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Monopolistic Competition - branding, advertising, smarter, healthy, IQ gain, CASE

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Monopolistic Competition - branding, advertising, smarter, healthy, IQ gain, CASE

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Providing more choices and ensuring the availability of accurate information is key to protecting the rights of consumers - in this case well-meaning parents who want the best for their young children - argues MP Sun Xueling.

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SINGAPORE: While we actively promote breastfeeding as the safest and most nutritious way to nourish young children, mothers do rely on infant formula at times to supplement. The latest national breast feeding survey in 2011 shows that 96.1 per cent of mothers breast feed their babies to some extent right after delivery but this number drops to 41.6 per cent six months after delivery, which indicates that many babies rely on infant milk formula either exclusively or partly for their nourishment.

A standard can of 900 grams of infant formula purchased from a regular supermarket costs about S$56 on average, compared to S$25 in 2007. The price of infant formula has thus risen 120 per cent over 10 years, nearly twice as fast as nominal median incomes in Singapore, which rose 65.6 per cent over roughly the same period, placing a greater strain on household expenditures.
IS THE PRICING OF INFANT MILK FORMULA FAIR?
Based on an online survey I conducted over three days, which over 2,500 respondents completed, parents with children younger than a year old spend about S$191 per month on infant milk formula on average. This represents 15.4 per cent of household expenditure on food for young families.

Infant milk formula is thus not a small item of expenditure for young families.

A check on prices for similar cans of infant formula in Malaysia, Australia, UK and the US shows that a similar can of infant formula in Singapore costs 1.63 times the cost in Malaysia, 2.07 times the cost in Australia, 2.6 times the cost in the UK and 1.15 times the cost in the US, based on prices on websites at point of checks.

While one may argue, for instance in the case of Malaysia, that business costs are generally higher in Singapore, regular milk sold in Singapore only costs 34 per cent more compared to Malaysia. Yet Wyeth's S26 Stage 2 infant milk powder costs 63 per cent more in Singapore compared to Malaysia.

Why has the price of infant formula risen so much?

The explanation provided by major infant formula suppliers seems to point to efforts into research and development (R&D) for infant formula.

A check on a similar can of infant formula from Malaysia and from Singapore also shows slight differences in the ingredient mix.

Does the difference in the quantity of ingredients added to whole milk powder (for instance, cow's milk) which then constitutes infant milk formula account for the higher prices of infant formula charged in Singapore?
CONCENTRATED INFANT FORMULA MARKET IN SINGAPORE
Has the formulation been changing consistently over time to warrant the repeated price increases in Singapore?

And as to the R&D cited by major infant formula suppliers in Singapore, are the requirements of the Singapore market so different that R&D specific to Singapore is needed to warrant the sustained price increases in Singapore?

Infant formula worldwide is dominated by five suppliers - Nestle, Abbott Nutrition, Groupe Danone, Mead Johnson Nutrition and the Kraft Heinz Company, accounting for about 60 per cent of the global market .

The market is likely to be even more concentrated in Singapore, as based on my survey of 2,508 respondents conducted over three days, the top five suppliers in Singapore accounted for 89 per cent of the market. Other surveys suggest the market concentration in Singapore is even higher.

Interestingly, the other market that shows a high degree of concentration is the US, where the top four suppliers account for 92 per cent of the market in 2015. The US also shows high prices for infant milk formula.

The high price of infant milk formula in Singapore could thus be related to the large market share the major suppliers of infant milk formula have here.
PARENTS' MINDSETS ARE UNDERSTANDABLE
To encourage more competition, Senior Minister of State Koh Poh Koon said in Parliament yesterday that the Government will simplify and streamline import requirements as well as remove unnecessary barriers to entry in order to bring in more options for parents without compromising food safety. Further, more infant formula options will be made available in hospitals.

With more choices of infant milk formula available to consumers, more sources of supply and hence greater competition in the market, prices over time should level out.

Parents want the best for their children. They are willing to spend on good-quality infant formula because infant formula constitutes the sole source of nutrients for their young child if breast milk is not available.

Further, infant formula is a short-term spending item. Young parents expect to spend on infant formula until their child becomes capable of consuming solid foods. As a result, they are willing to incur high expenses in the short term to buy good quality infant formula.
ETHICAL MARKETING OF INFANT FORMULA IN SINGAPORE
These pre-existing mindsets of parents, which are understandable, logical and well-meaning, create a conducive environment for suppliers of infant formula, who can use this to their advantage.

I look forward to the Competition Commission of Singapore's findings later this week on the market structure of infant formula in Singapore and the behaviour of the market's main. This should shed light as to whether there is anti-competitive behaviour. We need to ensure that the interests of parents and, indirectly, the interests of young children are being taken care of and not taken advantage of.

A survey respondent left a comment on my Facebook, which is worth highlighting:

My boy of seven months is already drinking 250 millilitres and the price of FM (infant formula milk) is taking a toll on us. I believe that the brand of FM is priced not in terms of just the brand but the quality and research behind it. As a mother, I want to give my baby the best even if it's taking a toll on us ... Some say no money buy cheaper brand, it's all the same ... No! I will try to give my baby the best! And what's good for his health!

Parents want the best for their child and they are afraid to short-change their child. Such mindsets open them up to being taken advantage of if they are not careful.

Any shopper to a supermarket in Singapore will observe that within an array of infant formula brands, certain brands aggressively market improvements in IQ that accompany the consumption of their infant milk powder. This improvement in IQ is purportedly a result of the addition of certain special ingredients in their infant milk formula.

The interesting use of mortar boards in advertising also sublimely reminds parents to purchase infant formula that helps their child get ahead academically.
HELP FOR LOW-INCOME FAMILIES
As Senior Minister of State Koh Poh Koon shared in Parliament on May 8: "While some infant formula companies give the impression that their particular brand of milk or milk powder can do more for children, the scientific evidence for this is weak."

It is thus timely that the Health Promotion Board's Sale of Infant Food Ethics Committee is supporting an ongoing review to extend coverage of the code of ethics restricting advertising, marketing and promotion of infant formula to all infant formula for up to 12 months of age. The standards in Singapore should be in conformity to international standards on ethical marketing.

In the meantime, help is needed for low-income families who may face difficulties purchasing infant milk formula for their young children. The S$1.5 million milk fund scheme launched by NTUC Fairprice and the five CDCs (Community Development Councils) in February, which will benefit up to 7,500 children from low-income families is timely.

With its disbursement in S$20 denominations to a total of S$200, the NTUC vouchers could potentially offset 40 per cent of the cost of a tin of milk powder with each purchase. And assuming a young child consumes about three tins a month, the vouchers will help a family for three to four months, a significant period in the development of a young child, before he or she can consume solids.
Sun Xueling is a Member of Parliament for Pasir Ris-Punggol GRC.
Parents want the best for their children. While we continue to advocate breastfeeding as the best form of nutrition for young children, infant formula acts as a supplement to breastfeeding in some cases, or as the sole source of nutrients in others.

Providing more options to parents and ensuring the availability of accurate information is thus key to ensuring fair pricing and appropriate marketing of infant milk formula. The rights of consumers, in this case well-meaning parents who want the best for their young children, should be protected.

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Commentary: Infant milk formula needs fair pricing and appropriate marketing

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Providing more choices and ensuring the availability of accurate information is key to protecting the rights of consumers - in this case well-meaning parents who want the best for their young children - argues MP Sun Xueling.

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by Yasmeen/Terry Xu

The increase in the price of formula milk powder for infants has been the focal point in Singapore since the beginning of the year. Surveys and data has shown that the cost of milk powder in Singapore far exceeds the cost of milk powder in neighbouring country Malaysia, and that the competition between milk brands has proven to be steep.

Earlier this month on the 5 May, Member of Parliament (MP) for Punggol Single Member Constituency (SMC), Sun Xueling had written a post on her Facebook page about the rising cost of milk powder in Singapore.

She had intended to ask parliament about ensuring "a healthy market structure as well as the availability of accurate information, thereby safeguarding the rights of parents and ensuring the best care for our young children".

In her post, Ms Sun mentioned that the lack of choices and accurate information for consumers in Singapore can lead to significant pricing power by infant milk formula suppliers.

She said, "A standard can of 900g of infant formula purchased from a regular supermarket costs about $56 on average, compared with it costing $25 in 2007 . Based on an online survey I conducted over 3 days, which 2500+ respondents completed, parents with children under 1 year old on average spend about $191 per month on infant milk formula."

Based on the research Ms Sun had done, the price of one 900g tin of infant formula has risen 120% over ten years, nearly twice as fast as nominal median incomes in Singapore which rose 65.6% over approximately the same period. "The rise in the price of infant formula had thus outstripped the rise in incomes, placing a greater strain on household expenditures," Ms Sun said.

Tin Pei Ling raises the issue in parliament

Ms Sun could not secure a slot in Parliament, and was therefore not able to raise the questions she had, but Ms Tin Pei Ling, MP for MacPherson SMC, did bring the issue forward in parliament on Monday, 8 May.

In her question to Dr Koh Poh Koon, the Minister of Trade and Industry, she asked, that given the rise of milk powder prices in Singapore far exceeds inflation rates and the increment in other countries, whether the Ministry will work with local distributors and retailers to ensure fair pricing.

In a detailed response, Dr Koh said that besides consumer education, the government will do more in three ways - through maternity hospitals, to review import requirements to facilitate more formula milk options and third, to put in place stronger consumer protection by tightening advertising and labelling regulations.

In terms of reviewing import requirements and tightening government regulations, the minister said that several measures can be taken together "to encourage greater price competition between brands".

He said that the government will strengthen restrictions on advertising and labelling. Additionally, "the Agri-Food and Veterinary Authority ( AVA) will tighten its regulations on labelling and advertising further, including prohibiting the use of nutrition and health claims, and idealised images for infant formula milk".

"This will also discourage companies from incurring massive costs on aggressive advertising and marketing activities, and subsequently passing these costs on to consumers. Taken together, the increased choices available, and improved clarity of labelling should enhance the competitiveness of the infant formula market," Dr Koh added.

TOC's report on the rising cost of formula milk in Singapore

The smallest increase was seen in Enfa products by Mead Johnson (21.3% for stage 1, 20.7% for stage 2 and 22.3% for stage 3) while Nestlé's Nan H.A. products showed the greatest increase (39.3% for stage 1, 37.1% for stage 2 and 34.7% for stage 3).

Tables below show the price per 100 grams of baby milk powder by stage in December 2012 and March 2017:

When comparing prices per 100 grams of baby milk powder between Singapore, China and Malaysia by stages, the data showed that baby milk powder sold in Singapore is more expensive than those sold in Malaysia, with two brands (Similac stage 3 and Friso stage 3) selling at a price that is 2.2 times that of similar ones in Malaysia.

Similarly, baby milk powder in Singapore is generally more expensive than similar brands in China except for the Nestlé Nan H.A. series.

Tables below show the cost per 100 grams of baby milk powder in Singapore, China and Malaysia by stage:

Findings released by the Competition Commission of Singapore (CCS)

In a report released by CCS on Wednesday, 10 May, the findings attributed the increase in cost to:

1. The increase in markup of wholesale prices over manufacturing costs by formula milk manufacturers being the main contributor to increases in the retail prices of formula milk

2. Investments in marketing and research & development activities also increased the overall costs for formula milk manufacturers. CCS found that total marketing expenditure by all major manufacturers increased by 42.4% between 2010 and 2014

3. Insufficient understanding of the nutritional content of formula milk and the dietary requirements of infants and young children have often led parents to perceive that the more expensive or premium products are of higher quality, stifling the price competition and the limited competition for other brands to enter the market

4. The resulting brand loyalty and the limited effectiveness of price competition in encouraging parents to switch to a new brand can present significant barriers to entry for new brands or barriers to expansion for existing brands which do not engage in such efforts. It may be challenging for a new entrant to gain traction among consumers in a short period of time as awareness and trust in a brand takes time to build up. In turn, retailers are keen to stock only what consumers demand.

5. The lack of alternative sources of supply of formula milk products besides the authorised distributors of formula milk manufacturers in Singapore limits the extent of price competition for the same brand in the market

A report released by Straits Times found that mother's interviewed by them were "shocked and disappointed" to learn that marketing expenditure had heavily contributed to the increased cost of formula milk. As stated above, between 2010 and 2014, CSS had found that total marketing expenditure by all major companies had increased by 42.4%.

Recommendations by CCS

Three broad recommendations were put forth by CCS, one of which is to educate consumers on the nutritional content of formula milk and the nutritional requirements of infants and young children. Better informed consumers will lead to improved consumer awareness on the availability of a variety of formula milk products at different price points.

"This will allow consumers to understand the choices available in the market and to make more informed decisions rather than relying on perceptions such as 'more is better' or 'more expensive means better quality'. This would help to increase price competition over time," CCS said.

Another recommendation mentioned by the competition watchdog was to "encourage price competition (i) within the same brands by reviewing parallel importation rules while still maintaining food safety and security, as well as (ii) between brands through exploring the introduction of private labels". Both these measures, CCS said, will help to widen the pool of formula milk suppliers in Singapore.

Finally, in order to help reduce the barrier to entry for new and existing brands, CCS said that "sponsorships and payments that formula milk manufacturers provide and their impact on the milk rotation programmes in the hospitals could be reviewed".

CCS's full report can be found on their website.
Regulation and lack of regulation
It can be said that the regulation of milk companies resulted in the companies seeking alternative means to promote their products. This, combined with the restriction on companies offering cheaper products contributed to the uncontrolled increase of milk powder prices over the past years.

To protect and promote breastfeeding in Singapore, the Ministry of Health (MOH) established the Sale of Infant Foods Ethics Committee, Singapore (SIFECS) in 1979.

This committee formulated and implemented the Code of Ethics on the Sale of Infant Foods in Singapore, noting that the World Health Organisation (WHO) recommends exclusive breastfeeding (that is the infant only receives breast milk without any additional food or drink, not even water) for the first six months of life.

Under Section 8, limitations were also imposed on the "infant food industry" regarding direct advertising of products, point-of-sales promotions, as well as publishing of promotional materials.

"The Infant Food Industry cannot organise point-of-sale promotions to induce sales at the retail level. These include distribution of samples or any other promotional materials, special displays, shelf labelling, price-off offers, discount coupons, premiums such as hampers and gift packs, and tie-in sales for products within the scope of the Code," the website stated.

TOC understands from distributors of milk powders that there are two factors affecting the introduction of cheap milk powders in Singapore:

1. Companies have to compete with premium brands for shelf space in supermarkets, making it infeasible to offer cheap milk powder in the retail space
2. In order to get access to mothers, companies have to reach out to them via the hospitals. But as the commission has uncovered, hospitals are given benefits in kind to promote milk powders. When that happens, the originally cheap milk powder is no longer cheap.

One could ask, why not have the company sell their milk powder online then? Under 8.6 of the Code of Ethics, it states, "the Industry must not provide any financial inducement towards the purchase of their products online or via any other electronic channels".
Measures recommended by CCS does not address issues
Therefore with the mentioned points in mind, consumers are likely not to see an improvement in prices even if action is taken to follow the recommendations by CCS.

The recommendations by CCS are simply a better of saying " Milk is milk " to consumers and to buy the milk formula that consumers can afford. Comments by readers on the issue of "milk is milk" have made it clear that it is not the premium label that parents are looking for but whether their children can accept the powder.

As for the other two recommendations by CCS, they somewhat failed to take into consideration the points mentioned above and to answer the question of why does milk powder cost so much less just across the straits. Cheaper milk powder cannot enter the market because of existing regulations that prevent cost-efficient marketing and entry-barriers to new players, not to mention the dwindling market of parents who rely on milk powder.

While breastfeeding is a healthy practice that ought to be promoted, the heavy-handed manner of restricting milk companies on their distribution and promotion might be too aggressive to the detriment of mothers. Mothers who who cannot produce enough breast milk due to physical constitution or stress of work, will have to bear the brunt of the restrictions and high cost of marketing.

If any entity can solve the issue of high cost milk powder, that entity ought to be NTUC Fairprice, given its extensive retail outlets around the island and its ability to produce its own house brands.

If the establishment really believes in "milk is milk", NTUC should consider spearheading the production of its own formula milk product to be placed on its shelves, for families who will benefit from the cost saving.

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CCS findings on pricey milk powder hardly address the issue of why prices are high

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by Yasmeen/Terry Xu The increase in the price of formula milk powder for infants has been the focal point in Singapore since the beginning of the year. Surveys and data has shown that the cost of milk powder in Singapore far exceeds the cost of milk powder in neighbouring country Malaysia, and that the competition between milk brands has proven to be steep.

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Milk is milk. But is it?

Minister in the Prime Minister's Office Josephine Teo's recent comment set off a firestorm amid public debate over the high prices of infant formula.

The average price of a 900g tin of infant milk powder has soared 120 per cent over the last decade to $56.06, making it among the highest in the world, along with those in China and Hong Kong.

A baby can go through three or four such tins a month, which means families can easily spend around $200 a month per child on formula alone.

Amid rising unhappiness, Senior Minister of State for Trade and Industry Koh Poh Koon announced in Parliament last month that the Government would be taking steps to ensure access to affordable options. He said all formula sold here, regardless of price, meets food regulations and the nutritional needs of infants to grow healthily, and the scientific evidence that some brands can do more is weak.

"Parents should therefore be careful about relying on the claims made by infant formula companies, or be misled into using price as a proxy for the quality of the product," he said.

Mrs Teo, who oversees population matters, said she had concluded, from her own experience as a mother of three, that "milk is milk, however fancy the marketing", and went for the cheapest option for her kids.

But indignant parents said that it is not always possible to do that and that it is a process of trial and error to find a formula that their babies take to, leaving them stuck with the price of the one junior chooses.

Doctors said that babies have varying tolerance levels to different brands. All ingredients in formula milk are present in breast milk, but the latter also contains antibodies and other protective substances that cannot be replicated in formula.

ST ILLUSTRATION: MANNY FRANCISCO

The World Health Organisation recommends exclusive breastfeeding in the first six months of a child's life, followed by the introduction of semi-solid foods. The Health Promotion Board (HPB) supports continued breastfeeding until one year and beyond due to its benefits for the baby.

But some mums have difficulty producing enough breast milk or need to return to work - either of these can make breastfeeding a challenge. Mums have also pointed out that Stage 1 formula for newborn babies is the costliest.

So, why are prices here so high, especially compared with those in other countries such as Malaysia, where prices can be half that of Singapore's?

Formula companies have attributed the price increases to research and development to improve their products and rising overhead costs. Pricing differs from country to country as factors such as operation costs and taxes vary considerably, some said.

But managing partner at pricing consultancy Simon-Kucher & Partners Jochen Krauss said that while import and other costs account for part of the price differences across countries, firms ultimately fix prices based on the perceived value of their products and consumers' spending power.

Economists said that in the case of infant formula, parents bear with high prices as they see it as an expense for the short term. That, in turn, creates inelastic demand - that is, demand that does not fall when prices go up.

BRAND WARS

A report by the Competition Commission of Singapore (CCS) released last month found no evidence of price-fixing by the six major manufacturers that make up more than 99 per cent of the fortified milk formula market here.

Instead, it uncovered during its year-long inquiry that the companies were competing not on price, but on building "premium" brand images, driven by consumer demand.

They invest heavily in research and development, constantly introducing new products and ingredients that purport to - among other things - boost mental development and vision.

This is accompanied by more spending on marketing and "aggressive" tactics, such as inducements to private hospitals for participation in their milk rotation programmes, where a brand is set as the default for a given period for infants who need formula.

This helps them to gain a "first-mover" advantage, given that the majority of new parents do not have a preferred brand and tend not to switch brands after leaving the hospital, the report said.

Such practices have entrenched consumer loyalty, creating barriers to entry for new brands, which, coupled with weak price competition, has given manufacturers the market power to increase prices, the study found.

Across Asia, manufacturers increasingly focus on premiumisation to retain margins as rising breastfeeding rates and low birth rates constrain volume growth, the CCS said in its report, citing market research firm Euromonitor International.

According to the HPB, in public hospitals with maternity services, the proportion of mothers who are exclusively breastfeeding at discharge has increased from 76 per cent in 2013 to 86 per cent last year.

A 2015 Global Baby Care report by Nielsen found that price is a dominant driver in Western markets, with more than a third of respondents in North America and Europe citing "good price/value" as the most important factor in buying baby food.

In the Asia-Pacific, only 20 per cent said it was a top factor. Due to a number of food safety incidents in recent years, respondents in the region value safety more than anything else, the report said.

ADDRESSING DEMAND

In response to the CCS report, the Government has announced measures to tighten regulations on labelling and advertising, facilitate imports of more formula milk options, strengthen public education and encourage good practices in hospitals.

A task force has been formed to ensure that key measures are in place by the end of the year.

Supermarkets have also said that they are expanding their sourcing to provide more affordable options, while both FairPrice and Cold Storage are looking into creating house brands.

A made-in-Singapore range of infant milk powder, Einmilk, was recently launched with prices of under $40 for an 800g tin.

But more options will not help if there is no demand for them.

An estimated 95 per cent of formula milk sales in 2015 comprised sales of "premium" and speciality milk, with just 5 per cent of sales for "standard" milk - which costs less than half the price.

The CCS report noted that manufacturers and retailers may withdraw brands that do not perform well, such as a pharmacy that discontinued the sale of a formula brand less than a year after it started due to lack of demand.

As Pasir Ris-Punggol GRC MP Sun Xueling pointed out, both the supply and demand sides of the issue must be addressed, with entrenched brand perceptions posing an added challenge.

Regulations address supply, but demand must be served by better breastfeeding support and consumer education.

According to the last National Breastfeeding Survey, the top reasons that mothers cited for stopping breastfeeding were an inability to supply enough breast milk and the need to return to work. Thus, better breastfeeding support, beyond the hospital and in workplaces, should be provided to mothers who choose to breastfeed.

Consumer education is also key.

The two top- selling brands in Singapore last year were the Gain and Pediasure formula ranges, for children a year and above.

While children above 12 months do not require formula as cow's milk together with a balanced diet is adequate, supermarket shelves are stocked with formula for older kids, including for six years and beyond.

Some parents that The Straits Times spoke to said that they were unaware that formula milk can be stopped after one, making it largely an unnecessary expense.

The HPB, which has traditionally focused on promoting breastfeeding, has recognised the lack of awareness around formula milk. It has launched a multi-year programme aimed at educating parents on the nutritional needs of children.

Marketing efforts will cover the nutritional composition of formula milk, to help parents who rely on it to make more informed decisions, as well as weaning at six months.

With the entrance of more affordable options, better consumer education and more support for breastfeeding, prices of formula milk should become more competitive over time.

It is time for consumers to set a ceiling on what they are willing to pay, and send a signal to manufacturers that they cannot milk parents for top dollar.

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Milk powder: Matter of supply and demand

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Milk is milk. But is it? Minister in the Prime Minister's Office Josephine Teo's recent comment set off a firestorm amid public debate over the high prices of infant formula. The average price of a 900g tin of infant milk powder has soared 120 per cent over the last decade to $56.06, making it among the highest in the world, along with those in China and Hong Kong.

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Companies were competing not on price, but on building "premium" brand images, driven by consumer demand. They invest heavily in research and development, constantly introducing new products and ingredients that purport to - among other things - boost mental development and vision.

Parents want to provide the best for the children, and thus "good price/value" has become an important factor in consideration of purchasing infant milk powder. Which thus causes an increase in the demand of premium infant milk powder, influencing the market to shift towards in producing and upgrading their infant milk powder. This has largely contributes to the increase in prices of the infant milk powder.

Investments in marketing and research & development activities also increased the overall costs for formula milk manufacturers.

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-Milk powder is an necessity. Even though average price of milk powder raise from 25$ in 2007 to 56$ in 2017, parents are still willing to buy the milk powders.
-The latest National Breast Feeding survey in 2011 shows that 96.1 per cent of mothers breast feed their babies to some extent right after delivery but this number drops to 41.6 per cent six months after delivery, which indicates that many babies rely on infant milk formula

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The lack of alternative sources of supply of formula milk products besides the authorised distributors of formula milk manufacturers in Singapore limits the extent of price competition for the same brand in the marke

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CHAPT 3 DEMAND; Large proportion of income spent

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CHAPT 3 DEMAND; Large proportion of income spent

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Infant milk formula is thus not a small item of expenditure for young families
-With its disbursement in S$20 denominations to a total of S$200, the NTUC vouchers could potentially offset 40 per cent of the cost of a tin of milk powder with each purchase

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CHAPT 4; ELASTICITY AVAILABILITY OF SUBSTITUTES

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CHAPT 4; ELASTICITY AVAILABILITY OF SUBSTITUTES

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MILK POWDER is inelastic because of availability of substitutes. There only availability of substitute is goat milk or cow milk. Many people do not want to substitute their milk powder with goat/ cow milk. Hence, because of the limited availability of substitutes for milk powder, milk powder is inelastic

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CHAPT 3 DEMAND Parents' Taste & Preferences

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CHAPT 3 DEMAND Parents' Taste & Preferences

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Parents are willing to spend on good-quality infant formula because infant formula constitutes the sole source of nutrients for their young child if breast milk is not available.

Also, milk powder is a short-term expense, thus parents are more than willing to incur high expenses in the short term to buy good quality milk powder for their children.

-These pre-existing mindsets of parents, are causing an increase in demand for premium infant milk powder, which influences supplier to focus on enhancing their infant milk powder, resulting in price increase.
- Brand loyalty and the limited effectiveness of price competition in encouraging parents to switch to a new brand hence, retailers are keen to stock only what consumers demand.
- Parents to perceive that the more expensive products are of higher quality, limiting competition for other brands to enter the market

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Government will do more through maternity hospitals, review import requirements to facilitate more formula milk options and by tightening advertising and labelling regulations.
-To encourage more competition, government will simplify and streamline import requirements as well as remove unnecessary barriers to entry so as to bring in more options for parents
-More infant formula options will be made available in hospitals.
(With more choices of infant milk formula available to consumers, more sources of supply and hence greater competition in the market, prices over time should level out)

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Increase in wholesale prices  over manufacturing costs
- Investments in marketing and research & development activities also increased the overall costs for formula milk manufacturers. CCS found that total marketing expenditure by all major manufacturers increased by 42.4% between 2010 and 2014--> factor cost
-The explanation provided by major infant formula suppliers seems to point to efforts into research and development (R&D) for infant formula.

-A check on a similar can of infant formula from Malaysia and from Singapore also shows slight differences in the ingredient mix.