1. Below 20 years (Close interview)

2. 21-35 years

3. 36-45 years
 4. 46 and above

Q2. Education of the respondent:

2. Illiterate

3. Class I to X

4. SSC

5. HSC

6. Graduate

7. Post Graduate

8. Others (Please mention)

Q3. Which brand of tea do you use mostly now?

1. Taaza

2. Tetly

3. Mirzapore Best Leaf

4. HRC

5. Pran tea

6. Mirzapore BOP

7. Local Brand/Loose

8. Others (Mention brand)

(If the respondent doesn’t use Mirzapore BOP, close interview and thank him)

Q4. Tea leaf usage per day

1. Up to 250 gms

2. 251 to 500 gms

 3. Above 500 gms

4. Don't want to say/Can’t say

Q5. Number of cups sells per day

1. Up to 50 cups

2. 51 to 100 cups

3. 101 to 150 cups

4. 151 to 250 cups

5. Above 200 cups

6. Don't want to say/Can’t say

Q6. Monthly expense for tea (leaf) consumption.---------------------- Taka

Q7. Now I’ll mention some attributes regarding price and quality. Please let me know

which of the statements (1-5) do you think match with the attribute?

Opinions Fully Some Unde Some Fully Inst-

Agree what cided What Disag ruction
Agree Disagree ree
1. I am satisfied with my current used 5 4 3 2 1
tea.
2. Its current price fully corresponds to 5 4 3 2 1
its quality.
3. If the price of this brand is increased a 5 4 3 2 1 If
little bit more, I will switch to another coded
brand. 5,4 ask
Q8b

4. I think price is an indicator of a 5 4 3 2 1

product’s quality.
 5. I am willing to buy my current used 5 4 3 2 1
tea leaf with a bit higher price
considering its quality.

6. I am already looking for a lower 5 4 3 2 1 If

price, even if the quality is also lower coded
than this one. 5,4 ask
Q8c

7. I am thinking of changing this brand 5 4 3 2 1 If

due to reasons other than price. coded
5,4 ask
Q8a

Q8a. You said you are already thinking of changing your current used brand- the

reason(s) being not the price, but other(s). will you please tell me what is/are the /those

reasons(s)?

Q8b. You said you will switch to another brand, if the price of your current used tea is

increased a bit more. How much that “bit more” be?

Will switch it price increased with Tk.

Q8c. You said, you are already looking for a lower priced tea. Exactly what price would

be acceptable to you?

Tk.

9) Price sensitivity Meter

Q9a. For a standard “Tea” (1 kg), at which price point you will consider the price as

“expensive” but you still purchase it?

Q9b. What is the minimum price level, for which you will consider that you have got a

good bargain?

Q9c. At which price level you will consider the price as “too expensive” and you will

stop buying it only for high price?

Q9d. At which minimum price level you will raise the question about the “quality” of the

product and stop buying it considering the product “inferior”?

Price Q9a Q9b Q9c Q9d

Up to Taka 130
Taka 131
Taka 132
Taka 133
Taka 134
Taka 135
Taka 136
Taka 137
Taka 138
Taka 139
Taka 140
Taka 141
Taka 142
Taka 143
Taka 144
Taka 145
Taka 146
Taka 147
Taka 148
Taka 149
Taka 150
Taka 151
Taka 152
Taka 153
Taka 154
Taka 155
Taka 156
Taka 157
Taka 158
Taka 159
Taka 160
VFM Index

We have also discussed the matter of value for money of the BOP, which people like you

are mostly used package, keeping in mind quality and all other aspects which you

consider in case of tea, on the one hand, and the price, on the other. Please look at this

card (show VFM card). There are seven boxes on this card. The extreme left box here

says “Extremely low VFM

(VFM: 1)” and the box on the extreme right says “Extremely high VFM (VFM: 7)”. The

other boxes are “in-betweens”. The more you move your finger from left to right, the

more the VFM level increases. Now, for example, if a person thinks that her/his used tea

has extremely low VFM 1)” and the box on the extreme right says “Extremely high VFM

(VFM: 7)”. The other boxes are “in-betweens”. The more you move your finger from left

to right, the more the VFM level increases. Now, for example, if a person thinks that

her/his used tea has extremely low VFM, she/he will put a finger on the extreme left box.

If she/he thinks it has very low VFM, but not extremely low, she/he will put a finger on

the second box from the left (and so on, explain well).1)” and the box on the extreme

right says “Extremely high VFM (VFM: 7)”. The other boxes are “in-betweens”. The

more you move your finger from left to right, the more the VFM level increases. Now,

for example, if a person thinks that her/his used tea has extremely low VFM, she/he will

put a finger on the extreme left box. If she/he thinks it has very low VFM, but not
extremely low, she/he will put a finger on the second box from the left (and so on,

explain well). Now, please indicate with your finger the box, which best suits your

opinion of the tea that you are currently using most often (Mirzapore BOP), considering

quality and all other aspects important to you, on the one hand, and the price that you are

paying for it, on the other (Repeat exercise twice. Show how by sliding a finger from

box to box from left to right the level of VFM increases, or from right to left the

VFM decreases. If needed, explain again. Then ask respondent to indicate a box.

Tick on the VFM scale below).

VFM GRID

Extremely Very low Low Just right High Very high Extremely
low VFM VFM VFM VFM VFM VFM high VFM

(1) (2) (3) (4) (5) (6) (7)

Q10. Please let me know your monthly income

1. Up to 5000 Taka

2. 5001 to 7000 Taka

3. 7001 to 10000 Taka

4. Above 10000 Taka

5. Don't want to say/Can’t say

Thanks
 Reference

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Understanding Willing to Pay- VanaerdeConsulting