Assignment # 01

Analyzing Bangladesh Scenario, Identify

(Rice, Poultry, Soap, Garments, Mobile
Phone) belongs to Which Market
Structure and Why?

Prepared by:
Shamima Nasrin
ID# 092051058

Prepared for:
Dr. Pinky Shah
Associate Professor
University of Liberal Arts, Bangladesh
Dhaka
Market
A market is any one of a variety of different systems, institutions, procedures, social
relations and infrastructures whereby persons trade, and goods and services are exchanged,
forming part of the economy. It is an arrangement that allows buyers and sellers to exchange
things. Markets vary in size, range, geographic scale, location, types and variety of human
communities, as well as the types of goods and services traded. Some examples include
local farmers’ markets held in town squares or parking lots, shopping centers and shopping
malls, international currency and commodity markets, legally created markets such as for
pollution permits, and illegal markets such as the market for illicit drugs.

In mainstream economics, the concept of a market is any structure that allows buyers and
sellers to exchange any type of goods, services and information. The exchange of goods or
services for money is a transaction. Market participants consist of all the buyers and sellers of
a good who influence its price. There are two roles in markets, buyers and sellers. The market
facilitates trade and enables the distribution and allocation of resources in a society

So it is an event or occasion, usually held at regular intervals, at which people meet for the
purpose of buying and selling merchandise. Means by which buyers and sellers are brought into
contact with each other and goods and services are exchanged. The term originally referred to a
place where products were bought and sold; today a market is any arena, however abstract or
far-reaching, in which buyers and sellers make transactions.

Market structure
In economics, market structure (also known as market form) describes the state of
a market with respect to competition.
Definitions and Features of Different Market Structure
Perfectly Competitive Market:
Perfectly competitive market describes a market in which there are many small firms, all
producing homogeneous goods. In general a perfectly competitive market is characterized by
the fact that no single firm has influence over the price of the product it sells. Because the
conditions for perfect competition are very strict, there are few perfectly competitive markets.
Perfect competition, in which the market consists of a very large number of firms producing a
homogeneous product. A perfectly competitive market may have several distinguishing
characteristics, including: Infinite consumers with the willingness and ability to buy the product
at a certain price, Infinite producers with the willingness and ability to supply the product at a
certain price. It is relatively easy to enter or exit as a business in a perfectly competitive market.
Prices and quality of products are assumed to be known to all consumers and producers.
Buyers and sellers incur no costs in making an exchange. Firms aim to sell where marginal
costs meet marginal revenue, where they generate the most profit. The characteristics of any
given market good or service do not vary across suppliers.

Some examples of Perfectly competitive market : Financial markets – stock exchange,

currency markets, bond markets, Agriculture.

Imperfect market falls in to three categories. They are briefly discussed bellowed.

Monopolistic Market:
Monopolistic competition is a common market structure where many competing producers sell
products that are differentiated from one another (that is, the products are substitutes, but are
not exactly alike, similar to brand loyalty).The "founding father" of the theory of monopolistic
competition was Edward Hastings Chamberlin . Monopolistically competitive markets have the
characteristics: There are many producers and many consumers in a given market, and no
business has total control over the market price. Consumers perceive that there are non-price
differences among the competitors' products. There are few barriers to entry and exit.
Producers have a degree of control over price. A firm making profits in the short run will break
even in the long run because demand will decrease and average total cost will increase. This
means in the long run, a monopolistically competitive firm will make zero economic profit. This
gives the amount of influence over the market; because of brand loyalty, it can raise its prices
without losing all of its customers. This means that an individual firm's demand curve is
downward sloping, in contrast to perfect competition, which has a perfectly elastic demand
schedule.Monopolistic competition, also called competitive market, where there are a large
number of independent firms which have a very small proportion of the market share.
Some examples of Monopolistic market: restaurants, cereal, clothing, shoes, and service
industries in large cities, professions – solicitors, doctors, etc., building firms – plasterers,
plumbers, etc.

Oligopoly Market:
In Economics, an oligopoly (from Ancient Greek oligoi which means "few" and polein which
means "to sell") is a market form in which a market or industry is dominated by a small number
of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of
the actions of the others. The decisions of one firm influence, and are influenced by, the
decisions of other firms. Strategic planning by oligopolists needs to take into account the likely
responses of the other market participants. This causes oligopolistic markets and industries to
be a high risk for collusion. A oligopoly market may have several distinguishing characteristics,
including: An oligopoly maximizes profits by producing where marginal revenue equals marginal
costs. Oligopolies are price setters rather than price takers. Barriers to entry are high. The most
important barriers are economies of scale, patents, access to expensive and complex
technology and strategic actions by incumbent firms designed to discourage or destroy nascent
firms. "Few" - a "handful" of sellers. There are so few firms that the actions of one firm can
influence the actions of the other firms. Oligopolies can retain long run abnormal profits.
Assumptions about perfect knowledge vary but the knowledge of various economic actors can
be generally described as selective. Buyers have only imperfect knowledge as to price, cost and
product quality. The distinctive feature of an oligopoly is interdependence. Oligopolies are
typically composed of a few large firms. Each firm is so large that its actions affect market
conditions. Therefore the competing firms will be aware of a firm's market actions and will
respond appropriately. Oligopoly, in which a market is dominated by a small number of firms
which own more than 40% of the market share.

Some examples of oligopoly market: Supermarkets, Banking industry, Chemicals, Oil, Medicinal
drugs, broadcasting

Monopoly Market:
In general sence Monopoly is the market, where there is only one provider of a product or
service. In economics, a monopoly (from Greek monos which means “alone or single”
and polein which means” to sell”) exists when a specific individual or an enterprise has
sufficient control over a particular product or service to determine significantly the terms on
which other individuals shall have access to it. Monopolies are thus characterized by a lack of
economic competition for the good or service that they provide and a lack of viable substitute
goods. The verb "monopolize" refers to the process by which a firm gains persistently greater
market share than what is expected under perfect competition.

Some examples of Monopoly market: Microsoft (USA), salt commission (China), Major League
Baseball (USA )

Pure monopoly: A government-granted monopoly (also called a "de jure monopoly") is a form
of coercive monopoly by which a government grants exclusive privilege to a private individual or
firm to be the sole provider of a good or service; potential competitors are excluded from the
market by law, regulation, or other mechanisms of government
enforcement. Copyright, patents and trademarks are examples of government-granted
monopolies.

Natural monopoly: A monopoly in which economies of scale cause efficiency to increase

continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire
market demand at a lower cost than any combination of two or more smaller, more specialized
firms.

Determinants of Market Structures

Market No. of Nature of Market Control Entry Examples
Structure Sellers Product Share of of the and
Sellers Seller Exit
over the
Price

Perfectly Numero Homogeneo Insignifica No Free Wheat, rice

Competitiv us us nt Control
e

Monopolis Large Differentiate Small Some Not Restaurant

tic d Control Free s, movies

Oligopoly Few Differentiate Large May or Depend Food oil,

d/ May not s on the SIM Card
Homogeneo Market
us

Monopoly One Unique Hundred Full Restrict WASA,

Percent Control ed Microsoft
 Market Structure of Lux Beauty Soap in Bangladesh
Unilever:
Unilever is a multinational consumer product manufacturing giant operating in over hundred
countries all around the globe. Unilever Bangladesh is the Bangladesh chapter of Unilever,
where the company holds 60.75% share whereas the Government of Peoples Republic of
Bangladesh holds 39.25% share.

Unilever’s one of the most popular bran d is LUX. They segment LUX’s market according to
geographical location. It further differentiates these segments into Socio Economic Cluster
(SEC) which takes into account the criteria of education and profession which ultimately
measurer the financial ability of consumers. Unilever targets the urban and sub urban middle
class and middle class segment of the population.

Overall History of Lux:

Lux soap was first launched in the UK in 1899 as a flaked version of Sunlight Soap.
Subsequently it was launched in the US in 1916, and marketed as a laundry soap targeted
specifically at 'delicates'. Lever Brothers encouraged women to home launder their clothes
without fear of satins and silks being turned yellow by harsh lyes that were often used in soaps
at the time. The result was a gentler soap that dissolved more readily and was advertised as
suitable for home laundry use. Lux is currently a product of Unilever. The name "Lux" was
chosen as the Latin word for "light" and because it was suggestive of "luxury."

Lux toilet soap was introduced as bathroom soap in the US in 1925 and in the UK in 1928 as
a brand extention of Lux soap flakes by Lever Brothers. Subsequently Lux soap has been
marketed in several forms, including handwash, shower gel and cream bath soap.From the
1930s right through to the 1970s, Lux soap colours and packaging were altered several times to
reflect fashion trends. In 1958 five colours made up the range: pink, white, blue, green and
yellow. People enjoyed matching their soap with their bathroom colours.

As of June 2009 Lux is sold in over 100 countries.

Lux in Bangladesh:
The origin dates back to 1964, when the first Manufacturing Operations were set up as a part of
Lever Brothers Pakistan operations. After independence, it was incorporated as a separate
Company under the laws of Bangladesh. Later on the Company diversified into different
categories.The company’s manufacturing operations are based in Chittagong where they have
soap manufacturing unit and a state of the art Personal Product manufacturing plant offering
people a chance to pamper them for a modest price.

Lux at the Present Time:

In the early 1990s, Lux responded to the growing trend away from traditional soap bars by
launching its own range of shower gels, liquid soaps and moisturising bars. Lux beauty facial
wash, Lux beauty bath and Lux beauty shower were launched in 1992.

In 2004, the entire Lux range was relaunched in the UK to include five shower gels, three bath
products and two new soap bars. 2005 saw the launch of three exciting new variants with
dreamy names such as “Wine & Roses” bath cream, “Glowing Touch” and “Sparkling Morning”
shower gels.

Lux was initially a premium brand. Lux was being projected as an aspirational brand and the
endorsements by stars further reinforced the positioning. The increasing competition in the soap
category forced Lux to rethink on its targeting strategy. The brand had a choice either to
compromise on market share and uphold the premium positioning or to retain the market share
and dilute the positioning. Lux wanted to ensure that the brand be positioned as premium but
also did not wanted to compromise on the share. Thus born International Lux which is the
premium variant and the affordable segment was catered by Lux beauty soap.

Earlier the brand used the positioning " Beauty soap of Film stars" . But as the customer
evolved, the positioning lost its charm because customers began to doubt whether the film stars
actually used this brand. Taking a cue from the customers, Lux changed the positioning
appealing to the need for becoming a star. The new positioning is communicated with the
tagline " Bring out the star in you".

Market Structure of Lux in Banhladesh:

Though LUX is produced in Bangladesh, Unilever maintains the same standard all around the
globe. Since the demand for the beauty soap market is to a great extent oligopolistic,
variations to price lead to a price war which can eventually break down company’s market
share. So the price is affordable by most of the people. Unilever Bangladesh has outsourced its
distribution channels to third party distributors which allow them distribute LUX in massive bulks
amounting to around ten million pieces. It undertakes the largest promotional activities in the
beauty soap industry.

Findings behind Oligopolistic Market Structure for Lux soap:

Market Competition:
The beauty soap industry has a few major producers of which Unilever holds market share of
slightly less than 50%. Other competing brands like Tibbet, Aromatic, Lifebuoy and Keya have
started to have strong consumer base, but LUX’s product features distribution and promotional
activities have created high brand loyalty for which it is still the market leader.

Market Share of Lux:

The beauty soap industry in Bangladesh consists of few major products. Unilever Bangladesh
Ltd is operating in the industry with its world famous brand Lux. Out of these giant companies
Unilever Bangladesh Ltd is the market leader with a share of around 43%.

Figure 1- shows the market share of all the companies in the sector. Unilever Bangladesh Ltd is
leading the market. The other competitors are very competitive are very competitive among
themselves but they cannot put a intense competition with Unilever Bangladesh Ltd, as they
have market share much less than Unilever Bangladesh Ltd.
Grounds behind LUX for which It supports Oligopoly

• Small number of firms: in oligopoly there are just a few firms. There must be several
firms dominating the industry so that they really able to set the price. In our country, this
soap market has fewer industries which resembles with the oligopolistic feature.

• Interdependence: when there are only a few large firms dominating, the industry, they
cannot act independently of one another. Each firm will react to what the other firms do
in terms of output and price, as well as to changes in quality and product differentiation.
In our country we can see, the price of every soap bar including Lux is within a certain
range and it is affordable by rural people also.

• Barriers to entry: it is possible that certain barriers to entry have prevented more
competition in oligopolistic industries. Barriers may include legal barriers, such as
patents, control and ownership over critical supplies and so on. But there may be entry
barriers of a less overwhelming kind which may result in the presence of some
competitors but as many as would create a market structure of monopolistic competition.
May be that is why there are few soap industries in our country.

• Limit pricing: in oligopolistic market there is more than one competitor and they all
share the goal of seeking to prevent yet more competitors appearing on the scene. The
concept of limit pricing is just such a concept. It refers to the possibility that oligopolists
jointly seek to agree on a price which is the highest they charge without prompting a new
entrant to appear. The higher the barriers to entry are, then the higher is the possible
level of the limit price.

• Non-Price competition: by their very nature, oligopolistic firms do not usually exhibit
active price competition. It is an attempt by one oligopolistic firm to attract customers by
some means other than a price differential. Being a oligopolist competitor Lux followed
some strategies as non-price competition strategy –
 o Advertising: the primary purpose of advertising is to shift the demand curve to
the right. This allows the seller to sell more at each and every price. Advertising
may also have the effect of differentiating the product and of making the product’s
availability better known.

o Quality variation: there is competition to create new quality classes and thereby
gain a competitive edge. Being the first in the market in a new quality class has
often meant higher profits. New product development ca promise higher sales and
profits in a way that avoids the alternative risk of engaging in price competition with
rivals.

o Branding: the use of brand names can be a powerful form of product

differentiation and highly effective in raising sales. The price premium which a
brand can command may make the brand name a significant asset for the firm.
Branding can be particularly important when new products are being developed.

Conclusion:

Prior to 2003, although the brand enjoyed success and has sustained its leadership position but
had been facing issues of stagnation. The stagnation is caused by the plethora of brands
competing for the market share and the scope for differentiation had reduced to almost nil. But
still Lux is prevailing leadership both in profit making and market share because of its marketing
strategy. In Bangladesh, there are few stronger brands and they are doing business too. But we
can see Lux is enjoying its winning for a long time because of its unique policy of advertising,
branding, and product feature that keeps its consumers amazed always. So we can say Lux is a
perfect example of Oligopoly market.

References:

www.wikipedia.org

www.unilever.com/ourbrands/personalcare/.lux.asp
www.unilever.com.bd

Report on “Competition Scenerio in Bangladesh”.

-Prepared by Bangladesh Enterprise Institute

www.bized.com.uk