PGDM (2020-22) Term – I

END-TERM EXAMINATION
CONSUMERS FIRMS AND MARKETS END-TERM
Time: 90 minutes Maximum Marks: 30 Weightage: 30%
Instructions

1. Attempt all the three questions (3 questions * 10 marks = 30 marks)

2. All the answers should be written in your own language. Make use of economic rational,
reasoning and terminology while writing the answers. Copying sentences or paragraphs from the
article or case while writing your answers, tantamount to coping. Hence, it would lead to loss of
marks.
3. In all your answers, highlight the key words (minimum 2 and maximum 5 in every answer).
4. There is no negative marking for wrong answers. But, non-adherence to the instructions may
result in negative marking.
5. Questions are self-explanatory. Do not raise any query to the invigilators.
6. Study and use the information given in various tables and figures for answering questions
wherever instructed.
7. Do not make any additional assumptions than what is being given in the questions.
8. Exchange of information is not permitted.

1
Based on the following caselet on Parle answer question 1.
PARLE PRODUCTS PRIVATE LIMITED AND THE MARKET FOR BISCUITS
Parle Products Private Limited (Parle) was offering extensive range of biscuits and other food
products with a wide range of tastes and flavours. In overall biscuit segment, Parle had 34 per
cent market share (Exhibit 1). Its most popular “Parle-Gluco” (Parle-G) brand fell into the mass-
market biscuit category. This brand contributed nearly 33 per cent of the company’s total
revenue.
Profits on mass-market biscuits ranged from 3 to 5 per cent, while on premium and super-
premium biscuits, profit margins were 15 to 20 per cent. Parle led in the mass-market biscuits;
Britannia dominated in the premium biscuit segment. The competitive space for Parle-G and
other mass-market biscuits was heated up with competitors such as Britannia and ITC, who took
up the lead in the premium segment. Though the overall biscuit segment was expected to grow
at a compound annual growth rate (CAGR) of 6 per cent, premium biscuits were expected to
register 11 per cent during 2017–2023.

CHANGING ECONOMIC SCENARIO

An increasing young population, an overall growth in disposable income, changing consumer
lifestyles, and increasing and growing health consciousness contributed toward the changing
consumer tastes and preferences of Indians in favour of premium offerings and variety.
Because of changing taste and preferences, other food categories, such as Namkeens, Breakfast
cereals, and confectionary were forecasted to achieve 34%, 20% and 17% growth rate during
2016–2021.

PARLE’S CONCERNS
Demand for Parle-G, which was Parle’s main source of revenue, was highly price sensitive.
Wide choices were available to Indian consumers in the snacks market, which enabled
consumers to substitute mass-market biscuits with premium biscuits and other varieties of
snacks. An earlier experiment with price increase had not gone well for Parle. In 2004, the
company increased the price of its 100 gram packet of 16 biscuits from ₹4 to ₹4.50. The increase
led to a 40 per cent drop in sales within six months.
Though Parle was leading the overall busicuit segment, its profit margin was much lower than
that of its major competitor, Britannia.

PGDM (2020-22) Term – I: End-Term Examination- Consumers Firms and Markets 2

Roll. No.

EXHIBIT 1: MARKET SHARE OF BISCUIT MANUFACTURERS IN INDIA IN 2018

(% SALES)

Question 1: What is the market structure for Parle in the overall biscuit segment? What do
you think about the price elasticity of demand for Parle-G? What kind of challenge does
Parle-G’s price sensitivity pose for Parle? Give justification for your answer. What should
Parle do to retain its overall profitability? (Marks: 10; Max Words: 200)

Based on the following caselet on The Competition in UltraPhone Market answer question.

The competition in UltraPhone market

In the Indian telephone market consider two firms, IndiPhone and SpeediPhone. These two firms
have simultaneously developed virtually identical versions of UltraPhone, which is a hand-held
device for efficient 3-dimensional video-conferencing. Coincidentally, both firms are planning to
release their UltraPhone on the same date. Though the release date is announced, price is still not
announced. These firms can charge either ‘High’ or ‘Low’ price.

Both the firms are aware that if both of them charge a high price then each of them will earn a
profit of ₹8 cr. But if they supply the phone at a low price, then each of them will earn just ₹6 cr.
But if one of them supply the phone at a low price and the other one supplies at a high price, then
the one supplying at a high price will lose all the customers and end up with zero profit. But the
one supplying at a low price will end up with a profit of Rs12 cr.

While answering the following sub-questions show all your steps:

2a. What is the normal form (payoff matrix form) representation of this game. (Marks: 2,
Max. Words 100)

PGDM (2020-22) Term – I: End-Term Examination: Consumers Firms and Markets 3

2b. Does any player have a dominant strategy in this conflicting situation? Why? (Marks:
3, Max. Words: 100)
2c. What is the outcome of this game? (Marks 3, Max. Words: 150)
2d. What is your learning from this game outcome? (Marks 2, Max. Words: 150)

Based on the case-let on Mahindra & Mahindra in XUV market, answer questions

Mahindra and Mahindra in XUV market

Mahindra & Mahindra Limited (M&M), an Indian multi-national vehicle manufacturing

corporation has achieved sales of its premium brand XUV 500 to the tune of 1399 units last year
December 2019. Given the Covid-19 triggered economic slow-down the management at M&M
is concerned about the weakening sales volumes across models and more so with increasing
competition from Tata Harrier in its premium XUV 500 sports utility vehicle (SUV) segment. In
the backdrop of increasing ‘family needs, risk of infection’ perception, and a clear shift in buyer
preferences towards private cars, which has gone-up by a whopping 41%, the market research
department at M&M has estimated a (i) possibility of price cut for its XUV 500 model, (ii)
pandemic-driven decline in per capita incomes, (iii) a possibility of price-cut by the rival
product Tata Harrier, (iv) increase in its own expenses on advertising and sales drive, for the
month of December 2020. Assumed elasticities are: Price Elasticity coefficient(Ep )= -1.5;
Income Elasticity coefficient(EI )=1.25, Cross-Price Elasticity(Ex, y)= 1.5, where X refers to XUV
500 and Y refers to Tata Harrier, and Advertisement Elasticity(EA )= 1.25 for its XUV 500.
Strategizing for better sales volumes for December 2020, the company would like to reduce the
price of XUV 500 by 5% and enhance advertisement spending by 10%. The market research
division of the company also forecasted that GDP per capita incomes of Indians will fall on an
average by about 8% for 3rd quarter ending December 2020, and Tata Motors might resort to a
price cut of its Harrier by 4%.

[Advertising elasticity of demand: percentage change in demand / percentage change in

advertising expenditure]

3a. As the sales XUV 500 in December 2019 are 1399 units, how many units of XUV 500 can
M&M expects to sell in December 2020, show your sales estimate? [Marks: 5 Max words:
200]
3b. M&M wanted a 10% rise in its sales volumes of XUV 5000 in December 2020 to make-
up for low sales volumes during lock-downs and the aftermath. What would you advise to
M&M Management? Be specific in your suggestions while recommending any tactical
changes to what the company already contemplated and validate the same. [Marks: 5 Max
words: 200]

PGDM (2020-22) Term – I: End-Term Examination- Consumers Firms and Markets 4