Instructional Case-1

The Changing Demand

-By Dr. Nitin Ranjan
Fast-moving consumer goods
(FMCG) sector is the 4th largest sector in the Indian economy.
Household and Personal Care majorly contributes 50 per cent
of FMCG sales in India. Growing awareness, easier access and
changing lifestyles have been the key growth drivers for the
sector. Lockdown of India due to ongoing Coronavirus
Pandemic is surely going to press reset button on entire FMCG
companies. It is directly going to impact the Indian Consumer
behavior particularly the traditional purchasing style and the
preferred products feature. Leading consumer goods
companies including ITC, Dabur, Marico and Godrej have
launched more than three dozen products and variants in the
health and hygiene segment over the past month to cash on
the increased consumer awareness and demand for such
products due to Covid-19 fear.
Indian customers have drastically shifted their demand in the
last 15 to 16 months. Customers are now interested in more
hygienic products which can give them more satisfaction and
reduce their fear during lockdown which was followed by Sate
wise restrictions. Suddenly there is huge need for Hygienic and
germ protection products and companies are trying their best
to grab this opportunity. They came out with maximum
numbers of possible products in shorter span of time so that
they can aptly meet the demand and get the big chunks from
this market.
The Economics of FMCG demand suggests numerous factors
which directly affect the demand of the industry. Whereas this
time the sudden spurs in market demand is also due to some
other important factors. All companies have joined the party
by increasing production but they should also consider that-
“Post pandemic, Will the demand pattern continue in the same
manner? This question becomes important because they are
incurring huge cost on it.” Marketers also feel that consumers
could shift some of their discretionary spends into health
products, boosting demand. “The health, hygiene and immunity
market will expand tremendously. The share of wallet will move
from eating out and travel to these products,” said Saugata
Gupta, chief executive officer of Marico.
The fast-moving consumer goods (FMCG) market shrank 16%,
according to Bizom, which transacts with 7.5 million retail
stores. Heat of second wave of Covid 19 is now visible on the
-sector. Companies are now offering big discount to clear
shelves. Top fast moving consumer goods companies noticed
growth in online sales in April and May compared to March was
nearly as much as the growth in the entire last fiscal, in spite of
a spike in adoption of ecommerce shopping amid the pandemic
in FY21. As per the Report Published in Economic Times on 12
May 2021, that FMCG retailers are rethinking assortment plays
as pandemic waves has clearly impacted the supply chain
dynamics.

Questions

1. Suggest the factors affecting the demand of Hygiene

products in Indian Market and which factor or factors do you
think is most prominent in the short run?
2. How do you think that the concept of elasticity of demand
is applicable in the FMCG industry?

Note-
All are required to submit it before 30th August 2021, 9:00 am
on dr.n.ranjan@iimspune.edu.in
Question 1: Suggest the factors affecting the demand of
Hygiene products in Indian Market and which factor or factors
do you think is most prominent in the short run?

Answer:
The world has witnessed a tremendous change in every aspect,
the lifestyle, standards, working procedure everything with one
cause: Covid-19.
Where the world was pacing it self with new normal business
world was also turning to 360. The increase in need of
pharmaceuticals and medical resources this pandemic also
brought about change in peoples need and preferences over
the period of 1.5 year.
So if we have list down the factors that affected the demand of
hygiene products can be as follows:
1. Change in Consumer buying behavior
2. Change in taste and preferences of customers
3. Change in markets
4. Drastic change in economy
Here, the consumers started demanding more of the personal
care and homecare products like sanitizers, medicated soaps,
Supplements etc.
This demand was scattered all over the industry as it grew an
opportunity for companies like ITC, Dabar, Merico, Patanjali
etc. these companies decided to produce more to gain from
this opportunity. However, in my opinion among these factors
the factor of CONSUMER BUYING BEHAVIOR AND CHANGE IN
ECONOMY are most prominent factor in short run.
As the threat of pandemic grew consumers were also inclined
towards their hygiene routine and the fear of covid-19
complemented their demand of the same.
Similarly, the changes like lockdown, medical emergency, need
of healthcare sector and shut downs affected the markets and
particularly FMCG market more.
In conclusion it can be said that the pandemic brought about an
exceptional case of market behavior and change in demand.

Question 2: How do you think that the concept of elasticity of

demand is applicable in the FMCG industry?
Answer:
The fast-moving consumer goods (FMCG) industry or consumer
packaged goods (CPG) industry is mainly responsible for
producing, distributing and marketing fast-moving consumer
goods. The FMCG industry is the fourth largest sector in
 the Indian economy. Household and personal care products
accounts for 50% of the sales in the industry, healthcare
accounts for 31-32% and food and beverage accounts for the
remaining 18-19%.

In the last 10 years, the revenue in FMCG industry in India has

been growing at the rate of 21.4%. There was a drastic change
in revenues in FMCG sector growing from US$ 31.6 billion to
US$ 52.8 from 2011 to 2017-2018 respectively.

Driving factors leading to growth rateEdit

5. Increased population of working women
6. Increased disposable income and growing per capita
expenditure
7. Increased purchasing power of the customers
8. Increased awareness of online shopping
9. Higher brand recognition and consciousness
10. Constant change in consumer preference
11. Banking policies and government's regulations
12. Growing interest for foreign investors
What is Elasticity of Demand?
As per the elasticity of demand definition, the demand
contracts or extends with rising or fall in the prices. This quality
of demand is called Elasticity of Demand when the change in its
virtue and the price changes (low or high). The change
sensitiveness may be small or less in the elasticity of demand. 

Now let’s look at the factors affecting FMCG demand

Alfred Marshall (British Economist) first introduced the Supply
& Demand theory in 1890.
Marshall argued that the underlying demand of any product is
co-related to its price & multiple other factors that determine
the change in demand of a particular product; namely known
as Elasticity of Demand (Ped).
In the FMCG – fast moving consumer goods industry, the
underlying demand for consumer goods (Healthcare, Garments,
Cosmetics) is less likely to change drastically. There are two
kinds of buyer groups i.e., Premium Customers (look for
differentiated products (Apple) & Price conscious Customers
(look for discounted products ).
Factors that determine the demand of FMCG Products on the part of Consumers:
If you consider Apple Inc products: I-phones, Tablets, &
Premium Mac-Books comes to mind. Since their inception
(Steve Jobs era), the prices of Apple products have been rising;
the latest I-phone now costs between U$1k to U$1.5k.
Yet there is constant increase in the demand of Apple Products
(record sales of iPhone X). You wonder, what is driving the
upward trend in Apple’s sales.
Considering the above-mentioned drivers of demand, it would
be fair to say that Apple has built brand loyalty with its
customers. Its Customers are indifferent to any change in the
pricing of Apple’s Products.
Certainly, there’re substitutes available in the market. The likes
of Samsung, LG, & Huawei comes to mind.
Apple products are not subject to price sensitivity as such, as
Customers buying Apple’s products tend to be indifferent:
when it comes to pricing, leading to inelastic demand.