1 Yakult Price Evaluation

2 Copyright © 2002 ACNielsen Yakult Yakult contains 30 Billion live Lactobacillus casei Shirota, a probiotic strain of good bacteria ­ Strong enough to survive the journey through the stomach’s gastric juices to reach the small intestine alive, where they help maintain an ideal balance of beneficial bacteria Probiotics: ­ Replenish and balance the level of beneficial bacteria ­ Help control the number of harmful bacteria that naturally exist in the digestive system ­ Assist with the digestion of food and absorption of nutrients from the foods you eat ­ Help manufacture vitamins ­ Enhance you immune system ­ Help normalise the regularity of your bowel movements

3 Copyright © 2002 ACNielsen Yakult – Price Evaluation Market scenario ­ Cultured milk market comprises of 2 brands, Yakult and Vitagen, available in only 1 standard (5s) pack size ­ Price Yakult $2.60 Vitagen $2.40 ­ Share Yakult 67% Vitagen 33%

4 Copyright © 2002 ACNielsen Yakult – Price Evaluation Case analysis ­ Yakult is interested in reviewing price and has commissioned a $9.99 research study to understand how consumers respond to changes in price ­ Research findings are provided. You are required to: Compute the price elasticity of demand for Yakult at $2.30, $2.60, $2.90 and $3.10. Estimate the price at which Yakult will maximize profit. (Note that total market remains fixed at the tested price range) What are the key implications of taking price up / down? Make a recommendation on the selling price for Yakult.

5 Copyright © 2002 ACNielsen $9.99 – Research Method Approach to predicting the sensitivity of demand to price where respondents in separate matched panels are asked to indicate their purchase intent for each brand using a constant sum scale. The price of the test brand is varied across the panels while the price of other brands is maintained at their market level Estimate of market share for test brand is obtained at different price levels based on the purchase intent of each respondent in each panel

6 Copyright © 2002 ACNielsen Research Design Cultured Milk To determine the price-share relationship for Yakult ­ Study Centre: Singapore ­ Target Group: Household decision makers across all race / income groups ­ Brand portfolio: Yakult and Vitagen ­ Price range: Yakult: $2.30, $2.60, $2.90, $3.10 Vitagen: $2.40 ­ Panel matched on race and income group ­ Panel matched on brand usage

7 Copyright © 2002 ACNielsen Cultured Milk Market: Buyer Base Yakult Only Yakult & Vitagen Total Cultured Milk: 80% Vitagen Only % of consumers consume cultured milk. Of this 40% consume Yakult only, 20% consume Vitagen only and the remaining 20% consume both brands

8 Copyright © 2002 ACNielsen Sample Frame

9 Copyright © 2002 ACNielsen Test Price Range (S$) Current price

10 Copyright © 2002 ACNielsen Research Results – Share at different Prices Yakult – Price Elasticity of Demand? Yakult – Price and Share

11 Copyright © 2002 ACNielsen Profit Optimisation At what price point do we maximise profit? ­ Assume: Trade margin is 20% Cost per unit is S$ 1.17 Total market volume for cultured milk remains unchanged. (Should Yakult adjust price in the range $2.30 to $3.10, while some consumer will switch brands, we do not expect the market as whole to decline or increase).

12 Copyright © 2002 ACNielsen Decision Make a price decision. What do you recommend as the selling price for Yakult?

13 Definitions and Formulae

14 Copyright © 2002 ACNielsen Price Elasticity ­ Relates change in price to change in sales volume ­ Formula: e = Price elasticity V = Volume P = Price In the chart, the price elasticity at P 0, V 0 is: V PP0P0 V0V0 ΔVΔV ΔPΔP

15 Copyright © 2002 ACNielsen Gross Profit Yakult’s Gross Profit = Revenue – Variable Costs = Sales Value – Trade Margin – Variable Costs One approach to comparing profit across price points Assuming total market volume is constant within price range

16 Copyright © 2002 ACNielsen