ANDREWS UNIVERSITY - MBA K8

MANAGERIAL ECONOMICS

INDIVIDUAL ASSESSMENT

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

Class: AU08 -HCM

By: NGUYEN MINH THANG

Table of content

Contents

Question 1: Five Forces Model strategy to develop of Saigon Coop’s private-label products.......1

Question 2: Price discrimination strategy to develop its private-label products.............................3

Question 3: Advertisement budgeting decision...............................................................................5

Question 4: Demand curve for Saigon Co.op’s detergent...............................................................6

Question 5: Strategies follow to get better economic performance and keep ahead of competitors

.......................................................................................................................................................10

Question 6: Human resource strategy – adverse selection theory.................................................11

Question 7: Moral hazard in labor.................................................................................................11

References......................................................................................................................................13

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Question 1: Five Forces Model strategy to develop of Saigon Coop’s private-label products

Porter’s Five Forces analysis is a model attempting to give an analysis of competitiveness within

a certain industry among counterparts. What is so beneficial of this model is that it helps

managers to know when to start a new business or when to enter a new industry sector. The

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combined influence of the five forces in the illustration below decides the profitability of an

industry, hence its potential.

In the following passages, we will look into each force and its danger upon Coop’s business.

Each force will be given an definition first, followed by an explanation for the case study, and

finally a conclusion for the force.

Threat of new entrants: High

The threat of new entrants claims that given a lucrative industry, if a new company entering the

market can make a good profit both effectively and efficiently, the threat is considered to be

high, and vice versa.

As regards the case, producing private label products is a golden opportunity for other

competitors apart from Co-op Mart. For instance, it is reported that LOTTE Mart can offer its

own private label products with over 1,000 kinds of goods after 1 years, while Saigon Coop

possessed 3,000 kinds in 13 years. The difference between the number of goods is considerable

when comparing Coop and LOTTE, and that is not to say that fact that it took 13 years for Coop

to produce 3,000 kinds, while for LOTTE, it took only a year. Besides, Saigon Food JSC, which

supplies over 50 dishes to 7-Eleven convenience stores, is also attempting to enter this lucrative

business.

As such, with domestic and foreign competitors trying to be the new entrants, the threat is high

for Coop.
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Bargaining power of suppliers: Low

This force analyzes how much power and control a company’s supplier (also known as the

market of inputs) has over the potential to raise its prices or to reduce the quality of purchased

goods or services, which in turn would lower an industry’s profitability potential.

As is evidenced by the case study, manufacturers can benefit from distribution channels of

supermarket chains in corporation for private label products, meaning a low level of bargaining

power of suppliers.

Bargaining power of customers: High

This force refers to the pressure that customers/consumers can put on businesses to get them to

provide higher quality products, better customer service, and/or lower prices.

In terms of the case, the number of tough competitors entering the success in diverting customers

to consume their private labels products, such as LOTTE, BigC and Mega Market, has increased

considerably. These competitors have provided customers with offers, packages that reduce

products prices, in order to promote their private label products. It is because of this fact that

customers have a potent influence in this force.

Competitive rivalry: Moderate

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The control of a company in a business may reach a saturation level when too many competitors

are rivaling. In general cases, consumers expect products from a company whose products are of

reasonable price and quality.

The rivalry in this sector is competitively moderate. To elaborate, even though there is an

increase of players seeking for private labels promotion strategy by increasing their acquired

quality of their products at the lowest possible price, Coop Mart has, in a sense, succeeded in

establishing the position of providing private label products for 13 years. And because such

products have become acquainted to a lot of customers, customers, thanks to their loyalty, are

likely to choose Coop private label products.

Threats of substitutes: Low

When alternatives are available, customers may choose to buy them rather than private label

products, if whose quality is not as good as the others based on price expectations.

It is apparent that because private label products of Coop Mart are vast, with up to 3,000

products ranging from different kinds of household appliances, customers can have a variety of

choices regarding what to buy when going shopping at weekend. Therefore, customers are

always introduced with Coop products through advertisements and promotions, in which

situations the threat of substitution is relatively low.

Conclusion

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Because the overall strength of these five forces are competitively high, Coop must have a

strategic approach to tackle any problems that may arise in the future.

As regards the threat of new entrants, Coop should prioritize producing more private label

products by extending to other kinds of goods, such as plants and flowers, because living green

and protecting environment is a trend nowadays, and many companies are adopting green

policies to gain customer loyalty. If Coop Mart can act promptly, customers will be acquainted

with Coop products, and that will establish long-term commitment among customers with Coop.

Besides, in order to compete with other rivals, Coop should not stop improving the quality of its

private label products, or maintain the quality at least. Other approaches include offering

promotions and sales off which can attract more customers so that they can get to know more

about these private label products. In fact, this method is quite common in the current business

world, where Grab and Baemin constantly induce new customers to use their app by providing

sales off codes.

Question 2: Price discrimination strategy to develop its private-label products

The practice of charging different prices for the same goods or service is defined as price

discrimination. Pricing discrimination exists in a competitive market if similar products and

services are offered by the same supplier at different prices. The seller charges the buyer the

absolute highest price which he is willing to pay for price discrimination. Companies use price

discrimination to make any customer's full profits. That means the producer will catch a larger

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share of the overall surplus by supplying customers at rates that are closer to their peak payment

would.

Theoretically, there are three types of price discrimination, which are first, second and third

degree. First-degree price discrimination, or ideal price discrimination, occurs when the business

charges for each consumed unit at a different price. Second-degree price discrimination means

offering various amounts of prices, including mass shopping discounts. Price discrimination to a

third degree suggests that the various customer classes are paid a different price. The driving

force behind competition is price discrimination. It is obvious across markets and produces the

maximum possible profits by moving the price of a commodity based on the desire for customer

to pay the amount needed and the consumer's attributes. Price discrimination by imperfectly

competitive companies will intensify competition and offer all products at lower prices (Corts,

1998). Hence, among those type, third degree of discrimination is dominant on the market, which

uses market separation. These charts illustrate numerous discrimination in the price of the

market. The overall market is divided into two submarkets, which are priced for profit full

separately. The chart illustrates how a seller needs to produce the most product or service

revenue possible. The market's elasticity has an effect on earnings.

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Reflecting the above discussion, the market separation is ideally used for private labels products.

Particularly, Saigon Coop has three product label products categories, which are Happy for

savvy customers, Select for basic customers and Finest as premium product label brands (Red

Design Group, n.d.). It is respecting the consumers ‘purchasing behaviors toward their economic

status. For instance, the Happy product ranges would meet the demand and willingness of pay of

their intended products while a higher prices aims at the product quality intention. By separate

market into submarket of demands and expectation, because different charging rates can increase

the amount of sales, in particular as a result of the new consumers attracted by reduced prices,

Saigon Coop can benefit from economies of scale savings resulting from increased demand and

production.

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Question 3: Advertisement budgeting decision

According to the textbook Managerial Accounting by Garrison Norren, in order to evaluate the

performance of a proposed plan, Asset Turnover formula will come in handy. The following

formula shows how it should be analyzed:

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With the information we gain from the question,

Sales = Expected Sales Units Increase x Average price of products

= 89,000 x 32,500

= 1,612,500,000 VND

Capital Employed = 1,280,000,000

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Hence,

1,612,500,000
Asset Turnover = 1,280,000,000 = 1.26 = 126%

Advertisement budget 1,280,000,000

investment (VND)

Expected sale units increase 89,000

Average price of products 32,500

(VND)

Expected revenue increase 1,612,500,000

(VND)

Asset Turnover 126%

The meaning of Asset Turnover shows that for every 1,000 VND of capital employed, 1,260

VND of revenue is gained in return. Because the Asset Turnover is an advantageous number to

care about, Coop Mart should carry out this advertising program to further achieve better

revenues, hence better profits.

Question 4: demand curve for Saigon Co.op’s detergent

The demand curve for Sai Gon Coop’s detergent is as follows:

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 Price of Coop’s Detergent

Quantity of Coop’s Detergent

According to the textbook Principles of Economics by N. Gregory Mankiw, the demand model is
helpful to illustrate the questions raised in the case study. The following illustration helps shed
light on what we need to focus on to solve each question.

The price of Omo detergent rises

Because Omo detergent belongs to Unilever, this means that Omo is a product of Coop’s

competitors. As such, when the price of Omo detergent increases, this will have an effect on the

demand curve of Coop’s detergent, as represented by a movement along the demand curve

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 Price of Coop’s Detergent

B
P1
A
P0

D
Quantity of Coop’s Detergent
Q1 Q0

The prices of Saigon Coop’s detergent falls

In this scenarios, the price of Saigon Coop’s detergent falls means changes. Therefore, it would

influence the demand for its products, not on the whole market. Indeed, the lower the price, the

higher the demand. There is no external factors influence on the market demand or price

fluctuation of the firm. Therefore, this changes will encourage the movement along the demand

curve. This graph below illustrates the scenario. A change refers to a curve move.

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In the curve of demand, a shift refers to a transition from a point to another in both price and

quantity. The movement ensures the relationship between demand and demand remains uniform.

As the price of the good increases and the amount of changes needed, in conformity to the

original demand relationship, a motion along the demand curve may occur. This implies a

movement is caused only by a change in price and vice versa if the change in the quantity needed

is caused.

The prices of Comfort softener falls

Comfort softener has not been seen as a substitute product to detergents. In reality, people use

both detergent and softener in different stages of the washing procedures. Therefore, the changes

of price of softener products would not influence the demand of customers for detergent

products. Therefore, there is no influence on the demand curve of Saigon Coop’s detergent

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product. This circumstance reflects in perfect competitive market without external factors.

However, in long-term, this price falls may influence the consumers’ demands for Saigon Coop’s

detergent to decrease. Reflecting the consumers’ taste or preferences to use more softener than

detergent, the demand of Saigon Coop’s detergent would change respectively.

In considering the related factors influencing the customer demands, such as quality of

detergents, or additional scents to detergent to substitute softeners, the changing price of comfort

softener would influence the consumers’ demand for Saigon Coop’s detergent products.

While the price of a good is clear about the quantity needed, expectations of the future price – or

expectations about tastes and desires, wages, and so on – may also influence demand. A shift in

demand therefore arises when a difference in some economic factors other than price causes a

particular quantity to be demanded at all prices. A rise in products or services' prices triggers a

shift along a particular demand curve, which usually leads to changes in the amount needed.

When a demand curve changes, a given supply curve will be intersecting at a different price and

quantity of equilibrium.

Question 5: strategies follow to get better economic performance and keep ahead of

competitors

The leading retailer in Vietnam had been Saigon Co.op for many years. The ultimate success for

any retailer is to be the market leaders, but it is a challenging position to retain. The inevitable

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demographic and trend-based changes that arise in the course of time do not lead to the same

results in the strategy that once worked so well. Competition can be fierce, especially in markets

with aggressive competitors and in slowing customers' expenses.

A company's traditionally economic output depends on its success, in particular through

productive innovation and successful resource utilization, in generating advantages for its

shareholders. As we speak about this kind of economic performance in a corporate sense, people

generally understand that we talk about profit. It must be acknowledged that in economic profits

customers play a significant role. Companies are earning profit because in comparison to rivals'

goods or services at a higher or lower price, clients are willing to pay a certain amount for a

product and service.

The strategy to enhance economic performance is to acknowledge the factors influencing the

firm’s efficiency in order to sustain the economic profitability (Burja and Burja 2009). In a

competitive business environment, to be sustained and kept ahead of competitors acquires firms

to employ and follows various strategies. The strategies would aim two-fold. First is to attract

customers’ loyalty and perception toward business. Then, it would turn firm to a higher

reputation and market shares, which links to profits and revenues.

The following strategies are suggested to Saigon Coop in order to get better economic

performance while stay ahead from its competitors

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 - Quality-focused: in this terms, the quality means the people and products. Indeed, as

there are increasing similar retailers offer customers with better price, shopping

experience and offers, the quality becomes the driving forces to sustain customers’

intention. Not only product quality commitment, training for professional staff in order to

deliver exceptional customer services also play mutual roles in influence customers

perception toward the firm. It would reflect the firm’s competitive advantages

- Expanding products categories: as the private label products received major concentration

of competitors respecting the profitability, Saigon Coop should expand its private label

product categories to a more variety of selection. In addition, applying more price

discrimination strategy of bulk buy to private label products would be potentially boost

sales.

- Improve marketing campaign and brand images: Any corporation believes that the

market or even its own consumers know their goods, services, advantages and

characteristics. Tell people who Saigon Coop is, what company do and how businesses

can benefit. Make knowledge sharing and create more awareness through word-of-mouth

simple for them. Campaign to draw on the awareness and understanding of consumers

and priorities of the business. Keep in touch with firm so that the customers can purchase

goods from the firm and not from rivals when they are ready to buy.

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Question 6: human resource strategy – adverse selection theory

Selection of personnel is not the only method by which employers minimize the issue of data

asymmetry in the recruitment process. Adverse selection exists on the job market where there is

confusion about the standard of candidates prior to the employment contract because low quality

people are disproportionately attracted by businesses. The organization is therefore more likely

to employ a low-quality employee without the opportunity to track the productivity of an

applicant. Employers know less about job applicants on the labor market than the candidates

themselves and inappropriate applicants are drawn to work advertisements that guarantee decent

pay and work conditions. In the absence of a system for employers to test applicants for their

appropriateness, these candidates decrease the value of employees for those employers who give

their employers lower salaries and benefits, and dilute the pool of potential employees to work.

Then the job attracts the required applicants less. Again, adverse selection leads to a less

competitive market than one where employers have complete knowledge about job applicants.

In case of Saigon Coop, the question whether this candidate good or bad, hard-working or lazy

are unable to determine via job applications, curriculum vitae or interview. Reflecting the

adverse selection theory, the ability of Saigon Coop human resource in identifying the

characteristics of employees via initial meeting or observation. Therefore, it acquires appropriate

strategies to mitigate the adverse selection while increase the effective recruitment.

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By designing suitable mechanisms, the issue of adverse selection can be mitigated. It mechanism

of recruitment would respect the firm’s recruiting objectives and expectation. In general, the

mechanism would include the criteria below

- Screening standards: Pathways to eliminate applicants who do not meet essential criteria

of the position and Preliminary tests are key resources that allow the employer to

recognize suitable candidates to screen people that lack the appropriate level of skills and

competencies for a job. However, it should come with written standards. These standards

are not evaluated via screening candidates’ resume. They should be standards of

assessing referrals of candidates. In particular, there should be list of questions or queries

expected the previous workplaces, companies and direct managers to fill or answer in

order to have a initial information about candidates’ productivity.

- Probationary contracts: probation is an ideal time for both employees and employers

understand each other. It is also the period human resource department can evaluate the

productivity of expected staff.

- Code of conduct in recruitment and probation: there are certain personal bias of recruiting

officers in screening and selection of labor. Therefore, a code of conduct would provide

direction to avoid personal bias as well as follow minimum corporate requirements.

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Question 7: Moral hazard in labor

In several models of contractual relations requiring worker effort, morality hazards play a central

role (Foster and Rosenzweig 1994). A moral hazard is a situation where one party has risky

actions or fails to behave in good faith because it knows that the other party has the economic

implications of its conduct. Whenever two sides consent to each other, there could be a moral

hazard. Moral risk arises when the effort of employees is not perceptible and the degree of

compatibility between employees and organizational objectives is informatively asymmetrical.

In the Saigon Coop scenario, the moral hazard comes from the long service employees who

shows their laziness or bossy attitude toward other colleagues. These are the colleagues who

work with others, even though people share the same designation. Lazy staff do all they can to

sit, shirk and make other people do more. Although being faint can eventually force delegates to

do some work, for long-term employees it's not pleasant. Meanwhile, a bossy, unpleasant

colleague brings to the workplace unpleasantly. A bossy colleague can frustrate and even make

life unpleasant at the workplace. In addition to co-workers’ unpleasant, it puts the organizational

culture and working environment into a hazard and poison workplace. Indeed, within this

organizational culture and environment, the possibility of retain good employees is unable.

Therefore, in order to avoid this circumstances, Saigon Coop Company should employ some

human resource management strategies. The aims of strategy are to build positive working

environment as well as encourage the employee’s engagement and accomplishment toward the

productivity objectives.

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 - Key performance indicators (KPI): A key performance metric indicates the quality of a

staff's achievement of key organizational goals. This is an valuable tool for measure

employees’ productivity. Therefore, in creating KPI, the Saigon Coop human resource

department should focus on the respective objectives in order to enhance the cooperative

attitude while mitigate the bossy or lazy behavior. Firstly is teamwork. Team activities

are commonly regarded as strong and supporting team members by colleagues who work

well together. Second is communication. Professional, accurate contact between

organizations is an essential aspect of all employees' tasks. Attitude to employees and

managers responsive is highly regarded.

- Corporate culture conducts: Corporate culture implies values and conduct that define the

relationship between the workers of an organization and the management and handles

external transactions. Ethics and compliance programmes, an organizational culture that

facilitates the ethical behavior. Hence, the culture of sharing and cooperative is essential

to ensure the positive working environment

- Transparency policies of recognition and reward: Transparent rewards and appreciation

will improve employee involvement. People feel confident comprehension what is

expected of them and seeing what others do with a simple success assessment.

- Cross –functional checking of KPI: ensure equal representation and avoid personal bias.

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References

ANT Consulting Co. 2020. Fast-moving Consumer Goods Market in Vietnam | business

consultant in Vietnam | ANT Consulting. Available at http://www.antconsult.vn/news/fast-

moving-consumer-goods-market-in-vietnam.html#ixzz6gP0tvu7U

Burja, C. and Burja, V., 2009. Analysis of companies’ economic performance using the

profitability rates.

Corts, K. (1998). Third-Degree Price Discrimination in Oligopoly: All-Out Competition and

Strategic Commitment. The RAND Journal of Economics, 29(2), 306-323. Retrieved December

13, 2020, from http://www.jstor.org/stable/2555890

Foster, A., and Rosenzweig, M. 1994. A Test for Moral Hazard in the Labor Market: Contractual

Arrangements, Effort, and Health. The Review of Economics and Statistics, 76(2), 213-227.

doi:10.2307/2109876

Jobs, C.G. and Gilfoil, D.M., 2014. A social media advertising adoption model for reallocation

of traditional advertising budgets. Academy of Marketing Studies Journal, 18(1), p.235.

Red Design Group, n.d. Coop – Private Label. Available at https://www.redgp.com/coop-private-

label/

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The Saigon Times 2017. Private-label products hold high potential. Available at

https://english.thesaigontimes.vn/55112/private-label-products-hold-high-potential.html

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