Economic Analysis of Surf excel

Presented To: Prepared By:

Dr. T. J. Joseph
Group 4
PGP JULY 10-12 (Section H)

ANKITA KUSHWAHA
BHASKARUNI HARITHA
DHARAMPAL SINGH
HARSH TIWARI
PUSHKAR GAUTAM
 Table of Contents

Sl. No. Title Page

No.

1. Acknowledgement 3

2. About The Company 4

3. About The Product 5

4. Change in Demand 6

5. Cross Price Elasticity 7

6. Income Elasticity 8

7. Pricing Strategy 9

8. Break Even Analysis 10

9. Market Structure 11

10. Oligopoly Demand Curve for SURF 12

11. Reference 13

2|P ag e Group 4
ACKNOWLEDGEMENT

We owe and are thankful to God who gave us the strength, and to one and all
who helped and supported us in preparation of this project.

We are deeply thankful to Dr. T. J. Joseph, who guided us throughout the

preparation and presentation of the project. It is his effort that we were able
to bring out such report.

We are also thankful to ALLIANCE BUSINESS SCHOOL and its staff, who has
given us a chance to work on this project by making it a part of curriculum.

We thank to all other groups members who has been supportive and helpful
during the preparation of the project.

ANKITA KUSHWAHA

BHASKARUNI HARITHA

DHARAMPAL SINGH

HARSH TIWARI

PUSHKAR GAUTAM

3|P ag e Group 4
ABOUT THE COMPANY
Hindustan Unilever Limited is India's largest fast moving consumer goods company,
touching the lives of two out of three Indians with over 20 distinct categories in home &
personal care products and food & beverages. They endow the company with a scale of
combined volumes of about 4 million tonnes and sales of over Rs. 13,000 Crore. HUL is also
one of the country's largest exporters; it has been recognized as a Golden Super Star Trading
House by the Government of India. The Anglo-Dutch company Unilever owns a majority
stake (52%) in Hindustan Unilever Limited.

HUL was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as
Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co.
Ltd. and United Traders Ltd. It is headquartered in Mumbai, India and has employee strength
of over 15,000 employees and contributes for indirect employment of over 52,000 people.
The company was renamed in June 2007 to “Hindustan Unilever Limited”.

In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25
years by Businessworld, one of India‟s leading business magazines. The rating was based on
a compilation of the magazine‟s annual survey of India‟s Most Reputed Companies over the
past 25 years. HUL is the market leader in Indian consumer products with presence in over
20 consumer categories such as soaps, tea, detergents and shampoos amongst others with
over 700 million Indian consumers using its products. It has over 35 brands. Sixteen of
HUL‟s brands featured in the ACNielsen Brand Equity list of 100 Most Trusted Brands
Annual Survey (2008). According to Brand Equity, HUL has the largest number of brands in
the Most Trusted Brands List. It‟s a company that has consistently had the largest number of
brands in the Top 50 and in the Top 10 (with 4 brands).

Hindustan Unilever's distribution covers over 1 million retails outlets across India directly
and its products are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail
outlets in India. It has 39 factories in the country. Two out of three Indians use the company‟s
products and HUL products have the largest consumer reach being available in over 80 per
cent of consumer homes across India

The company has a distribution channel of 6.3 million outlets and owns 35 major Indian
brands. Some of its brands include Kwality Wall's ice cream, Knorr soups & meal makers,
Lifebuoy, Lux, Breeze, Liril, Rexona, Hamam and Moti soaps, Pureit water purifier, Lipton
tea, Brooke Bond tea, Bru coffee, Pepsodent and Close Up toothpaste and brushes, and Surf,
Rin and Wheel laundry detergents, Kissan squashes and jams, Annapurna salt and atta,
Pond's talc and creams, Vaseline lotions, Fair and Lovely creams, Lakmé beauty products,
Clinic Plus, Clinic All Clear, Sunsilk and Dove shampoos, Vim dishwash, Ala bleach,
Domex disinfectant, Rexona, Modern Bread, and Axe deosprays.

HUL was one of the eight Indian companies to be featured on the Forbes list of World‟s Most
Reputed companies in 2007.

4|P ag e Group 4
ABOUT THE PRODUCT
Surf Excel, launched in 1954, is one of the oldest detergent powders in India . Initially, the
brand was positioned on the clean proposition of “washes whitest”. However, with the
emergence of numerous local detergent manufacturers and the entry of other global brands,
Surf Excel underwent various changes in its Brand Communication; from 'lalitaji' to
'dhoondte reh jaaoge' to 'jaise bhi daag ho, surf excel hai na', and is today communicated on
the platform of 'Dhaag achcha hai'. This is in line with the global communication platform of
Dirt Is Good, which is a communication strategy of Unilever for its premium detergent
products, sold under various brand names; such as Omo in Brazil and Persil in UK and
France. Today, Surf Excel leads the Premium Fabric Wash Category in India. Some of the
other major detergent products of Unilever in India are Rin and Wheel. The latest entry into
the segment is Comfort, a Fabric Conditioner.

Journey of Surf Excel

 1959: Introduced as first detergent powder in the country.

 1970: Introduction of Nirma, Surf was then introduced for its price value equation.

 1990: Surf Ultra was introduced to compete in mid price range with Ariel.

 1996: Surf was redefined as Surf excel for variant of complete cleaning and care.

 2003: Surf excel Blue launched to remove tough stains without fading colour.

 2005: Surf excel Matic was introduced to be used in washing machines.

 2006: Surf excel bar was introduced after merging it with Rin bar.

 Current: Surf excel has clearly defined itself as a premium brand.

Product Range
• SURF excel QUICK WASH

• SURF excel BLUE

• SURF excel MATIC

• SURF excel BAR

• SURF EXCEL GENTLE WASH

5|P ag e Group 4
 CHANGE IN DEMAND
A change in demand is a change in the entire price-quantity relation that makes up the
demand curve. It means that a different quantity demanded is paired with a given
demand price or that a different demand price is paired with a given quantity
demanded. The result of this repairing of prices and quantities is a repositioning, or a
shift, of the demand curve.

160000
demand curve
140000

120000
price per tonnes(in Rs.)

100000

80000

60000

40000

20000

0
8,91,331.00 9,29,540.00 15,28,391.00
Quantity demande (in tonnes)

In the diagram in 2002 price of surf was Rs 150000 per tonne where demand was
8,91,311 tonnes. In 2003 price was Rs 135000 per tonne where demand was
9,29,5400 tonnes. Similarly in 2008 price was Rs 110000 per tonne where demand
was 15,28,391 tonnes. So we get demand curve which is downward sloping in
relationship with changes in price of surf.

Price Elasticity of Demand: % change in quantity demanded/ % change in price

Point Elasticity = 38209*(150000+135000)/15000*(891331+929540)

= - 0.39

Since the elasticity is less than one therefore we get that demand for surf excel with
relation to its price is inelastic ( in the diagram it seems to be highly elastic because
first data in quantity demanded starts with high figure of 8,91,331 tonnes). So with
high decrease in price of surf there is just small change in quantity demanded of surf.

6|P ag e Group 4
Cross Price Elasticity
Cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of
the demand for a good to a change in the price of another good.

It is measured as the percentage change in demand for the first good that occurs in response
to a percentage change in price of the second good.

120000
demand curve for surf
115000
Price of Ariel per tonne(in Rs.)

110000

105000

100000

95000

90000
11,84,997.00 15,28,391.00

Quantity Demanded for Surf (in tonne)

In 2008 price of Ariel was Rs 115000 per tonne and demand for surf excel was 15,28,391
tonnes. Whereas when price of Ariel fell to Rs 100000 per tonne then demand for surf fell to
11,84,997 tonnes. So we see that with decrease in price of Ariel the demand for Surf also
decreased.

Cross price Elasticity = % change in quantity demanded for surf/ % change in price of Ariel

= 22.46/13.04

= 1.72

Since the cross price elasticity is positive therefore we see that the products are substitutes.
Also since it is greater than 1 it states that the there is high cross price elasticity for the
products. This means that a small change in price of Ariel brings about a large change in
quantity demanded for surf.

7|P ag e Group 4
INCOME ELASTICITY OF DEMAND
Income elasticity of demand measures the responsiveness of the demand for a good to a
change in the income of the people demanding the good. It is calculated as the ratio of the
percentage change in demand to the percentage change in income.

A negative income elasticity of demand is associated with inferior goods. A positive income
elasticity of demand is associated with normal goods; an increase in income will lead to a rise
in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity
good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

Income Demand curve for surf

34,000

33,500 33,588

33,000

32,500
Income Demand curve for
32,000 surf
31,821
31,500

31,000

30,500
14,86,573 15,28,391

In the diagram in 2008 when per capita income was Rs 31,821 the quantity demanded was
14,86,573 tonnes and in 2009 when per capita income rose to Rs 33,588 the consumption of
surf increased to 15,28,391 tonnes. We that with increase in income there is increase in
consumption of surf.

Income Elasticity of Demand= % change in quantity demanded / % change in income

= 2.81% / 5.55%

=0.506

Since elasticity is positive so it is normal goods and less than one it can be said to be as a
necessity goods.

8|P ag e Group 4
PRICING STRATEGY

Pricing strategy refers to the methods by which a business calculates how much it will charge
for a product or service. It is based not only on the cost of the product, but also on profit
margin and a holistic view of the market and future viability.

Types of pricing strategy followed by HUL in pricing of surf are:

1. Cost-plus Pricing : The method determines the price of a product or service that uses
direct costs, indirect costs, and fixed costs whether related to the production and sale
of the product or service or not. These costs are converted to per unit costs for the
product and then a predetermined percentage of these costs are added to provide a
profit margin.
FOR EXAMPLE:
List price Rs. 90
Add: Distributor price (6.5%) Rs. 96
Add: Trade price (5%) Rs. 100
Final Retail price (10%) Rs. 110

2. Competitive Pricing: The method determines the price of a product or service in

relation to the price put up by its competitors. The pricing is done in a manner to keep
price lower than the competitor‟s so as to competitive edge over the competitor in
terms of the price of the product.
Since the Surf and Ariel are close substitutes therefore HUL keeps price of
Surf with regard to price of Ariel. For example the price of Ariel is Rs 115 per kg then
surf price is kept low at Rs 110 so that it attract customer who are very sensitive to the
price

3. Customer-Segment Pricing: Customer segmentation is the practice of dividing a

customer base into groups of individuals that are similar in specific ways relevant to
marketing, such as age, gender, interests, spending habits, etc. Using segmentation
allows companies to target groups effectively, and allocate marketing resources to
best effect.
In case of surf there are various segments for which various prices are
charged. For example in least quantity segment pricing is done nearer to the cost price
as the buyer in this segment is poor people. While buyers buyer buying in bulk would
not mind paying more price. The price of surf of 15 grams is priced at Rs 2 with profit
percentage of 15% while 1kg packet is charged Rs 110 with profit percentage of 35%.
Also surf has high price segment of surf excel quick wash and surf excel automatic
for premium customer, while it has surf excel blue for lower price range of customers.

9|P ag e Group 4
Break Even Analysis of Surf
The break-even point for a product is the point where total revenue received equals the total
costs associated with the sale of the product (TR = TC). A break-even point is typically
calculated in order for businesses to determine if it would be profitable to sell a proposed
product, as opposed to attempting to modify an existing product instead so it can be made
lucrative. Break even analysis can also be used to analyze the potential profitability of an
expenditure in a sales-based business.

Formula for Break Even Analysis:

Breakeven point (for output) = fixed cost / contribution per unit

Contribution (p.u) = selling price (p.u.) - variable cost (p.u)

Breakeven point (for sales) = fixed cost / contribution (pu) * selling price (pu)

In case of SURF

2005 2004 2003

Variable Cost (per tones) 76643.25 76643.25 76643.25

Total Fixed Cost 9,72,57,05,298 9,48,47,60,561 8,96,23,91,236

Selling Price (per tonne) 90000 96000 96000

Break even for year

 2005 = 9,72,57,05,298 / (90000-76643.25) = 728149.08 tonnes

Similarly for years:

 2004 = 9,48,47,60,561 / (89000-76643.25) = 767577.28 tonnes

 2003 = 8,96,23,91,236 / (89000-76643.25) = 725303.27 tonnes

10 | P a g e Group 4
MARKET STRUCTURE
Market structure is best defined as the organizational and other characteristics of a market.
We focus on those characteristics which affect the nature of competition and pricing – but it
is important not to place too much emphasis simply on the market share of the existing firms
in an industry.

Examples of market structures

Characteristic Perfect Competition Oligopoly Monopoly

Number of firms Many Few One
Type of product Homogenous Differentiated Limited
Barriers to entry None High High
Supernormal short run Yes Yes Yes
profit
Supernormal long run No Yes Yes
profit
Pricing Price taker Price maker Price maker
Profit maximization? No Not always Usually, but not
always
Economic efficiency High Low Low
Innovative behaviour Weak Very Strong Potentially strong

Market Structure for Surf: OLIGOPOLY

An oligopoly is a market form in which a market or industry is dominated by a small number
of sellers. Because there are few sellers, each seller is likely to be aware of the actions of the
others. The decisions of one firm influence, and are influenced by, the decisions of other
firms.

FEW PLAYERS LIKE:

 HUL ( Blue, Matic)

 Nirma
 P&G ( Tide, Aerial) Henkel India (Mir, Persil, Porwall, Vernel, Pure
 Reckitt Benckiser ( Vanish)

11 | P a g e Group 4
OLIGOPOLISTIC DEMAND CURVE FOR SURF (Kinked)
Kinked demand curves and traditional demand curves are similar in that they are both
downward-sloping. They are distinguished by a hypothesized convex bend with a
discontinuity at the bend - the "kink." Therefore, the first derivative at that point is undefined
and leads to a jump discontinuity in the marginal revenue and average revenue curves.

Classical economic theory assumes that a profit-maximizing producer with some market
power (oligopoly) will set marginal costs equal to marginal revenue. This idea can be
envisioned graphically by the intersection of an upward-sloping marginal cost curve and a
downward-sloping marginal revenue curve (because the more one sells, the lower the price
must be, so the less a producer earns per unit). In classical theory, any change in the marginal
cost structure (how much it costs to make each additional unit) or the marginal revenue
structure (how much people will pay for each additional unit) will be immediately reflected in
a new price and/or quantity sold of the item. This result does not occur if a "kink" exists.
Because of this jump discontinuity in the marginal revenue curve, marginal costs could
change without necessarily changing the price or quantity.

The motivation behind this kink is the idea that in an oligopolistic competitive market, firms
will not raise their prices because even a small price increase will lose many customers.
However, even a large price decrease will gain only a few customers because such an action
will begin a price war with other firms. The curve is therefore more price-elastic for price
increases and less so for price falls.

The principle of the kinked demand curve rests on the principle that:

a. If a firm raises its price, its rivals will not follow suit
b. If a firm lowers its price, its rivals will all do the same

For example: Assume the surf is

charging a price of Rs5 and
producing an output of 100. Its
total Revenue will be shown by
Total Revenue A. The demand
curve is elastic.

When surf wants to raise price

above Rs. 5 the quantity
demanded decreases drastically as
its demand curve is elastic. Also
no rivals will follow the increase
in price. Its total revenue now is
Total Revenue B.

12 | P a g e Group 4
 If the surf seeks to lower its price to gain a
competitive advantage, its rivals( ariel )
will follow suit. Any gains it makes will
quickly be lost and the percentage change
in demand will be smaller than the
percentage reduction in price – total
revenue would again fall as the firm now
faces a relatively inelastic demand curve.
Now the total revenue is Total revenue B.

The surf therefore, effectively faces

a „kinked demand curve‟ forcing it to
maintain a stable or rigid pricing structure.
Oligopolistic firms may overcome this by
engaging in non-price competition.

References:
www.hul.co.in/

www.surfexcel.in

www.capitaline.com/

www.investopedia.com/

www.wikipedia.org/

13 | P a g e Group 4