1.1 Introduction-Faber-Castell Company
Faber-Castell was founded in 1761 as a pencil factory which is owned and managed by the eighth-generation family member Count Anton Wolfgang von Faber-Castell. It is the world’s oldest manufacturer of writing instruments, makes nearly 2 billion pencils a year. Faber-Castell Malaysia was established in 1978. It started to produce natural rubber and PVC-FREE erasers back in 1980. It has become one of the largest eraser manufacturers in the world producing over 500 million pieces of erasers a year. In 1993, a new factory was built in Subang Jaya near Kuala Lumpur. Apart from being the first producer in Malaysia to manufacture writing instrument with GEL technology, this production facility also started manufacturing refillable markers and highlighters in 2010. Keeping up with the company’s philosophy of being innovative and competent, Faber-Castell Malaysia achieved many recognized certifications such as the ISO 9001, ISO 14001 and SIRIM.
In addition, Faber-Castell Malaysia had also been selected as the SUPER BRAND in 2002 for stationery industry in Malaysia and chosen as the official supplier for stationery products to the 16th Commonwealth Games held at Kuala Lumpur in 1998. Due to its excellent innovation in product development, Faber-Castell Malaysia also won the ISPA award in 2007, the IF Design and Promotional Gifts Award 2008 for the Sleeve eraser. In addition, it won the PBS award in 2008 for its Kosmo eraser too. To cope with its rapid development, Faber Castell Malaysia moved into its latest factory in September 2002. Officiated on November 13 2002, one of the factory’s special features is the Pencil Tower housing Malaysia’s Tallest Pencil. Lastly, Faber-Castell is also the first company in the stationery business to agree to a social charter that serves as a guiding principal for the staff welfare. On October 11, 2004, a collective agreement was signed between its staff union and Faber-Castell Malaysia.
1.2 Introduction-Product Brand Line
PLAYING &LEARNING ART& GRAPHIC
PREMIUM GENERAL WRITING MARKING
Faber-Castell has differentiated it product brand line into a two groups which is private and office. As we can see on the table above, playing and learning, art and graphic and premium are under the private range. General writing and marking are under the office range. The Playing and Learning range is aimed to encourage the child’s natural desire to draw, paint and write. Therefore, it develops and manufactures crayons, pencils and paints for different stages of learning and skills development. It is a diverse and innovative product range that offers to children with a high quality and safety standards. The Art and Graphic product line combines the best quality from 250 years of experience in developing and manufacturing artists’ products. It uses high-quality artists’ pigments that guarantee light fastness and this helping the artists to create timeless works of art due to the brilliance and high colour intensity.
The Premium series targets high income consumers. This series is inspired by its ancestor, Baron Lothar von Faber. The company modifies its old product and recreates them by using modern technology. It is very elegant as it is made by precious woods and leather accessories. Therefore, it is very suitable to be a gift due to its elegant design. Next, General Writing is the complements for modern office or study for taking notes, sketching, and correcting texts. Besides focusing on the function, it also focuses on additional benefits for the consumer. For example, the non-slip grip zone on the “GRIP 2001” pencils could ensure a secure hold and grip. Marking is the field of competence that backed up by a wide range of products. There are many products in this range. For example, the versatile MULTIMARK pens can write on glass, aluminum, or wood. In addition, the built-in eraser allows us to make corrections at any time. On the other hand, the Textliner highlighters are available in many colours such as blue, green and red. They can be simply refilled by environment-friendly based ink.
1.3 Introduction-Own Product
Faber-Castell started to produce CX5 BALL PEN S-FINE (0.5MM) and put it into market at 2011. Until this year 2013, CX5 BALL PEN S-FINE (0.5MM) is still being so famous and popular among the worldwide market. There are some features that enable it to survive in this worldwide market. The most important reason is the usage semi gel ink. Users can experience a super smooth writing with the most, dried quickly ink that will not create any smear. Moreover, the ink has a high intensity of colour too. Apart from that, Faber-Castell CX5 BALL PEN S-FINE (0.5MM) is roller point pens which use ball point writing mechanisms with water-based liquid or gelled ink.
As opposed to the oil-based viscous inks found in other ballpoint pens, these less viscous inks, which tend to saturate more deeply and more widely into paper than other types of ink, will provide a unique and distinctive writing qualities. On the other hand, the usage of nib will provide a smooth and no dragging or scratching writing experience to the users. Lastly, ventilated safety cap will prevent the leakage of ink and individually bar-coded feature will let the users to identify their pens easily.
1.4 Normal Goods
In economics, product and services had divided into 3 different types which are normal products, inferior products, and luxury products. Our product, Faber- Castell CX5 BALL PEN S-FINE (0.5MM) is categorized into normal product. When the income of household increase, then the demand of the pen will also increase. When the income of household decrease, then the demand of the blue pen will decrease too. However, the selling price of the pen still remains constant due to the positive income elasticity of demand.
1.5 Complement & Substitute
Complementary good is a product that is used together with another product such that increase demand for the product is generally accompanied by increased demand for the other. Complement goods for Faber- Castell CX5 BALL PEN S-FINE (0.5MM) is Paper Mate Liquid Paper Correction Pen. The Paper Mate Liquid Paper Correction Pen features fast-drying fluid with excellent coverage in pen form. The fluid is dispensed evenly and accurately with a unique squeeze control system. At the same time, the precision tip easily corrects individual numbers and letters too. In addition, it costs only RM4.20 in 7ml, which is affordable for the customers. Hence, the Paper Mate Liquid Paper Correction Pen is perfect complementary goods for Faber-Castell CX5 S-Fine ball point pen. Substitute products are products that serve the same purpose such that an increase in demand for one will result in a decreased demand for other. Substitute products for Faber- Castell CX5 BALL PEN S-FINE (0.5MM) are G’Soft E5, Pilot BPT-P-F-LO and Schwan Stabilo Galaxy 818 Fine Ball Pen.
These pens are ball point pen. These companies target the same group of customer who prefer 0.5mm point. According to current price market, CX5 S-Fine costs RM1.20, G’Soft E5 costs RM1.10, Pilot BPT-P-F-LO costs RM1.20 and Schwan Stabilo Galaxy 818 Fine Ball Pen costs RM1.00. As the price of ball point pen of Faber Castell-increase, the demand of ball point pen of G’Soft, Pilot and Schwan Stabilo will increase and vice versa. Although the prices of these pens are slightly different, their functions are the same. Furthermore, these ball point pens also provide three colors of choices for the customers to choose which are blue, black and red. However, most of the buyers are loyal to Faber-Castell because the ink Faber- Castell CX5 BALL PEN S-FINE (0.5MM) is semi-gel ink. It is water-resistant and has high color intensity. So, most customer of Faber-Castell will not easily switch into other brands such as G’Soft, Pilot and Schwan Stabilo because of the semi gel ink can provide smooth writing.
1.6 Market Structure
Faber-Castell CX5 BALL PEN S-FINE (0.5MM) is categorized into monopolistic competition market. Firstly, it has a large number of sellers and buyers from total market supply and demand. In the market, there are many sellers such as Paper mate, Pilot, Stabilo and BIO. Due to the pen is an essential product to all office workers, business people and students, they all need it to do the paper work in their daily lives. Secondly, it is a differentiated products. Faber Castell tries to keep its own products dissimilar with his rival’s product to strengthen its brand identification and make them more appealing to the customers in order to maximize its profits. For example, its products can be differentiated by the aspect of functional features, materials, design, and packaging. So, different firms will charge slightly different prices on their products. Thirdly, there is an easy entry and exit for a monopolistic competition market.
Faber-Castell can easily enter any potential and profitable market by producing new products to come across with its close substitutes or exit any market which is no longer profitable to maintain normal profit in the market for survival. Besides, Faber- Castell CX5 BALL PEN S-FINE (0.5MM) is also the price maker which is able to set the price of its own products upon its own demand cost. However, Faber-Castell always produces high quality products with reasonable prices. Lastly, Faber-Castell spends a lot of money in advertisement for building a strong brand image and product quality in order to attract customers. It prefers to do advertising on television and Internet because it believes that the high advancement of technology can promote its products in the most effective way. Based on the five points above, we conclude that Faber-Castell is categorized into monopolistic competition market.
PART 2 Pricing
2.1 Comparing The Price of Faber-Castell With Other Substitution -48895571500 Product Place FABER-CASTELL CX5
POPULAR RM 1.20 RM 1.10
TESCO RM1.20 RM 1.10
The selling price for the Faber- Castell CX5 BALL PEN S-FINE (0.5MM) and G’Soft E5 at JUSCO KINTA’S POPULAR book store and TESCO KINTA IPOH are as shown above. Based on the table above, the selling price of Faber-Castell CX5 Ball Pen S-Fine (0.5mm) is higher than G’Soft E5 because its quality is higher. Faber-Castell CX5 Ball Pen S-Fine (0.5mm) is applying semi-gel ink that can enable us for super smooth writing. Therefore, it can be offered at a higher price than its competitors as it can provide a greater value than its competitors. On the other hand, Faber-Castell CX5 Ball Pen S-Fine (0.5mm) is selling at a higher price because it has to cover its advertising and promotion cost. Faber-Castell always promotes its products whenever a new product is released. It promotes the CX5 Ball Pen S-Fine (0.5mm) series through television, radio and newspaper. In addition, Faber-Castell always organizes drawing contests for kids. It offers good prizes to attract parents to bring their children to take part in the contest. Such advertisements and contests cost a lot and this promotion cost will be included into producing cost.
Therefore, customers need to pay more in order to cover the advertising cost and promotion cost. Apart from that, the branding effect is also one of the reasons that Faber-Castell is selling the pen at a higher price. Faber-Castell is a famous brand world-wide because it is the oldest manufacturer of writing instrument. Due to its strong branding effect, the consumers will assume its products are better than the other producers. As a result, Faber-Castell can set its product at a higher price regardless to market price due to its strong branding effect. Part 3 Advantages and Disadvantages of AFirm Being A Monopolistic Competition Market
3.1 The Advantages of Faber-Castell
From the firm’s viewpoint, the advantage of being a monopolistic competition market is the firms have an ability to set a higher price based on their products. These firms can determine the item’s price points by the advantage of their branding efforts. In addition, because of the government does not control the market, these firms will set up the price by themselves. Moreover, the products are generally similar in pattern with their substitute products. So, if the firm increases the price of product, there is not much effect on the customer’s taste or preference. They will also not choose to buy substitute products which are cheaper. Apart from that, the firm can also get more profits in the market. For instance, Faber- Castell sets a high price on the CX5 Ball Pen S-Fine (0.5mm) blue pen.
Easy Market Entry or Exit
Besides, the advantages of being a monopolistic competition market are easy market entry or exit without restriction when compared to others. New firms can enter or exit the market easily. Therefore, a lot of firms will enter into the market until the economic profits are driven into zero. At first, the economic profit will attract many firms to enter the market to compete with Faber-Castell. As a result, the market price will be lowered down. This situation will continue until there is no more profit to be gained in the market. Therefore, the firms will leave the market immediately to prevent economic loss in the long run as they could not survive in the market while competing with Faber-Castell. Eventually, Faber-Castell could still survive in the market because of its foundation in the market.
Non-price competition is also one of the advantages of the firms. Firms under monopolistic competition such as Faber-Castell incur a considerable expenditure on advertisement and selling costs so as to win over customers. Their purpose is to promote the sale of the firms follow definite methods of competing rivals other than price. Advertisement is an example of non-price competition. For example, the advertisement and other selling costs by Faber-Castell change the demand for his product. As the results, the rivals such as G’Soft and Stabilo compete with each other through advertisement by which they change the consumer’s wants for their products and attract more customers.
3.2 The Disadvantages of Faber-Castell Higher Pricing
High price is also the disadvantage of being a monopolistic competition market. The firms have some market power and they can light a mark-up on the marginal cost of revenue. An inefficient allocation of resources causes a deadweight loss in society. The price always increasing and never decreasing will lead to a firm shut down in the long run. For example, Faber-Castell can set the selling price of its product freely. It could set it at a high price in order to generate more profit. However, the buyers would still buy its products due to its strong brand loyalty.
High Advertising Expense
As we stated earlier, advertising and marketing can be beneficial to consumers on some levels such as providing information to customers. However, it can also have negative impacts to the companies. The firms have to spend a lot of money in advertising to promote and differentiate their products from their competitors. The expenses that go into packaging, marketing and advertising can be considered wasteful. For example, Faber-Castell needs to spend a lot of money to do advertising through television, internet and newspaper to promote their products. As a result, the cost will increase greatly. Consumers have to pay for its product at a higher price.
Companies which are belonged to the monopolistic competition market have to differentiate their products from their competitors. Each firm has to produce a product that is at least slightly different from those of other firms. Differentiated products ensure that consumers can choose a product from a firm based on design, reliability, after sales service, and buyer’s ease of access to the product. Due to the fierce competition, Faber-Castell has to find a unique feature to differentiate its products from the others. If it fails to do so, Faber-Castell will not gain identification from the consumers as its products are more or less the same with its competitor, such as G’Soft.
3.3 The Advantages of Buyers
More Choices Available
There are many sellers who selling generally similar product under this market. As a result, there are a lot of choices available in this market. Therefore, customers can choose any products based on their preferences since there are so many choices in the market. In order to gain more market share, Faber-Castell provides a lot of choices for the consumers. For example, it produces a few types of pens under the categories of pens, which are gel pen and ballpoint pen. Consumers can choose any pen based on their own tastes and preferences.
Easy Access of The Product
The monopolistic competition market allows the marketers to enter and exit the market easily. So, there are many sellers who sell the generally similar product in the market. Therefore, the firms will provide more sales location in order to generate a higher profit. This allows the customers to get the products easily in the market. For instance, Faber-Castell is well-known of its stationery. Therefore, many retailers will buy its products for resale to increase their revenue. Consequently, consumers can go to any bookshops nearby to purchase Faber-Castell products conveniently.
Monopolistic competition market spends a lot of money in advertisements to convince the customers. The advertisements are used to let the customer know there has a brand such as Faber-Castell in the market. Hence, Customers could easily get any information of the products services which it provides. In addition, the advertisement could make the customer to be more understood about the products made by Faber-Castell. Therefore, consumers can make their choices based on the information they get from the advertisement to satisfy their needs and wants.
3.4 The Disadvantages of Buyers
The disadvantage of monopolistic competition market is the firms are price maker. The firms can set the price of products by themselves. When the firms increase the price of their products, the price of their substitute products will increase as well. Hence, consumers have to the products at a high price. Faber-Castell is the leading company in the writing instrument market. It creates a strong brand loyalty on its customers. Therefore, it can set the selling price of its products freely. Consequently, its other competitors may also increase their selling prices. As a result, consumers have to buy a pen with a higher price.
Negative Impact of The Advertisement
As we stated earlier, the firms have to do a lot of advertising in order to attract the customers. They will filter the information in the advertisement as they only allow the benefits of products to show in the advertisement. So, consumers will not get the perfect information of products from the advertisements. Consequently, consumers will simply choose a product based on the misconception by the advertisement. For example, Faber-Castell always promotes of the benefits of its semi gel ink, but they do not tell the customers about the disadvantage of the usage of ink. Once the pen with semi gel ink fell down, consumers will not get a super smooth writing experience anymore.
Difficult To Make Decisions
Too many products in the market will cause the consumers difficult to make decision on which products should they purchase. They will confuse because the products are almost same. For example, there are many 0.5mm point ball point pen in the market besides the brand of Faber-Castell. So, sometimes customers will feel confuse and difficult to choose on the products since there are so many choices.
PART 4 Conclusion4.1 and Opinions
From our view point, we think that the assignment is very useful to us. The product that we have chosen is Faber- Castell CX5 BALL PEN S-FINE (0.5MM). After doing researches and discussions, we concluded that it is belonged to monopolistic market. There are some characteristics that support our conclusions. The first characteristic is there are many buyers and sellers in the market. Pens are something essential in our daily lives. Therefore, Faber-Castell has to compete with many companies such as Pilot and Paper Mate to gain the market share. Besides, Faber-Castell is selling differentiated products. It is selling many types of pens including CX5 Ball pen s-Fine. There are three colours available in this range of pens which are blue, red and black. Apart from that, Faber-Castell spends a lot of money in advertising. We can see its advertisement everyway and anywhere through television, newspaper and the Internet.
After doing this assignment, we have learnt about the time management skill. We managed to complete it before the submission date and we have learnt how to complete our tasks efficiently and effectively by managing our times well. Thirdly, we have realized the importance of teamwork. During the very first discussion, we decided to divide the assignment into seven parts and everyone will do a part each. However, we helped each other whenever anyone of us faces difficulties when doing his or her own parts. After completing all of the parts, we edited together and discussed again in order to improve our assignments. Last but not the least, we suggested Faber-Castell to concern more about the environmental issues. When we were conducting our researches, we found that the cases of its pens are made by plastics. We urge Faber-Castell to reduce the usage of plastics in its design as it is very harmful to the environment because it is non-biodegradable. In conclusion, the assignment is very useful to us as it gives us an opportunity to apply what have we learnt during the lectures especially about the monopolistic market.
4.2 Empirical Findings
Normal good is one something increases in demand as the income of an individual or economy increases. In normal situation, if the income of an economy increases, there is an increase in the demand for goods and services and vice versa. This theory is not agreeable with our findings as Faber-Castell has a strong brand loyalty from its consumers. People will still choose Faber-Castell’s products even though the products price is remained constant because pens is something essential to people and it has a strong profitable relationship with its consumers.
Monopolistic Competition Market
Monopolistic market is a market with easy entry and exit. As a result, there are many firms in the market. Besides, each firm produces a product that is differentiated from the other products produced by the other firms in the market. Apart from that, all the firms will invest a lot in advertising for promotion. Based on our findings, the theory is agreeable. Faber-Castell has to face many competitors in the market such as Pilot and Paper Mate. Moreover, it produces differentiated products too. For example, Faber- Castell CX5 BALL PEN S-FINE (0.5MM) is using semi gel ink. In addition, Faber-Castell has also spent a lot in advertising. We can see a lot of advertisement about Faber-Castell through television, newspaper and the Internet.
Law of Demand
Law of demand states that when the price of a good or service increases, demand for the goods or service will decrease and vice versa, ceteris paribus. On the other hand, the demand for its substitute will increase as well. However, this theory is not agreeable in our assignment. Although Faber-Castell is selling its products such as Faber- Castell CX5 BALL PEN S-FINE (0.5MM) at a higher price, its demand will not be decreased because its loyal customers believe that Faber-Castell will create superior value to its customers. They also believe that its products’ quality is higher than its substitutes, such as Pilot and Paper Mate.
Law of Supply
Law of supply states that when the price of a good or service increases, supply for the goods or service will increase and vice versa, ceteris paribus. For instance, when the selling price of Faber- Castell CX5 BALL PEN S-FINE (0.5MM)is higher than its competitors, the suppliers tend to supply to it more in order to gain a higher profit.
Theory of Elasticity
Based on the economics, elasticity is the measure to which a demand or supply curve reacts to a change in price. According to the theory of elasticity, elastic demand states that when the price increases, quantity demand will increase more while inelastic demand is when the price is increased a lot; the quantity demand will only increase a little. Faber- Castell CX5 BALL PEN S-FINE (0.5MM)is inelastic demand. Even though it’s selling price is set higher than its previous selling price, the quantity demand will not be affected much.
4.3 Entering Monopolistic Competition Market
After discussing and doing the assignment, we would choose to enter monopolistic competition market if we intend to establish a company. First and foremost, there are no significant barriers for entry and exit. Therefore, just a little capital is needed for us to set up a company because franchising and license is not required for entering the market. Since we could easily enter the market, we would establish our company immediately by saving a lot of cost when compared to other market such as monopolistic market and oligopolistic market. Moreover, we could also easily exit the market if we are making economic loss. Secondly, we could gain company identification by producing differentiated products. Monopolistic competition market requires the firms to produce differentiated products in order to be differentiated by the consumers. We would conduct a research first and identify the weaknesses of the existing products in the market and produce something which is not only suits the tastes and preferences of the consumers but also create something which has superior value to the consumers.
In addition, we would also concern about the environment. As a responsible company, we should contribute to the society and the environment besides making profit. All the substances and raw materials which are harmful to the Earth and men would be prohibited in our products. Therefore, monopolistic competition market is the perfect market for us to enter as we can produce something that is different from the other firms and environmental friendly. Thirdly, entering monopolistic competition enables us to gain the highest profit in the shortest time. Since we have created a product which is better than the others, we will gain a little power to influence the market price. We could set a higher selling price compared the others as our products manage to provide a better value to the consumers. They would continue to support us since our products have a higher quality than the others. In conclusion, we would choose to enter the monopolistic competition market if we intend to establish a company because we can easily enter the market, produce something which is better than the other firms and gain a high profit.