With the increasing number of disease In Malaysia, such as high cholesterol, hearts attack, obesity, and others, consumers are more concern on what type of food they consume therefore pursuing healthier lifestyle through their eating behavior, and resulted change in consumer’s lifestyle In Malaysia.( Majeed. A,1999) Bread industry able to increase in their growth as some of the bread companies produced bread which to meet this group of consumers and tapped into the lifestyle trend. Products can be found in the market such as Gardenia’s break thru and High-5 Grain WholeMeal are meant for those consumers who are targeting and centered healthy lifestyle. As this healthy lifestyle is continuing promote in Malaysia, induces consistent growth in bread industry in future.
Conclusion: there is an upward shift in bread demand curve from D1 to D3 when there is a favorable change in taste.
- Number of Buyers
This determinant has positive relationship as there are increment in number of buyers in the market it eventually increase the demand for the products as well. ( Farnham.P,2005)
According to the Third Outline Perspective Plan mentioned above, more than 70 % of populations are occupied by two main groups of citizens. Bread takes over rice and noodles are being common in the modern days, people who are from age of 14 to 39, they are main dominants in Malaysia population. Based on the taste they changed, breads are preferable as quick meal, eventually more demand from these groups of people.
According to the World Factbook, population age group from 15 to 64 years old had increased 62% to 63.5% from 2002 to 2008, and the age structure of Malaysia population are occupied by from 15 to 64 years old with 63.9% of total population. (CIA.gov, 2010) From all this data, we can conclude that, increases number of this age group lead increases in total population eventually increases demand for Bread, same goes to other industries. Besides that, there is growing number of Women workforce in Malaysia (Ivan.L,2008); Hence, there is high frequency of dining out instead of cook in the house. Especially for those family women, they tend to purchase bread for their children as breakfast as well as lunch; most of people treat it as most reliable substitutes of food for them. According to Dr. Chin, bread serves as lunch for working groups, so with the increasing number of women workers means increasing number in workforce, thus increase the number of buyers.
Conclusion: Upward shift in bread demand curve from D1 to D3 when there is increasing number of buyers.
- Income
Income will influences demand for different categories of goods, such as inferior, normal and superior goods. When the income of consumers increases, demand increases as well. For example, income increased, consumers tend to buy more superior goods instead of normal goods, and eventually shifted from inferior goods to normal goods. ( Farnham.P,2005)
Bread companies have the ability on influencing and manipulating consumers to buy more but not control over consumer’s income. White bread as the basic bread for consumers considered as “normal” goods, others bread besides white bread, such as wholegrain bread or added ingredient bread and selling at the high price is considered as “luxuries “goods. When consumer’s income increased, they feel they are wealthier tand tend to buy more “luxuries” good which may bring them better benefits and satisfaction instead of “normal” goods or buy lesser low quality bread which sells at low price and considered as “inferior” good.
To increase the growth in bread industry, bread companies needed to produce more products which are higher price yet with better quality and more value added to their products, for example, Gardenia sells Break Thru cost RM 4.50 and Delicia cost RM4.00 compared to normal white bread cost RM2.30. Growth of an industry is based on the how much that the particular industry contributed to country’s economy. So by producing higher price breads which means the value contributed to economy is higher. For example, Gardenia’s Break Thru was introduced at 2005, consumers tend to buy more and yet help in boosting portion of growth in bread industry from RM364, 448,000 to RM381, 728,000 in 2006. (Department of Statistic Malaysia,2010)
Conclusion: Upward shift in “Luxuries” bread demand curve from D1 to D3 when consumer’s income increased
- Prices of related goods
There are two types of goods which are: Substitute good is one that can be replace one another good; complementary good is one that used together with another good. ( Farnham.P,2005)For example:
Substitute goods for bread such as rice and noodles or its competitor’s products, when the price of noodles or rice increased, demand for bread will increase as well, or if price for brand A bread increased, consumer will look for its competitor’s products which are brand B or C which price is lower. But in Malaysia, the normal white bread in market that we can found are Gardenia white bread and Hghi-5 white bread, both selling at the same price, RM2.30, so both are substitutes for each others. It creates intensive competition in bread market, both main players in bread industry consequently invent, produce, and distribute more variety of products and increase their products line, to satisfy all different groups of target market of consumers, thus lead the growth in Malaysia’s bread industry.
Conclusion: Upward shift in bread demand curve from D1 to D3 when there is increasing price of noodle or rice.
Complementary good for bread such as jam or butter, if price of Jam or butter increased, consumers tend to demand lesser for bread and will look for others substitution. For example, to increase the number of consumer buying breads, company like Gardenia had produced “Panda Kaya” paste, which is the favorite flavor of Malaysian, and cost only RM2.40 for 200gram. When consumers buy the Paste and eventually buy the white bread as well. If the paste’s price is high, it may result lesser demand for white bread.
Conclusion: Upward shift in bread demand curve from D1 to D3 when the price of complementary good decreased.
- Expected prices
Customer will expect the price of the product increase in future and the demand for now will increase eventually or Vice versa. For example demands of bread, if the future price of bread tend to increase, consumer will buy more and increase in current demand. ( Farnham.P.2005)
In economy view, when the price of input increased, the price of final products will increase as well. Wheat flour as main ingredient to produce white bread, so when price of wheat flour increased which increased from RM1.80 to RM2.70 per kilo, eventually price of bread increased by 20 to 30 sen per loaf.(National Consumer Complaints Centre,2009) According to our Malaysia Prime Minister, Dato Sri Najib Tun Razak, he mentioned government allocated subsidies to necessities such as sugar, bread and wheat flour in Malaysia due to the impact of global economic crisis and global food crisis. (Prime Minister Office, 2009) But government only subsidized along 9 months for bread industry, and officially removed subsidies for white bread at 1st of January 2010. (Harum.H, 2010)
Wheat flour price increased at 2007, consumers’ expected price of bread is higher therefore current demand increased and resulted Bread manufacturers manufactured at RM 4256,972,000 in 2007 and demand decreased in 2008, RM 421,231,000. Another example to verify this determinant is when the government provides subsidy to bread industry at March 2009, expected price of consumer towards tend to be lower price, and therefore, bread industry manufactured at RM36, 782,000 in March 2009 and RM 38,252,000 in April 2009. And when government decided to remove subsidy for bread during January 2010, current demand of bread from consumers increased tremendously from RM41, 036,000 at 2009 December to RM 45,676,000 at 2010 January. (Department of statistic Malaysia,2010)
Bread in Malaysia known as staple breakfast for most citizens but yet it is considered as perishable good. Although future expected price affects the current demand for bread, consumers tend to restock or repurchase bread frequently on that particular period. Based on the information collected by Household Expenditure Survey 2004/2005, consumer of Malaysian are not sensitive to the change of price in bread, therefore there is a sustainable growth in Malaysia bread industry. (Tey, et al.,2008)
Conclusion: upward shift in current bread demand curve from D1 to D3 when expected price for future is higher
Diagram showing shift in Demand Curve
Q3- Discuss the factors that such industry should look into to increase the revenue in Malaysia
Total revenue is the total amount of seller’s sales of product in a particular time period. It is calculated by number of demanded product and sold (Q) multiply with the product price (P), equation form is TR=P x Q. In order to increase revenue of bread industry in Malaysia, therefore Bread companies needed to either increase price or quantity or increase both at the same time. In Price perspective, industry should determine the price elasticity of demand, which quantity of demanded by consumers when the price of product changes, or evaluate the responsiveness of consumers towards the changes in price of the product. There are 3 types of price elasticity.
Elastic demand means the small percentage change in price will lead to greater percentage change in quantity demanded, consumers are very sensitive towards the prices changes. For example if the price of bread decreases 10% it might results in increase of 20% demand for bread. To increase revenue, Bread Company should decrease their bread price, increase market demand, because consumers will buy more and demand more due to low price. For example: RM 2.10 x 100= RM 210, but if the price of bread reduced to RM1.90 and demand from consumer increased to 150; RM1.90 x 150= RM 285. As the price decreased, total revenue for the bread company had increased from RM210 to RM 285.
Second type is Inelasticity demand, which a specific percentage change in price will only lead to minor change in quantity demanded, consumers are least sensitive towards the price changes. For example if the price of bread decreases 10% it might result increase only 3 % of quantity demanded. To increase revenue, Bread company should not decrease the price, because will decrease the total revenue as well. Since consumers are less sensitive towards the price, therefore increase selling price instead of lower the price of bread, to get higher revenue. For example: RM 2.10 x 100=RM 210, if price increased; RM 2.40 x 90=rm216 if led to decrease in demand but only small amount. But if demand remained, RM2.40 x 100= RM 240. Both eventually increased total revenue of Bread Company when increased the selling price.
Last type of elasticity is Unit elasticity, which the percentage change of price and the percentage change of quantity demanded are the same, consumers are not sensitive and continue purchasing the product regardless the changes of price. For unit elasticity, revenue for Bread Company remained unchanged all though there is increase or decrease in selling price.
Besides increase price of bread, as producers, they should focus on how to increase quantity demanded for bread instead of increasing in price. 5 main determinants to increase demand for particular goods; Bread company should increase favorable way in changing their taste and preferences of their customers. Current trend in Malaysia is to have healthier lifestyle therefore Gardenia introduced Gardenia Breakthru, low cholesterol bread, diet and diabetic friendly food in its product line. Introduction of this bread successfully gained positive feedback from their customers. It eventually helps Gardenia created competitive advantages as this mutli- wholegrain bread has not been produced by other bread companies, thus consumers who are healthy conscious will increase their demand of Gardenia bread, hence increase in revenue as well.
Increase the number of buyers; acquire those potential customers who are not in your target market. For example, bread been consumed by most of teenagers and adult. So Bread Company like Gardenia, expand their product line, introduced Delicia , Toastem, Squiggles, Quick Bites, and Twiggies to target different age group. So when increase target market means increase the number of buyers, therefore demand increases as well, eventually increases revenue.
Income of consumers will affect the demand of bread, when consumer’s income increased, they tend to purchase more normal price of bread(normal goods) or starts to buy higher price of bread (luxuries good) such as breads from bread boutiques like Bread Story, and King’s confectionery. Bread Industry doesn’t have the ability to increase their customers’ income but they have the ability to produce more types of bread to satisfy different level of income groups. For example, Gardenia produced Delicia bread line, more flavor added to meet different group of customer yet the selling price is higher compare to gardenia normal white bread. So if their customer’s income increases, they will buy Delicia instead of normal white bread from gardenia, as we know human wants to buy good which provides better benefits. So the total revenue of Gardenia will increased as they produced breads meet different income group of customers.
In Management view, bread makers should improve on their management system. For instance, Bread maker like Stanson bakery, investing in new system, to help them in achieving ISO 9001. Having good system, errors can be minimized, no faulty in process of producing bread, saves times in processing so can produce more outputs meet market demand. Reduce added cost that occurred by producing “faulty” products and re-produce, increase the sales and confidence level of consumers towards company’s products and eventually increase revenue as well.(LRQA Malaysia, 2010) Involvement of government could take place in helping bread industry increase their revenue as by providing subsidies to bread makers, subsequently, bread makers able to sell at lower price and therefore demand for bread eventually increases and revenue increases.
Question 4- Suggest the appropriate pricing strategy for a busiess operating in such industry
According to Tunku Shahariah Tunku Yusoff , Bakeries in Malaysia tend to set their prices depends on the main player in bread industry. If price of one bread brand increased, bakeries tend to observes through “Wait and See” and make decision. (Yusoff,2010) In economies, when a product price rises, people tend to switch to others brand which may offer lower price or look for other substitution. In Malaysia, many of the researchers found out the Bread are the essential food, necessities, and staple breakfast for most of the Malaysian, therefore the prices of bread should not be relatively high because is commodities for citizens and should not burden them.
In Malaysia and other countries, demand for bread will not easily affected by the changes in prices, which means it has inelastic demand, consumers are least price sensitive toward breads. For instance, Malay as the largest ethnic in Malaysia, we can conclude that most of the sales revenue is generated from Malay consumers. A research report showed that Malay consumers are found to be very sensitive towards most of the food price but bread and cereal are exceptional. This happened is because of consumer starting to be health consciousness yet willing to pay for food contains high vitamins like bread and cereals or probably income of consumers increased.( Tey et.al,2008)
Pricing is all about how business set price to maximize their sales revenue, for example increase price when there is inelastic demand and decrease price when there is elastic demand. Since bread considered as inelastic demand, therefore bread companies might increase their selling price to maximize their profit. In management , this considered as skim pricing, which attempts to set high price , and sell to those customers who are less price sensitive, and it can help business in achieving profit margin maximization objective. Skim pricing is most suitable when demand is expected to be inelastic demand and to cover high cost such as increasing price in raw materials like wheat flour. Pricing method for bread industry in Malaysia tend to be Cost-plus pricing which company set the price at the production cost and add a certain profit margin. When the Wheat flour price increased, the selling price increased; when government subsidized to white bread makers, selling price for white bread decreased as well; and when government removed subsidy for bread industry, price starting to rises.
Pricing of the same products but disparities among states in Malaysia, for example, a loaf of Gardenia white bread cost RM 2.30 In peninsular Malaysia but in East Malaysia, Sabah and Sarawak, selling price is relatively as cost around Rm2.80 for the same loaf of white bread. Based on the pricing method we mentioned above, because of the price increased in input therefore will increase in selling price of output. Wheat flour’s price in Sabah and Sarawak had increased more than Peninsular Malaysia, and this resulted bread makers have to set higher price compare to Peninsular Malaysia. Transportation and delivery cost could be one of the reason of setting higher price in Sabah and Sarawak as the location is far away from the production factory. Selling price of bread doesn’t depend on regional, regardless in rural or urban area because bread has inelastic demand in Malaysia as reported by researchers in Malaysia.(Stanton et.al,2009 )
One of the pricing strategies- Inducing Brand loyalty pricing strategy are been suggested to Bread industry in Malaysia. Brand loyalty is an effective and efficient strategy especially in intensive competition in the bread industry. By inducing brand loyalty, companies able to acquire more customers from their competitors at the same times maintaining their customers by providing benefits to their existing customers and potential customers. Once bread companies successfully form brand loyalty in their customers, brand loyalist will have the following mindset such as “I have committed to this brand”, “I am willing to pay higher for this brand over other brands” and “I will recommend this brand to others”.(Giddens.N,2002)
By inducing brand loyalty, it actually helps companies to generate higher sales volume where customers repeatedly purchase the same brand. It also enabling companies to have premium pricing ability, when customer are loyal to the brand, therefore customers are less sensitive to the prices changes, attach to the benefits given by sellers and eventually retain customers easily. Besides giving benefits, advertisements insist in re –calling customer by showing them advertisement frequently and create awareness. Advertisement eventually reinforces and stimulates their purchase intention and continuing purchasing the products in the future.( Giddens.N, 2002) With the integration of implementing customer relationship management System, it actually helps companies to identify their consumer behavior, in terms of their purchasing behavior through the information stored in the system. This can help in increasing sales revenue, increase customer satisfaction, and reduced churn rate for the particular brand. (Laudon.K & Laudon.P,2006) For example free voucher during customer’s birthday.
For example, in Malaysia, King’s confectionery, they introduced membership to their customers with King’s privileges card. It has no direct in reducing prices of their products, but there are many benefits reward to their customers, for example customers with membership are entitled to get instant 50% discount voucher, free cake and cash voucher, and other discount on their items.(King’s ,2010) Customers tend to be advantages taker, therefore, when there is price reduction on their products that they consumed, customers eventually back to the bakery and re-purchase their product as well as creating customer brand loyalty. But for bread makers like Gardenia, and High 5 white bread, there is no club membership been introduced to their customer.
Vice Versa, In United States, average number of company loses its customers in every five years, and making losses. This is due to companies in USA in failing maintaining their customers, and didn’t create brand loyalty on their customers. (Giddens.N,2002) so from this situation, inducing brand loyalty is very important pricing strategy for bread industry in Malaysia.
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