Economic Market Analysis of Victoria Bitter

Introduction

Australian brewing and beer industry has been associated with the most ancient manufacturing art for the development of the product. The product selected to conduct the market analysis is ‘Victoria Bitter’ (VB) manufactured by the Carlton and United Breweries, subsidiary of Fosters Group (Jones & Morgan, 1994). The particular Australian beer brand is the highest selling beer that has been dominating the market from the past twenty years and has received the title of the Australia’s best alcoholic product of the year (Fostersgroup, 1998). Furthermore, VB is the only Australian beer brand that is enlisted in the top three sellers in almost every state. This paper provides a detailed market analysis of the Victoria Bitter by covering different economics’ aspects of the product.

Pricing Power and Policies Depending On the Market Structure

Pricing power refers to the economic concept that reflects the impact of any change in a product’s price on the quantity demanded of that product. In other words, if a company or the product does not possess much pricing power then an increase in their price might result in the decrease in demand (O’Connor & Faille, 2000). From the analysis of the market structure within which VB has been offered, competitive prices are depicted in the mainstream beers market. Due to stiff competition, VB has been facing the threat of high pricing power as prices are required to be set by the company i.e. Carlton and United Breweries within the reach of the average beer drinker ( Hephaestus Books, 2011). As it is the base product of the company, therefore a vicious price war has caught the product. The market structure also place significant impact upon understanding the dynamics and policies they have adopted in maintaining the price power of their individual product. It has been observed that in Australia, conventionally brewers were considered as the classic defensive stocks as the moderate increase in the price of the beer industry can highly affect the demand of product. This might be the reason behind the act of the company in positioning the product market by keeping it under the regular beer segment that can be further categorized by the cheaper retail pricing strategies ( LLC Books, 2011).

Factors Affecting Price, Demand and Supply

In economics, price, demand and supply of every commodity or service is dependent upon numerous factors. However, all the three mentioned market forces are also interdependent upon each other  (Karl, 2007). The demand pattern of the company as well as Victoria Bitter is highly influenced by the rising income levels of individuals within the Australian states. In addition, changing life styles, presence of youth population, lower per capita consumption and reduction in beer prices at the industry level also impose significant impact on its demand. On the other hand, supply side of the VB relies on the elements like production cost, bottling storage, and high taxes on beer production, advertisement barriers, and price restrictions. Apart from these two elements i.e. demand and supply, the price of Victoria Beer is also considerably dependent upon the raw materials ( LLC Books, 2011).

Market research has also indicated that Victoria Bitter in an individual capacity has the potential to affect the share price of the company for the long period. In the viewpoint of an analyst, it can also be stated that the demand, supply and prices of the Victoria Bitter is also affected by the numerous social, political, economical and technological factors. The impact of exchange rates fluctuation, campaigns about misuse of alcoholic products, rise, and fall in the improved system of the international market has also been encountered. The technological capabilities and business capability to respond them in producing Victoria Bitter has also openly helped in enhancing the efficiency. Similarly, prices of substitutes, complementary goods and numbers of consumers for the particular product in the market are also important determinants (SPEEDY, 2010).

Substitute Products

Substitute products are those goods that as an outcome of the change conditions might replace each other in usage. The demand of one good is dependent upon the price of another good as with the increase in price of one good, the demand of other good is also increased (Karl, 2007). As far as the beer industry is considered, there have been no direct substitute products for the beer products, however, the shift of consumers towards other alcoholic products has been threatening for the Victoria Bitter. These other alcoholic products like cigarettes, wine and others can steel customers from the beer industry and have increased their sales. The threat of substitute products is moderate in the industry, as some of the people believe that pre-mixed drinks can capture the market share of the customers of the company. Although the company that is producing the Victoria Bitter would not be in the worried situation as the same is also the manufacturer of the wine, spirits and others (Fostersgroup, 1998).

Complementary Products

In contrast to the substitute goods, complementary goods refer to those goods that complements each other i.e. with the increase in the price of one good, there is the decrease in the demand of another good (O’Connor & Faille, 2000). Complementary goods for the beer industry can be glasses, and crockery. With the non-availability of significant substitute goods, Carlton and United Brewers are not exposed towards the challenge of the availability and price of complementary products. This is so because prices of the goods do not vary too much further the company itself offers complementary and promotional glasses for the support of the buyers. Hence, it can be stated that Victoria Bitter is a good with the negative cross elasticity of demand in relation to the substitute goods ( Hephaestus Books, 2011).

Price, Cross and Income Elasticity

Furthermore, the concept of elasticity is also of great significance as it measures the responsiveness of one variable to a change with another. Price elasticity of a good can be measured against its demand as well as supply of goods. It can be depicted that when there is a percent change in the price of the product, it will result in the change in demand or supply of a particular product too (Karl, 2007). Hence, considering the market situations for the Victoria Bitter, it would not be wrong in stating that it is inelastic, as the consumers of the product do not will to sacrifice the quality product just with a price change. Likewise, with respect to price elasticity of supply, Victoria Bitter is identified is highly elastic as with the increase in the price of the good in the product industry, there will be an increase in the supply of the goods (Fostersgroup, 1998).

Similarly, income elasticity measures the responsiveness of demand with a slight change in the income of the consumers. In this situation, Victoria Bitter can be regarded as a normal good as its demand rises with the rise in income and will surely fall with the fall in income (O’Connor & Faille, 2000). The consumption of beer is highly dependent upon the income level of individuals, as they cannot buy the product that is not affordable after the satisfaction of the necessities. Additionally, the economy of Australia is also a well-established economy where population has an aggregate income level.

On the other hand, cross elasticity refers to the responsiveness of demand of one good to a change in price of a related good that can be either a substitute or a complement (Karl, 2007). There is a negative relationship of Victoria Bitter with its complementary goods and positive relationship with the substitutes in the Australian beer and brewing industry (Blocker, Fahey, & Tyrrell, 2003).

Market Competitors, Size and Growth

The product had largest market share in 2007, before the company made announcement about the use of original VB recipe. With this particular attempt from the management of the company, Victoria start losing its market share and favor from the drinkers, despite of its subsequent effort in regaining the position (SPEEDY, 2010).  It has been observed that the actions taken by the company in order to restore the health of the VB brand are considered critical in curtailing the additional market share of the company. However, the home based Australian pressure was controlled by the company with the introduction of the excess of bulk wine in the US beer market (SPEEDY, 2010).

In addition, as far as the competitors of the Victoria Bitter are considered, Toohey’s is the leader in the New South Wales while XXXX has taken the place of the VB in the Queensland. Similarly, presence of Corona and Heineken is also the competitors of the Victoria Bitter affecting the marketing size of this particular product by capturing the significant portion of the Australian customers. Due to the stiff competition and highly competitive alcoholic market, Victoria Bitter and its company are expecting with the further increase in the competition. Though with the fifty-two percent market share in Australia, the strongest competitors forming the 48% share of market size includes Constellation Brands, Prince Hill Wines LTD, Shepherd Neame Ltd and Lion Nathan LTD. The strong focus of the company on the innovation has been supporting the same in gaining competitive advantage over its peers (Blocker, Fahey, & Tyrrell, 2003).

Input Prices or Costs of Factors of Production

Input prices or the price a company has to incur on the production of a product for the economy is highly dependent upon the market situations. On the other hand, world brewers that are juggling with increased raw material prices are facing the issues of the slowing growth in the mature markets. Cost of production of every product mainly comprised of raw material cost, labor cost, land cost and cost of capital (Karl, 2007).

The ingredients that are used in the production of the Victoria Bitter include barley malt, hop and saccharide. The policies of the company have stated that they have managed in maximizing the value for their stakeholders as benchmarking strategy has been helping the company in the process of reducing the total costs of capital ( Hephaestus Books, 2011). The published reports of the company highlighted that inventories of finished goods, raw materials and stores and work in progress are measured at the lower of cost and it helps the company in maintaining the selling price of Victoria Bitter. However, with the mass production, the company save itself from, the problems of too high cost of production and used additional strategies to overcome the pressure ( Hephaestus Books, 2011).

Overall Position of the Product and Firm in the Industry

With the significant VB product, Carlton and United Breweries has been successful in positioning itself in the market as the manufacturer and supplier of the unpretentious working man’s beer. The effective market position is mainly the result of the advertising campaigns that mostly target the heart of the Australian culture (Blocker, Fahey, & Tyrrell, 2003). Advertisements campaigns introduced by the company in the publicity of its product also plays a vital role in the accomplishment of its task to maintain a significant position in the national as well as international beer industry. The strategy of both the parent company and the host company of the Victoria Bitter have effectively resulted into the direct sales. It must be noted here that global recession faced by almost every organization of the world, did not also exclude beer companies from its impacts  (Crawford, 2008).

The overall operations of the company is not limited to Australia and it maintains a huge and leading market share in the world’s major markets like Middle East Europe, Africa, America and Asia. Additionally, the global wine industry also faces strong influence from the EBITS by approximately about $70 million. It would not be ignored that the position of the Victoria Bitter in the industry has assisted a lot in the betterment of the financial position of the company and is further expecting to have a well-positioned growth in the coming years (Crawford, 2008).

Conclusion

From the above market analysis of a well-known product of the beer industry in Australia i.e. Victoria Beer, it can be summarized that the product possesses strong position in the market as well as in the entire global beer industry. The price policies and strategies undertaken by the manufacturer is complementing the observed market structure, size, and competition faced. The response of Victoria Bitter towards its complementary and substitute goods are also highlighting the demand, supply and price impacts of the goods in the economy. Hence, it can be concluded that the product has gained a well-defined position in the Australian market and contributing effectively in boosting the economy.

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