Dog Food

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FUNDAMENTALS OF MICROECONOMICS
(EC4004)

CASE STUDY MICROECONOMICS
October, 10, 2010

List of Table and Contents
Introduction 2
Methodology3
Determinants of Demand3
1- Price3

2- Marketing Activites4

* Dog owner emotional engagement fuels potential market growth4

* Awareness of Dog Food benefits4

a) TV advertising campaign4

b) Point of Purchase material4

c) Consumer Promotions5

d) Sponsorships5

e) Product Innovation5

Conclusions5

References6

Introduction
Nowadays, trends are changing and people are caring most of their pets and its health, nutrition, long and happy life. Dogs are probably the most common and numerous pet in World, and Mexico is not the exception for this rule. The purpose of this work is to analyze the characteristics of the demand for the dog food business in Mexico. This business has shown a CAGR of 3% during the last six years. Dog Food business is divided in three categories based on food type: Dry Dog Food, Wet Dog Food and Treats / Mixers. The most important category is Dry Dog Food with 89% far followed by Wet Dog Food with the 6%. There is another category division based on price: Super Premium, Premium and Standard. In terms of Market players there are 13 competitors in this category: The most important producers are EFFEM with 48% of market share and Nestle with 21%. Regarding brands, the most important are: Pedigree: 33%, Dog Chow 7%, Perfect Fit 5% and Eukanuba with the 5%.

DogFood Brand Shares % 2008

DogFoodCompanyShares % 2008

Methodology
For the analysis of the dog food market, it was necessary to do a research for the market trends (increase/decrease of dog population, education of the dog owners about benefits of dog food); the view of the dog owners about the dog food and its presentations, prices and quality. As well as the willingness of the dog owners to continue buying the dog food in the changing circumstances of the market (price raising, economic crisis, market substitutes, etc.).

The steps followed to achieve this objective are:

1. Bibliographic investigation of the market size for dog food in the Mexican market, the view of the dog owners, the companies producing dog food, price, substitutes. 2. Comparison of the indicated characteristics through and between years 3. Interpretation of the collected data to observe the market behavior for this particular industry, when faces changes in the dog owner view of the market, crisis or rising of prices. 4. Determination of the challenges faced by the industry. 5. Conclusions.

Determinants of Demand:

1.-Price

As up year 2008, the demand felt down 21% in comparison to previous year. Among the main reasons for this fall are: The row material cost of producers increased due to the Mexican currency devaluation. This fact “forced” the manufacturers to transfer the cost increase to the consumers. Since this market is considered an Oligopoly, the demand is elastic to the price changes. In addition, it is easy to find substitutes products; such as: Human food leftovers. The outcome of the described situation pushed the demand down.

The “Mon and Pop” distribution channel leveraged the circumstances and offered the market Dog food in bulk. This strategy allowed them to maintain their sales in spite of the reduced total market. As a result, the producers decided to launch smaller size presentations, which in the long run stopped the sales fall, reducing the sales fall from 21% in 2008, down to only 3% in 2009.

2.-Marketing Initiatives

-Dog owner emotional engagement fuels potential market growth

Manufactures realized that the ratio of dog per household was still low, making evidence that there was still a significant growth potential. As a consequence, dog food producers encouraged diverse nonprofit...
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