MANAGERIAL ECONOMICS

Class: MBA - Andrews University

INDIVIDUAL ASSESSMENT

Due date : 05 January 2021

Word limit : 4.000 (10% variation)

Weighting : 50% of total marks for the subject (20% for written,
30% for presentation)

Lecturer : Assoc. Prof. PhD. Tran Nguyen Ngoc Anh Thu

Answer ALL questions:

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HCM CITY — From the many cooking oils on a shelf at Co.opmart Đinh Tiên
Hoàng supermarket, Nguyễn Thanh Trúc of District 1 has picked a 2l bottle of
Co.opmart soya cooking oil.

“I started using this cooking oil a few months ago, and saw its quality was ok
while its price is good compared to other products,” she says.
In her trolley are also some other Co.opmart-label products such as box tissues
and a floor cleaning liquid.

A research by Kantar Worldpanel Vietnam showed that 39 per cent of

Vietnamese shoppers at modern outlets prefer private-label products.

The top 10 common products are toilet paper, box tissues, table napkins, loose
leaf teas, floor cleaners, liquid detergents, frozen foods, dishwashing liquids,
detergent powders and cooking oils, it said.

According to industry experts, the development of private-label products is an

inevitable trend.

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Developing such products benefits consumers, retailers and manufacturers, they
said. Consumers can get quality products at lower prices, retailers can offer more
choices and thus retain customers, while manufacturers earn more from making
these products.

After developing private labels since 2007, Saigon Co.op, the country’s leading
retailer, now has nearly 3,000 products, including essential products, household
utensils, students’ uniforms, office fashion, rice paper and others.
Võ Hoàng Anh, private-label director at Saigon Co.op, said: “There is huge
potential for private-label development in Việt Nam. Consumers are growing
fond of private-label products since they are quality products at good prices.”
Through development of private-label products, Saigon Co.op wants to attract
and retain customers better, he said.

“With its advantages of having the largest retail market share in fast moving
consumer goods in the country, a diversified retail model, and understanding of
consumers’ needs, we have a clear product development direction when co-
operating with manufacturers in making private-label products."

The co-operation would help the manufacturers fully utilise their production
capacity, promote their brands to consumers since their information is also
available on the packaging as well as in Saigon Co.op’s promotions, he said.
“So we want manufacturers to have peace of mind when producing products
based on Saigon Co.op standards.”

Many foreign retailers such as LOTTE Mart too have private-label products
manufactured by enterprises in Việt Nam not only for selling in the domestic
market but also to export to other markets.

Đoàn Diệp Bình, head of PR and events at LOTTE Mart Vietnam, said the
supermarket started to develop private-label products over a year ago and has
more than 1,000 of them.

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“In 2017 LOTTE also exported to Myanmar and Laos nearly VNĐ2 billion
(US$88,105) worth of Choice L private-label products, including foodstuff,
consumer goods, household plastics.”

Kantar Worldpanel’s research also found that private labels are still limited in
Việt Nam, accounting for a mere 2.4 per cent of sales at supermarkets compared
to 20-30 per cent in the US and EU.

The low rate is mainly due to the underdeveloped modern trade channel, lack of
a diverse range of products and poor communication, it said.

However, with the strong development of modern retail channel, the market for
private label products is projected to grow further, according to experts.
Bình said: “The LOTTE private-label products are meant to increase choices for
customers, so [we] choose to invest slowly but surely. We will expand certain
private-label products, with a focus on essential food items serving consumers’
daily needs.”
Anh said: “Saigon Co.op would continue looking for capable partners with the
same sense of purpose to develop specific featured products to bring a better
shopping experience to customers coming to shop at our retail systems.”
According to Lê Thanh Lâm, deputy general director of Saigon Food JSC, a
company that makes private-label products for supermarkets and has a contract
to supply nearly 50 dishes to 7-Eleven convenience stores, there is a steady
outlet for private-label products.

Thanks to that, her company has been able to optimise the capacity utilisation
of machinery, equipment and factories besides saving distribution costs. — VNS
Answer ALL questions belows:

1. Using Five Forces Model (Michael Porter), please discuss about strategy
to develop of Saigon Co.op’s private-label products (20 marks)
2. Determine price discriminination strategy that Saigon Co.op should use
to develop its private-label products. (10 marks)

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3. Saigon Co.op intends to carry out an advertising campaign to introduce
new products. They forecast, if they pay more 1,28 billion VND
advertising, expected sales will increase more 89.000 units of product,
average price per unit is 32.500 VND. Should they pay more for the
advertisement? Why? (10 marks)
4. Draw a demand curve for Saigon Co.op’s detergent. What happens to it
in each of the following scenarios? Why? (30 marks)
a. The price of Omo detergent rises
b. The price of Saigon Co.op’s detergent falls
c. The price of Comfort softener falls
5. What should Saigon Co.op’s strategies follow to get better economic
performance and keep ahead of competitors? (10 marks)
6. Saigon Co.op want to hire only good employees, but cannot distinguish
the good one from the bad one. The good person work hard, the bad
person is lazy. Based on adverse selection theory, please discuss about
the method helping Saigon Co.op in this case. (10 marks)
7. Moral hazard can occurs in labors of Saigon Co.op if they work many
years in the Company. They become lazy, or bossy. How to solve the
problem? (10 marks)