ECONOMICS ASSIGNMENT

REGRESSION FUNCTION

Submitted by:
VIRAL MEHTA
BLP2: 104

Industry Domain:
Packaged Fruit Drinks
Brand:
Real Fruit Juice of M/s. Dabur Limited
Management Problem/Orientation:
M/s. Dabur Limited, in view of sustaining the current leading market share (50%) of
its brand Real Juice and getting hold of more share want to better know the
impact of pricing strategy of its own product against that of its substitute and

compliment products. It will help it make immediate corrections in price of the

product as and when required in future.
The current competitive landscape of the packaged fruit juice market in India is
graphically represented as below:

Considering the nature of the product and biggest competitor, the substitute of Real
Juice would be Tropicana and compliment would be the morning home-made
healthy breakfast.
Substitute: Tropicana, Pepsico, Inc.
Compliment: Healthy breakfast

Cost ascertainment:
Cost/price of Tropicana is at actual market price
Cost/price of breakfast is made on the basis of average price/cost of two main
breakfasts; Oatmeal (For vegetarians) and Omelet (For vegetarians/nonvegetarians).
Data Collection:
A mid-sized multiband grocery store in Sector 45, Gurgaon.
Assumptions:

1 liter of fruit juice will serve 4 persons

Breakfast cost is also taken for 4 persons

Month

Demand
(No. of
Packs)

Price of
Product (1
ltr)

Price of
Substitute (1
ltr)

Price of
Compliment 1
(4 persons)

February

91

101

110

155

March

82

101

110

155

April

87

101

110

175

May

109

99

109

175

June

114

90

99

175

Month

% change
in
quantity
demanded

% change
in price of
product

% change in
price of
substitute

% change in
price of
compliment

February

March

-9.89

0.00

0.00

0.00

April

6.10

0.00

0.00

12.90

May

25.29

-1.98

-0.91

0.00

June

4.59

-9.09

-9.17

0.00

Regression Function using Excel:

SUMMARY OUTPUT
Regression Statistics
0.974136
Multiple R
027
0.948940
R Square
998
Adjusted R
0.795763
Square
994
6.363961
Standard Error
031
Observations
5

Intercept
X Variable 1

Coefficien
ts
176.72
-19.55

Standard
Error
115.23
8.62

t Stat
1.53
-2.27

P-value
0.37
0.26

Lower
95%
-1287.45
-129.07

Upper
95%
1640.88
89.98

X Variable 2
X Variable 3

17.09
0.02

8.30
0.39

2.06
0.06

0.29
0.96

-88.42
-4.93

122.60
4.98

Regression Function:
Dd

= a + b1P + b2 Ps + b3 Pc
Where,
D = Demand of the product
P = Price of the product
Ps = Price of substitute
Pc = Price of the complement product
b,b1,b2 = Coefficients

Dd

= 176.76 - 19.55 P + 17.09 Ps + 0.02 Pc

Elasticity:
Price elasticity

% change in quantity demanded / % change in price

June

25.29 / -1.98 =

-12.77

July

4.59 / -9.09 =

-0.50

Price elasticity (s) =

substitute

% change in quantity demanded / % change in price of

June

25.29 / -0.91 =

-27.81

July

4.59 / -9.17 =

-0.50

Price elasticity (c) =

compliment price
May

% change in quantity demanded / % change in

6.1 / 12.9

0.47

Pricing Strategy:

The Company has, till now has followed competitive price strategy in
comparison of its substitute product. Comparing price elasticity against the
substitute price elasticity, change in substitute price results sharp increase in
demand.
There is also a resistance in the demand of product pertaining to the change
in the price of compliment product.

The Company must follow the competitive pricing strategy and keep it at
least 8% lower than the substitute product to attain the competitive
advantage.
Considering relatively lower impact of compliment price elasticity, the
product can follow resistant price policy. It can extend changing the price of
product against change in price of compliment. It