Managerial Economics: Demand, Market Dynamics & P&G Baby Wipes

This report provides an analysis of demand and price elasticity concepts in managerial economics, focusing on Procter & Gamble's (P&G) Baby Wipes product line. It identifies factors influencing demand, such as the price of substitutes (Johnson & Johnson baby wipes), price of complements (diapers), consumer income, consumer taste and preferences, consumer expectations of price, and demographics. The report assesses how these factors impact the demand and market equilibrium for P&G Baby Wipes. Additionally, it discusses the price elasticity of demand, highlighting the substitution effect and considering Baby Wipes as a necessity good. The analysis includes graphical representations of price changes and demand quantities to illustrate elasticity. The report also touches upon the impact of the COVID-19 pandemic on P&G's sales and the importance of PESTLE analysis for strategic decision-making. Desklib provides access to this and many other solved assignments to aid students in their studies.

Management Economics
Assessment 1

Table of Contents
INTRODUCTION...........................................................................................................................3
Description of the business..........................................................................................................3
Identification of Demand and Market Equilibrium.....................................................................4
Indicating demand is more elastic or more inelastic....................................................................8
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Managerial economics is a stream of management which help the companies in solving
their business problems and taking decisions via applying theories and principles of
microeconomics and macroeconomics. The report will critically discuss and apply the various
concepts of economics such as supply, demand, price elasticity etc. with respect to managerial
decision making in Procter & Gamble. Further, the report will also discuss the factors of demand
and price elasticity of demand and their impact on specific product range of company such as
Baby Wipes.
Description of the business
Procter & Gamble (P&G) is a American based multinational consumer goods
corporations which offers wide range of personal health, care and hygiene products to their
national and international customers. The company was founded in 1837 in Ohio whose product
portfolio also included food, snacks and beverages but main product is personal and skin care.
The company is operates in consumer goods industry having around 99000 employees in the
year 2020 with the operating income of US$16.39 billion (Bashir and et.al., 2019). Basically,
P&G operates in all around the world such as in more than 180 countries except the Cuba and
North Korea. The company offers variety of goods and services but the main products of the
company which will be focused in this report is Baby Wipes. It is because Pamper Baby wipes
product of the P&G in the year 2020 has total sales of 18.36 billion and in the year 2019 17.81
billion.
This product has more demand in the market as compared to company's other products
because it relates to the hygiene of the new born baby. The company offers baby wipes products
to the customers which are available on various fragrance and are also thick so that parents can
thoroughly clean their baby without reservations. The reason behind selecting Pampers Baby
Wipes product range offered by P&G company for the present report is that it is necessity
product not luxury (Sinaga and Sinulingga, 2020). This is a necessity product because it remove
the irritants on the baby skin after the regular use of diapers. The products price set by the P&G
company is low i.e., $0.03 per count as it is helpful for them to attract even middle class and
poor people to purchase it for the health and safety of their new born baby.

Link: <https://www.statista.com/statistics/238771/sales-of-procter-und-gamble-by-sector-in-
2009/>
Identification of Demand and Market Equilibrium
Factors that influence the demand of the Baby Wipes products of the P&G company are
as follow: Price of Substitute: The substitute products are the similar products which could be used
for the same purpose by the consumers. P&G's Pamper baby wipes substitute products is
Johnson & Johnson (J&J) baby wipes and the price of the product set by J&J is around
$0.05 per count (Aldaihani and Ali, 2018). In the macroeconomics, the price of the
substitute goods increases than the demand of the similar goods having low price
increases and vice-versa. The price of the substitute product is increasing and the
impact of which the demand of the P&G baby wipes product is also increasing. This
reflect the direct relationship between the substitute products price and own products
demand. It is because, the consumers are getting the same products at low cost in the
market which they prefer more than paying high price.

 Price of complement: Complement products are the goods that individual need to use in
the conjunction of another goods and services such as pen and ink. The complement
product of P&G baby wipes will be its own or other competitors Diaper. It is because if
any consumer purchase diaper for its baby than they will definitely buy baby wipes also.
The average price of the diapers in the USA in the year 2021 is $0.29 per count which is
increased from the previous year by around 4.2%. The price of the complementary
product of P&G are increasing and the impact of which the demand of the P&G
baby wipes products are decreasing. This is because, when the price of the particular
goods increases, the demand of the complement products decreases as consumers are not
able to use the complement alone (Li, 2019). That's why the Baby wipes product may
faces less value because of the diapers high price.
 Consumer Income: This is an income of the consumer which they earn from either work
or reinvestment. In the case of normal or necessity goods, consumer income and products
demand are directly related with each other but have less impact. Due to the Covid-19
situation, the income of the consumer is decreasing as because of the cut in the salary.
The decreasing income of lower and middle class consumer likely affects the demand of
P&G baby wipes product in less way. The income of the consumer are decreasing and
the impact of which the demand of the P&G's Pamper Baby Wipes curve are also
decreasing but in slight way which are less than proportional to the decline in
income. But, the decrease in the income of the upper-middle and upper class consumer
does not affect the demand of the necessity goods as they earn that much that they can
prefer necessity as well as luxury products (Anh, 2018). This means that for upper and
upper-middle class people income factors will not put any impact on the company's
products demand.

Link: <https://www.slideshare.net/Milan_padariya/me-income-elasticity-of-demand>
 Consumer taste and preferences: The taste and preferences of the consumers get changes
over the period of time as per the new and emerging trends. The preferences of the
consumers changes because of the change in the utility and their satisfaction level. The
change in taste and preferences have direct relation with the demand of the products as
the greater taste will increase that product demand. The P&G company have spend lot of
money in the promotion and publicity of its Baby Wipes products. The impact of which
the demand of the Baby Wipes product of P&G is getting high day by day because it is a
necessity product in present world. In simple term, the preferences of the parents for
the Baby Wipes product is increasing and the impact of which the demand of the
P&G product is also increasing. As Baby wipes is a necessity goods that's why the
preferences of the consumers does not changes drastically and changes only in upward
direction (Jawad and et.al., 2018).
 Consumer expectations of price: Consumer such as lower and middle class always
expect low price of the products and services. While on the other hand, upper-middle and
upper class people does not affect by the price of the products but expect high quality and
personalized products. The lower and middle class consumers always expect low cost and
affects the demand of the products. So, the low cost expectations of the consumers
regarding necessity products such as Baby Wipes decreasing the demand of the
P&G baby care products. It is because, the P&G Pamper baby wipes product is

increasing from the past months and the company also announce that they will increase
the price in September 2021 also (Calzolari and et.al., 2018). This means that company is
unable to meet the expectations of the customers are are increasing their baby care
products which further decreases the demand of the product in the both national and
international market.
Illustration1: Monthly Change in the Prices of P&G Baby Wipes product
Years Price per count
January 0.2
February 0.2
March 0.2
April 0.25
May 0.25
June 0.25
July 0.3
August 0.3
Graphical Presentation of Data
January February March April May June July August
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35

 Demographic: No of consumers have direct relation with the demand of the products and
services in the market. The number of buyers of the P&G company are increasing
and the impact of which the demand of its product are also increasing. It means that
the demographic factor of demand influence the P&G company in positive way.
Currently, P&G company are serving around 5 billion consumers in 180 countries
through leading billion dollar brands. Pamper company are highly demand in the Asian
countries as the customers prefer it more than the competitors because low price than
other brand. Further, the company has large market size i.e., 14.96% in the international
market and the impact of which the demand of the company increasing on a daily basis.
The company able to make decision with the application of this economic concepts and
also expand it to the national and international market. The high consumer base of the
P&G help the company in increasing their Baby Wipes product demand (Witting and
Schmude, 2019).
Link: < https://www.macrotrends.net/stocks/charts/PG/procter-gamble/gross-profit>

On the basis of analysis of the each factor of the demand and market equilibrium, it is
interpret-ate that the demand of the baby wipes of the P&G company is high in market. But on
the same side, because of the Covid-19 and pandemic situation the sales of the P&G products
in the year 2019 faces great loss. It is because the people start shifting their needs from non-
essential items to essential items. The impact of which the gross profit of the company also
decreases in the year 2019. Along with that, it is also analyzed that the excess supply of the
baby wipes product in the same is causes because the company has no idea about such external
environment change. After that, because of the non-availability of transport facility the P&G
company unable to deliver those products to ultimate customer at the time of lock down. The
impact of which the company faces surplus supply and wastage of products issue which
further leads to low gross profit (Witting and Schmude, 2019). That’s why it is advisable to the
company to use the PESTLE analysis factors to identify the external factors changes and their
impact over the business operations.
Indicating demand is more elastic or more inelastic
Factors that influence the price elasticity of demand and their impact on the P&G Baby
Wipes product are as follow:
Substitution Effect:
Their are basically various type of goods available to the customer and their nature are
necessity, comfort and luxury goods. Necessity products are the products which demand does not
fluctuate more with the change in the price of the products. Such goods are required for the
survival and safety of the family and consumer do not compromise with this products. While on
the other hand, luxury products are the goods highly changes as per the change in the price of the
consumers. Previously, Baby wipes is an luxury or comfort product but in the present time, Baby
Wipes is one of the necessity products (Gallego and Lafortune, 2021). The impact of which the
change in the price of the Baby wipes product of P&G does not affect its products demand that
must. In simple term, the percentage change in the product demand is less than the percentage
change in the price of the necessity products such as Baby Wipes.
Illustration2: Price Elasticity of demand of P&G Baby Wipe product

Price of the Baby Wipes per pack i.e., 60
count ($)
Quantity demanded per pack
50 120
45 130
40 140
35 150
30 160
25 170
Graphical Presentation of Data
In this situation, the percentage change in the demand that is 100/1200*100 = 8.33% is
lesser than the percentage change in price i.e., -5/45*100 = 11.11%. This is because Baby Wipes
is a necessity product and the change in the price of necessity product does not fluctuate much
demand of the same products. The above graph, also state that there is an inverse relation
between the price and demand of the product and services. This factor indicate that the
1 2 3 4 5 6
0
20
40
60
80
100
120
140
160
180
50 45 40 35 30 25
120
130
140
150
160
170
Price of the Baby Wipes per
pack i.e., 60 count ($)
Quantity demanded

demand of the Baby Wipes product is more inelastic. It is because the price elasticity of
demand for Baby Wipes is less than one i.e., 8.33/11.11 = 0.7.
Income Effect:
The society have divided into different classes based on the income and lifestyle of individual.
Upper class people can afford both luxury and necessity products but on the other side lower
class people can afford only necessity products. As the price of the Baby wipes product is $0.3
per count in the year 2021 which may increase up to $2 in the upcoming year. If one consumer
consume around 4 pack of 60 count each in a month on an average than its total cost became
240* 0.3 = $72. On the other hand, the average monthly income of the lower-class consumer in
USA is $1600. This means that Baby wipes product posses only small portion of the
consumer total income. The overall example of the P&G Pamper Baby Wipes product indicate
that the change in the income of the consumer does not affect the demand of the product in large
sense (Bas, Acay and Ozarslan, 2019). In simple term, the change in the income have direct
relation with the demand of the necessary product but less than proportionate to the change in the
income.
Illustration3: Price Elasticity of demand of P&G Baby Wipe product
Monthly Income of the consumers ($) Monthly Quantity demanded per pack
160 240
180 230
200 220
220 210
240 200
260 190

Graphical Presentation of Data
On the basis of above illustration and graph, it can interpretable that the percentage in
Baby Wipes demand (necessary products) i.e., -10/240* 100 = 4.17% is lesser than the change in
the income of the consumer i.e., 20/160*100 = 12.5%. Basically, there is an inverse relation
between the income of the consumer and demand of the necessity i.e., Baby wipes products. So,
this factor indicate that the demand of P&G company's baby wipes product is also more
inelastic. It is because the income elasticity of demand for Baby Wipes product is also less than
one i.e., 4.17/12.5 = 0.3.
1 2 3 4 5 6
0
50
100
150
200
250
300
160
180
200
220
240
260
240 230 220 210 200 190
Monthly Income of the
consumers ($)
Monthly Quantity demanded
per pack