Tag: marketing

Obesity is on the rise, especially in children. With all the attendant health problems, concern is growing and various policies have been proposed to try to tackle the problem. One such policy is a sugar tax. This could be either a universal tax on sugar in food products or a tax just on soft drinks, many of which are very high in sugar – typically about seven teaspoons in a can or individual bottle.

Currently the issue is being considered by the UK’s Parliamentary Health Select Committee. Jamie Oliver, the TV chef and restaurateur, argued strongly before the committee in favour of a sugar tax on fizzy drinks. He has already imposed a levy on soft drinks with added sugar in his restaurants. He maintained that it was not just the higher price from a sugar tax that would deter consumption of such drinks, but it would send out an important message that too much sugar is bad for you.

Two days later, Dr Alison Tedstone appeared before the committee. She is chief nutritionist at Public Health England. PHE has been carrying out research into obesity and ways of tackling it. It has reviewed two types of evidence: experimental data on the effects of imposing higher prices on products with added sugar; and the effects of policies pursued in other countries. She stated to the committee that ‘universally all the evidence shows that the tax does decrease consumption’ and that ‘the higher the tax increase, the greater the effect’.

The government was not planning to publish the report at this stage, but under considerable pressure agreed to its publication.

The articles look at the prospects for a sugar tax, its likely effects if one were introduced and at the politics of the situation, which are likely to result in such a tax being rejected.

Videos and audio podcasts
Can you be trusted to eat less sugar? BBC News, Hugh Pym (22/10/15)
‘Introduce sugar tax’, health officials tell government Channel 4 News, Victoria Macdonald (22/10/15)
Jamie Oliver: ‘Bold’ sugar tax to beat childhood obesity BBC News, Hugh Pym (19/10/15)
Be bold on sugar tax, Jamie Oliver says BBC News, Nick Triggle (19/10/15)
Health scientists’ links with sugar industry queried BBC News, Dominic Hughes (12/2/15)
Mexico’s soda tax is starting to change some habits, say health advocates PRI’s The World on YouTube, Jill Replogle (2/12/14)

Articles

Jeremy Hunt told sugar tax would cut childhood obesity as review Government tried to suppress is published Independent, Charlie Cooper (20/10/15)
Sugar tax could help solve Britain’s obesity crisis, expert tells MPs The Guardian, Ben Quinn (21/10/15)
Jamie Oliver ‘expects kicking’ over sugar tax The Guardian, Jessica Elgot (22/10/15)
Sugar tax, fat fines and gold coins: new ways cities are tackling obesity The Guardian, Sarah Johnson (22/10/15)
Sugar tax and offers ban ‘would work’ BBC News (22/10/15)
Public Health England tells UK government: Sugar taxes do work FoodNavigator.com, Niamh Michail (21/10/15)
Childhood Obesity Partially Down To The Coco Pops Monkey, Sugar Tax Report Claims Huffington Post, Sarah Ann Harris (21/10/15)
Health officials back a sugar tax – and want the Coco Pops monkey banned The Telegraph, Laura Donnelly (20/10/15)
Jeremy Hunt embroiled in row over sugar tax report The Telegraph, Laura Donnelly (11/10/15)
Revealed: ‘Sugar tax report’ which was suppressed by Government The Telegraph, Laura Donnelly (22/10/15)
Public Health England obesity report: the key points The Guardian, James Meikle (22/10/15)
Cameron says no to sugar tax Mail Online, Jason Groves and Daniel Martin (21/10/15)
Sugar tax: Former health minister backs levy to prevent NHS ‘obesity crisis’ Independent, Charlie Cooper (21/10/15)

Journal articles and reports
Sugar Reduction: The evidence for action Public Health England, Dr Alison Tedstone, Victoria Targett, Dr Rachel Allen and staff at PHE (22/10/15)
Effects of a fizzy drink tax on obesity rates estimated NHS CHoices (1/11/13)
Overall and income specific effect on prevalence of overweight and obesity of 20% sugar sweetened drink tax in UK: econometric and comparative risk assessment modelling study British Medical Journal, Adam D M Briggs, Oliver T Mytton, Ariane Kehlbacher, Richard Tiffin, Mike Rayner and Peter Scarborough (2013;347:f6189)
Perspectives: Time for a sugary drinks tax in the UK? Journal of Public Health, Oliver Mytton (29/5/14)
Sugar reduction: Responding to the challenge Public Health England, Dr Alison Tedstone, Ms Sally Anderson and Dr Rachel Allen and staff at PHE (June 2014)

Questions

  1. What factors are driving the current high consumption of sugar?
  2. How is the concept of price elasticity of demand relevant to the effectiveness of imposing a sugar tax?
  3. What would determine the incidence of such a tax between food and drink manufacturers and consumers?
  4. Would such a tax be progressive, regressive or neutral? Explain.
  5. What other policies could be pursued to discourage the consumption of sugar? Discuss their likely effectiveness and compare them with a sugar tax.
  6. What externalities are involved in sugar consumption? How would you set about measuring them? Should a sugar tax be set at a rate that internalises the estimated externalities?
  7. Examine the objections to imposing a sugar tax.

Virtually all manual toothbrushes sold in the UK are made by Oral B (Procter & Gamble), Colgate (Colgate-Palmolive) or Listerene Reach (Johnson & Johnson). This is a powerful oligopoly.

The manufacturers distribute toothbrushes primarily through large powerful retailers, such as supermarkets and Boots. It is difficult for new entrants to persuade these retailers to stock their product. What is more, with large advertising and marketing budgets, existing toothbrush manufacturers make it difficult for new brands to attract customers.

But one company has successfully entered the children’s section of the market when Boots agreed to stock its product. The Rockabilly Kids toothbrush has a feature likely to appeal to both children and their parents. It wobbles! With a weight in the bottom, the brush rights itself, with a wobble, when dropped or simply placed on the basin or shelf.

This clearly appeals to small kids. It also appeals to their parents who can do away with unhygienic toothbrush holders. What is more, the self-righting wobbly toothbrush, by making the whole process of teeth cleaning fun for young kids, can help them gain good habits of oral hygiene.

So just how did the manufacturer overcome the barriers to entry into this well-established oligopoly? The following article examines how.

Can ‘wobbly’ kids toothbrushes shake the Oral B/Colgate oligopoly? The Telegraph, Rebecca Burn-Callander (10/1/15)

Questions

  1. What barriers to entry exist in the manual toothbrush market?
  2. How did Hamish Khayat overcome these barriers?
  3. Why did he decide against a toothbrush subscription service?
  4. How would you decide whether £6.99 is the right price?
  5. Is it a good idea for him to diversify into electric kids toothbrushes?
  6. How are the big toothbrush manufacturers likely to respond to the expansion of Rockabilly Kids?

Every year thousands of entrepreneurs will have another great idea that is sure to take off and bring in millions of customers. However, most of these great ideas will turn into another business failure. But, in the case of Dropbox, it is multiple business failures that eventually created a huge success, giving hope to millions of budding entrepreneurs.

With 300 million users, the file sharing ‘Dropbox’ is certainly a success, estimated at a value of $10bn. But it didn’t happen immediately and was preceded by a few failures. So, what is the secret to success in this case? The co-founder of Dropbox, Drew Houston, said that it is all about providing something that customers want. In the case of Dropbox, customers are crucial: the more people use it, the easier it becomes for others to use it too, as it allows file sharing on a much larger scale. Perhaps here we have a case of network externalities.

With Dropbox people would tell their friends about it and collaborate. So when you go into work and work on a project with colleagues you recruit them in essence to become Dropbox users because you’re all working on a project together.

No doubt there are many other examples of businesses that have proved a success after several failed attempts. Providing customers with what they want, at the time when they need it is clearly a key ingredient, but so, it appears, is business failure. The following article from BBC News considers the rise of Dropbox.

Dropbox and the failures behind it BBC News, Richard Taylor (1/7/14)

Questions

  1. Customers are clearly crucial for any business to succeed. How can a new entrepreneur find out if there is a demand?
  2. Why was timing so important in the case of Dropbox?
  3. Given that customers can actually use Dropbox for free, how does this company make so much money?
  4. What are network externalities? Explain them in the context of Dropbox.
  5. Drew Houston says that ‘distribution’ is another key ingredient to success. What do you think is meant by this and how will it help create success?

What does it take to create a successful business? From the looks of it: mud, electric barbed wire, icy water, enormous walls to climb, big jumps to make, team work and complete exhaustion – the recipe for every successful business.

Tough Mudder was founded in 2010 and runs gruelling extreme obstacle courses for anyone mad enough to think it might be fun. In the BBC News article below, you’ll see that there is a discussion as to intellectual property rights, but whatever the outcome, this company has become the main provider of such extreme sports in a remarkably short period of time. Within 2 years of being established, it had gained 500,000 participants and now records annual revenues of more than £60m. Add to this, that there has no external funding and this organic growth is beyond impressive.

A key question, then, is what creates such a successful business? Without a doubt, this depends on the product you are selling and the market a firm is in, but there are some aspects that apply across the board. Understanding what your customers want is crucial, as they represent your demand. Differentiating your product to create inelastic demand may be a good strategy to enable price rises, without losing a large number of sales, but the differentiated product is essential in establishing demand, loyalty and reputation. Marketing something in the right way and to the right audience is crucial – word-of-mouth is often the most effective form of advertising.

If you have all of these aspects, then you have the makings of a successful business. The next step is putting it into practice and climbing those high walls, taking the big jumps and hopefully avoiding the mud and ice. The following article considers Will Dean and his fast growing business.

Will Dean: ‘The Mark Zuckerberg of extreme sports’ BBC News, Will Smale (9/6/14)

Questions

  1. If you were starting up a business, how might you go about finding out if there is a demand for your product?
  2. Why is product differentiation a key aspect of a successful business? Using a diagram, explain how this might help a firm increase revenue and profits.
  3. What forms of marketing might be used in persuading customers to buy your product?
  4. In the case of Tough Mudder, which aspects have proved the most important in creating such a successful business?
  5. Are there any barriers to the entry of new firms in this sector? If so, what are they are how important are they in allowing Tough Mudder to retain a monopoly position?
  6. Which factors should be considered by a company when it is thinking of global expansion?

Over the past few years lobster prices in Maine have tumbled. Eight years ago the price paid to fishermen was around $4.60 per pound. Today it’s around $2.20. The problem is one of booming lobster populations and the dominance of lobster in catches. Last year’s haul was double that of a decade ago and, in some waters, six times higher.

You would think that larger catches would be good news for fishermen. But prices now are so low that they barely cover variable costs. Individual fishermen fish harder and longer to bring in even bigger catches to make up for the lower price. This, of course, compounds the problem and pushes the price even lower.

So what are the answers for the fishermen of Maine? One solution is to diversify their catch, but with lobster so plentiful and other fish stocks depleted, this is not easy.

Another solution is to cooperate. The Reuters article below quotes John Jordan, a lobsterman and president of Calendar Islands Maine Lobster Co.:

‘If you had an industry that actually cooperated, you wouldn’t be bringing in more product if you couldn’t sell what you already had, right?’

Restricting the catch would require lobster distributors to cooperate and set quotas for what the fishermen would be permitted to sell. But with over 5000 fishermen, this is not easy.

Another solution is to expand the market. One way is for the distributors or other agencies to market lobster and lobster products more aggressively. For example, this year the State of Maine has established a $2 million marketing collaborative. Another solution is to find new markets.

Jordan’s company and others are frantically seeking new ways to sneak lobster into unexpected corners of the food market, from gazpacho to puff pastries and quiche.

In the meantime, for consumers the question is whether the low prices paid to the fishermen of Maine will feed through into low prices in the fishmonger, supermarket and restaurant. So far that does not seem to be happening, as the final two articles below explain.

Webcasts

US lobster fishermen’s ‘problem of plenty’ BBC News, Jonny Dymond (5/10/13)
Maine lobstermen in a pinch over low prices, record catch: Part 1, Part 2, Part 3 Aljazeera America, Adam May (11/10/13)

Articles

Something fishy is going on in the nation’s lobster capital CNBC, Heesun Wee (1/9/13)
Booming lobster population pinches profits for Maine’s fishery Reuters, Dave Sherwood (25/8/13)
Lobster’s worth shelling out for The Observer,
Rachel Cooke (21/9/13)
Clawback The New Yorker, James Surowiecki (26/8/13)
Why The Glut Of Cheap Lobster Won’t Lower Price Of Lobster Rolls Gothamist, John Del Signore (20/7/12)

Questions

  1. Why have lobster prices paid to fishermen fallen? Illustrate your argument with a demand and supply diagram
  2. What has determined the size of the fall in prices? What is the relevance of price elasticity of demand and price elasticity of supply to your answer?
  3. How is the fallacy of composition relevant to the effects on profits of an increase in the catch by (a) just one fisherman and (b) all fishermen? What incentive does this create for individual fishermen in a competitive market?
  4. What can lobster fishermen do to restore profit margins through collaborative action?
  5. In what ways is there a conflict between economics and ecology in the lobster fishing industry?
  6. How does stored lobster affect (a) the price elasticity of supply and (b) the price volatility of lobster?
  7. How could cooperation between lobster fishermen and lobster processors and distributors benefit all those involved in the cooperation?
  8. Why may restaurants choose to maintain high prices for lobster dishes for ‘psychological reasons’? Are there any other reasons?