RMIT UNIVERSITY VIETNAM

HANOI CAMPUS

ASSESSMENT 3
PERFORMANCE ANALYSIS

Name: Dang Ngoc Quang

Student number: s3817869
Subject: Prices and Markets
Lecturer: Marlehan Bin Mohammed
Question 1

Over the last decade, Vietnam has gone through rapid economic advances that transform
society and its people’s quality of life. In this transformation, the cosmetics market, in recent
years, has been growing strongly and full of potentials. This report will shed light on the
structure of the cosmetics retailing market in Vietnam.

Vietnam’s growing economy has been the driving force that make its cosmetics retailing
market more potential and attractive to businesses. According to the Vietnam Essential Oils,
Aromatherapy and Cosmetics Association, the market grown at a rate of 30% over the last few
years (Nikkei Asian Review, 2019). This is contributed by the rising incomes of the population.
Higher incomes make people spend more in beauty products, especially the middle-class who
spend a lot on cosmetics, stated Mr. Tran Quang Thang, director of the HCM City Institute of
Economics and Management. Furthermore, the middle-class is expected to continue to increase
to 33 million by 2020 (VietnamNews, 2019) making the market in the near future full of
potentials for further expansion.

Cosmetics retailers in the cosmetics market varies in sizes, the ways of operation as well
as types of product they sell. Large cosmetics retailers like Medicare or Guardian have their own
store chains across the countries: Medicare now operates more than 80 shops and Guardian has
around 70 shops in cities, or The Faceshop also possesses more than 60 stores across Vietnam
(Nikkei Asian Review, 2019). These chains of stores help them to distribute the products on
large scale that help compete in the retailing sector.

However, those large retail chains must also compete with numerous famous foreign
cosmetics brands like Esteé Lauder or Lancome who enter the market by means such as
representative offices, agents and distributors. As there are only around a quarter of 400
businesses are foreign, their sales take up to 90% (VietnamNews, 2019) which prove that foreign
brands can be competitive rivals in the market.

The market gets more crowded as smaller cosmetics chains or individual stores sell
imported products from foreign brands; apart from physical stores, they now sell via existing e-
commerce platforms such as Shopee or Lazada. According to a Q&Me survey, 57% of cosmetics
user shop online and 72% of them shop on social media (VnExpress International, 2019) which
mark the potentials in online shopping for cosmetics.

With large number of different competitors in the market each have their own
advantages and market power, the cosmetics retailing market can be inferred to have low level of
concentration and each player have not too much market power.

Because there is a large number of players in the retailing market, product differentiation
is intense. Unlike the cosmetics producers who continuously improve and change their products,
retail stores are always trying to expand their product ranges; Bart Verheyen, commercial
director of Medicare, said that the company is always looking for brands and partners that can
provide them exclusive products (VnExpress International,2019). By securing exclusive
partnerships retailers can have great advantages when competing with others. Furthermore,
demand for imported products rises, which is evident in the below graphs, can be an opportunity
for retailers to diversify their product ranges, especially when there are many sources that
Vietnamese are familiar with.

The retailing market in Vietnam is full of potentials and with the existence of e-
commerce platforms, entering the cosmetics retailing market may require little resources. As
people start shopping online more, new players can join the market via e-commerce platforms
with little initial resource, or there are a wide range of products that new players can sell without
much prevention from older players in the market.

To conclude, the cosmetics retailing market has many players of different scales, product
categories and operations with a diverse product differentiation and the entry to the market is not
too high, making the market to be monopolistic competitive.

REFERENCES:

B&Company 2019, ‘A dynamic cosmetics market in Vietnam’, B&Company, viewed 3

January 2019 < http://www.b-company.jp/en/2019/09/17/a-dynamic-cosmetics-market-in-
vietnam/ >

VietnamNews 2019, ‘VN cosmetics market’s shining potential’, VietnamNews, viewed 3

January 2019 <https://vietnamnews.vn/economy/519921/vn-cosmetics-markets-shining-
potential.html#4JDwHC6qfHiOS7sw.97 >

Vien Thong 2019, ‘Affluence, e-commerce make Vietnam a lucrative cosmetics market’,
VnExpress International, viewed 3 January
2019 <https://e.vnexpress.net/news/business/industries/affluence-e-commerce-make-
vietnam-a-lucrative-cosmetics-market-3967651.html >
Nikkei Asian Review 2019, ‘Hong Kong’s Watsons dives into Vietnam’s crowded beauty
market’, Nikkei Asian Review, viewed 3 January
2019 <https://asia.nikkei.com/Business/Companies/Hong-Kong-s-Watsons-dives-into-
Vietnam-s-crowded-beauty-market>
 Question 2: Reflection on the Industry Talk

During the Industry Talk, we had the discussion with Mr. Minh Bui, Chief Executive
Officer of a cosmetics wholesaler called Osiris and his app called Inbea. The discussion was
about the market nature and structure of the cosmetics market in Vietnam, and the guest speaker
also talk about his business’s strategy as an example of how a business in the cosmetics market
do to compete and grow. Although the guest speaker did not directly state the structure of the
cosmetics market, he gave the brief information about the competitiveness of the market, degree
of product differentiation as well as the entry to the market: the market was highly competitive
with not only other legal rivals but also heavy pressure of illegal or fake products that flood the
market, new brands appeared frequently as the nature of the market was trendy and always
changed and therefore there were frequent differentiations in the market, and the entry to market
may require new players initial investments on marketing and technology. About the pricing
decision, Mr. Minh said the nature of the market makes the price unstable and competitive,
therefore decisions about prices was mostly about overcoming the market nature in both price
and non-price ways. Taking his own business as an example, the guest speaker applied
technology and management systems to cut down the cost for operations, and his business could
charge higher than his rivals because they ensured the legality of their products, especially in the
market infected with fake products. From my own opinion, Osiris can be a good example of the
adaptation of technology and computer-monitored systems into the cosmetics market, but there
was still space for development that deal with the continuous change in trends of cosmetics
products, which can be of great significance in cutting down losses when clearing inventories.
Question 3

 According to the manager of the pharmacy company, the company possesses all supply
sources of necessary ingredients and inputs to produce herbal detox pills. Therefore, the
company has become a sole producer and seller of a unique product that create a market
barrier nearly impossible to enter, thus become a resource-based monopoly.

 Because the company is the monopoly in the market, demand for the company’s herbal
detox pills can be expected to be highly elastic, and this high elasticity is affected by
several factors:
+) Availability of substitutes: the product may face competition from other
products that also serve the same purpose of ‘detoxification’, which means if the
company charges inappropriately, customers may easily switch to consuming the
substitutes.
+) Share of income: because the detox pills itself is not a necessity product, as it
can be unnecessary, if its price take more share of the customers’ incomes then
the customers maybe unwilling to buy anymore.

 The company cannot charge unreasonably high price for its herbal detox pills because the
company, if it wants to stay in profit, it has to comply to the rules of profit maximization,
or they may also face government regulations that will constrain their pricing ability.
Question 4

 We can construct a game matrix according to given information:

XYZ
Do not add new
Add new flavor
flavor
Add new flavor $10,000; $10,000 $20,000; -$2,000
ABC Do not add new
-$2,000; $20,000 $15,000; $15,000
flavor

 Given that XYZ is going to add the new walnut and almond flavor, the best strategy for
ABC is to also add the new flavor since they will make economic profit.
If XYZ decides not to add new flavor, adding new flavor will still be the best strategy for
ABC as the firm can make $20,000 > $15,000  Dominant strategy for ABC is to add
the new flavor.
With similar analysis, the dominant for XYZ is to add the new flavor.
 According the matrix, it can be inferred that the Nash Equilibrium is ($10,000; $10,000)
 If both firms have the chance for collusion, the bests strategy for both of them is to not
adding the new flavor, therefore the Pareto Optimum of the game is ($15,000; $15,000).
Question 5:

 Externalities concept: An externality is the side-effects of one’s actions on the wellbeing

of a non-related third party.
Externalities can be both positive or negative which can incur from production or
consumption of a good or services. Because externalities incur from one’s actions, its
impact can be private (related to individual or organization) or social (the whole society).
 Cattle farming can be a good example of negative production externality. Cattle farming
can have numerous negative side-effects on the environment and health of the society.
Wastes from farm animals and machineries may contaminate the nearby water and air
quality as well as create antibiotic-resistant bacteria that may lead to diseases; Or
chemicals and drugs are injected into farm animals to increase production may turn
society sick. This market failure can be illustrated through the below graph:

 To address the externalities, public policies are needed. The policy may tax activities that
pollute the environment or open tradeable pollution permits that can help reduce the
amount of waste that damage the environment; Or there can also be policies that forbid
the use of chemicals on animals that may poison the meat or products which are risky to
society’s health.