Analysis of Bottled Water Markets - Coursework Example

Analysis of Bottled water markets Table of Contents Table of Contents 1 Bottled drinking water Market in United Kingdom (UK) 2 Supply and Demand factors affecting bottled drinking water 3 Elasticity of Demand 6 Price Elasticity of Demand of bottled drinking water 7 Market Analysis of Bottled drinking water in the UK 7 Pricing strategies of bottled drinking water 8 Conclusion 8 References 10 Bottled drinking water Market in United Kingdom (UK) The demand of bottled drinking water in the UK and the rest of the world have been rising steadily over the years. In the UK, the bottled water industry holds a significant share in the soft drinks industry. In 2011, 1682 million litres of bottled drinking water were consumed and the total drinking water bottle production was 1692 million litres. Per person consumption of bottled drinking water was 34 litres in 2011. People consumed bottled drinking water more than nectar juices, wine etc (British Bottled Water Producers, 2011). There are four kinds of bottled drinking water: 1) Natural mineral water, which accounts for 62% of the UK market. 2) Spring water, which accounts for 30% of the UK market. 3) Bottled drinking water, which accounts for 6% of the UK market. (fact check) 4) Purified water, which accounts for 2 % of the UK market (British Bottled Water Producers, 2011). Figure 1 (Source : British Bottled Water Producers, 2011) Supply and Demand factors affecting bottled drinking water The increase in demand and supply factors of bottled drinking water is as follows: 1) Increase in health consciousness. 2) Safety drinking measures (Mcqueeney, 2012). 3) Interest in mineral enriched vitamin drinking water. 4) Trust in bottled drinking water than tap water (Mcqueeney, 2012). 5) Fresh water supplies meet the demands of the industry. 6) Sweet taste In the UK, drinking water consumption has increased drastically, that is why supplies have increased and bottled drinking water has become a necessity for many (Weissberg, 2008). The supply and demand of a product usually depends upon the price of the product and other economic factors (Jain and Khanna, 2007). However, in this particular case the price of the packaged drinking water does not have much impact on consumers as, water is a necessary beverage. The basic increase in demand of bottled drinking water is due to the loss of faith of the public in tap water system of the country (Bridges and Linkov, 2011). This has boosted the sales of packaged water. When consumers travel, they prefer packaged water because it is convenient to carry and trustworthy in terms of quality. Figure 2: Diagram Showing Growth Rate of Flavoured and Functional Water (Source : Bridges and Linkov, 2011) This diagram shows the growth rate of flavoured and functional water of top leading brands over the years. The average price of a 500 ml bottled drinking water sold by the restaurants of UK is £1 and for restaurant owners is £1 a litre. This data shows the availability of safe drinking water in restaurants and diners in the UK (Hickman, 2013). Demand of a product arouses when the consumer has a certain desire to own that product and to fulfill their requirement,the goods are supplied by the supplier (Jain and Khanna, 2007). The demand of the bottled drinking water is high and but its price is low. Let us now observe the relationship of demand and supply of bottled drinking water in UK: D1 D0 X axis: Supply Y axis: Demand S1 S0 When there is an average demand of bottled drinking water, the demand can be met by the suppliers very easily. However, when the demand of bottled drinking water will increase, it will be difficult for the suppliers to meet the growing demand of consumers. The bottled drinking water is purified by the water purifier companies and is infused with vitamins and minerals. This process takes a lot of time and to ensure quality of the products, the time factor is very important for manufacturers of bottled drinking water. Elasticity of Demand The elasticity of demand is the ratio of percentage change in quantity demanded of a commodity to percentage change in price. This theory was introduced by Dr. Alfred Marshall. There are various types of elasticity of demand 1) Perfectly elastic 2) Perfectly Inelastic 3) Unitary elastic demand 4) Greater than unitary elastic demand 5) Lesser than elastic demand (Jain and Khanna, 2007). The explanations for the various types of elasticity of demand arte mentioned below: Figure 3 (Source : Jain and Khanna, 2007) We can see form the above diagram that in the case of bottled drinking water, the elasticty of demand would be perfectly inelastic, where the change in price of the bottled drinking water does not affect the quantity demanded of the product.The reason is very obvious,water is the most necessary beverage required for quenching thirst. Apart from that, quality of water has been detiorating considerably due to environmental factors like global warming,contamination in tap water and other environmental factors. Price Elasticity of Demand of bottled drinking water Let us now assume that the price elasticity of demand is perfectly inelastic and analyze it through a diagram: Figure 4: Supply and demand of bottled drinking water (Source : Jain and Khanna, 2007) We can see that as the price of bottled water increases from £2 to £4, thers is no change in quantity demanded. Further, when the price increases from £4 to £6, the quantity demanded of the bottled drinking water does not change.This shows that necessary commodities have no effect when there is a change in price. There is no substitute for water, beverages like nectar, wine and juices merely appeal to the taste of the consumers but cannot quench thirst. Market Analysis of Bottled drinking water in the UK There are various brands of bottled drinking water in the UK. The leading brands of bottled water are mentioned below: Highland Spring Established in 1979 and manufactures still water. Speyside Glenlivet Established in 1991 and manufactures sweet still water. 10° A recent brand which produces sparkling water. 464 A brand which manufactures mineral and sparking water. Abbey Well A brand which manufactures mineral and sparking water. Pricing strategies of bottled drinking water Currently, the pricing strategies followed by companies manufacturing bottled drinking water is “cost plus pricing method”; where the fixed and variable costs are considered and added to the price of the product, so that the company can earn profits and sell the product at a low price. Companies who manufacture bottled drinking water usually price the bottles of 100 ml at 19 Pence to 40 Pence. This range of price is affordable for the common people. As mentioned before, restaurant owners charge around £1for 500 ml water bottle because manufacturers have lowered the price of drinking water bottle which are supplied to the restaurants (Hickman, 2013). Conclusion Bottled drinking water is a safe option for consumers who have doubt in consuming tap water. Bottled drinking water is safe, if the Potential Hydrogen (Ph) factors are between 7.0 and 14.0. This means that the drinking water is not acidic and basic minerals have only been infused for consumer’s health benefits. As contamination of water is becoming a grave issue in most parts of the world, consumers should drink bottled water only after scrutinizing the ingredients of the bottled water (Bridges and Linkov, 2011). The manufacturers of bottled drinking water should introduce a consumer awareness program which would be informative to the consumers, detailing them about the ingredients and benefits of bottled drinking water. This would increase the demand and sales of packaged water. Government should maximize its efforts in cleaning the tap water system for the betterment of society, as most people cannot afford bottled drinking water. Manufacturers of bottled drinking water should think about their Corporate Social Responsibility charter; they should keep in mind that plastic bottles are harmful for the society and may even lead to degradation of the environment. The manufacturers should devise a strategy which would be convenient for the environment and consumers. References Bridges, T.D and Linkov, I., 2011. Climate: Global Change and Local Adaptation. Berlin: Springer. British Bottled Water Producers, 2011. Water’s Vital Statistics: Industry Data. [online] Available at: < http://www.britishbottledwater.org/vitalstats2.html> [Accessed 22 February 2013]. Hickman, M., 2013. £1 Buys 1000 Litres of Tap Water. or One Bottle of the Ionised Variety [online] Available at:< http://www.independent.co.uk/life-style/food-and-drink/news/1631-buys-1000-litres-of-tap-water-or-one-bottle-of-the-ionised-variety-2002650.html> [Accessed 22 February 2013]. Jain, T.R and Khanna, O.P., 2007 Business Economics. New Delhi: V.K Publications. Mcqueeney, K., 2012 No Sign of Our Thirst for Bottled Water Being Quenched with Sales 'to Rise to £2billion a Year in the UK by 2016 [online] Available at:< http://www.dailymail.co.uk/news/article-2184857/Sales-bottled-water-rise-2billion-year-UK.html> [Accessed 22 February 2013]. Weissberg T., 2008. UK is Fastest Growing Bottled-Water Market [online] Available at:< http://www.marketingweek.co.uk/uk-is-fastest-growing-bottled-water-market/2061146.article> [Accessed 22 February 2013]. Read More