29 July 2006

The economics of tampons in Shanghai

I made my first trip to Carrefour today and much to my dismay, it has been confirmed: OB has a monopoly on the tampons market in China.

There is a whole Carrefour aisle (and you know how big Carrefour aisles are) of about 20 brands of pads, but just one teeny weeny brand of tampons - OB.

(Gentlemen reading this who think this is TMI and feel queasy should probably stop here. But for those macho enough to follow, here's some background - OB is the applicator-less tampon which you either love or hate it. Like probably 80% of tampon users, I happen to hate it.)

The unfortunate Carrefour discovery was quickly followed by a quick SOS to good old Ms T who promises to mail some Tampax right over tomorrow. I should have googled for a list of things to bring earlier. Someone on the Shanghaiexpat forum listed:

...........
Comfort food. For when you are down sometimes.
Tampax. A whole suitcase of tampax.


Righto. That is exactly what I am going to stock on the next time I fly out of Shanghai.

Now that all the follow-up actions have been done, the economist in me got thinking: what exactly happened in the tampons market in Shanghai? Surely this is a case of market failure. A quick google on the internet revealed that Playtex used to be available in Watsons here last year, but I went to probably the most upmarket one in Jing'An last week and there was still nothing except OB :( Which means that Playtex must have pulled out of the market.

Okay, so you say - what's so difficult to figure out about that? Lack of market demand in China, only room for one player, natural monopoly for OB.

But the interesting thing about OB is that it is not exploiting its monopoly position at all. According to my Carrefour market research today, a box of OB costs just slightly more than US$1 here, and even comes with freebies, whereas it cost about US$4-5 in US and Singapore. In fact, it was so cheap that I just had to buy one - I figured an inferior substitute is better than no substitute.

I am thinking that OB is stuck in a difficult place where it cannot exercise its monopoly powers - seasoned tampon users don't want to use it because it is not a like product to other tampons, while pad users are even more worse to win over - you have to make them switch to tampons, then to OB at that. In short, OB's market segment is way too niche.

So maybe that is why OB has to resort to using a price strategy to win customers over... It got me to buy a box of OB after a long time - so perhaps the strategy did work somewhat. But in the initial conversion of the Chinese market, there could be merits in having some competitors so that you can share the cost of advertising and education.

So please, OB competitors, please come to the Shanghai market. 3 million young women for your conversion and many ready-to-buy foreigners!

6 comments:

  1. (Since you asked...) Here's my thought.

    [business school explanation] OB doesn't know it has a monopoly, since, from their point of view, is just providing to Carefour, at their standard wholesale price. So why does carefour not try to extract monopoly rent from providing only one brand of tampon? Either because they don't realize the opportunity, because they're process driven (not surprising if they're a french company), the
    incentives are not correctly structured, so the managers don't have incentive to try to maximize profits. Or, the only reason they're providing OB is to offer the minimum to satisfy product line completness, they take the standard retail margin, and their business plan doesn't take into account opportunistic pricing, so this is not something on their radar screen.

    More likely is this:
    [microeconomic explanation] OB realizes that, as a provider of a commodity product, there doesn't exist a natural monopoly. i.e. there are no natural barriers to entry. Thus the monopoly they have currently is one that's modeled by the theory of monopolistic competition. i.e. even though they have a monopoly, they can't charge any more than that which the equilibrium in the perfect competition model would dictate. (mind you, I might have the term "monopolist competition" confused with another term). thus, OB knows that it must continue to provide it's product at the current price, to be able to maintain it's current 100% market share.

    So - ms. masters of econ (I humbly admit, I'm merely a masters of international affairs, with a concentration in econ), how does that sound?

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  2. Economics of tampons..hmmmm...just popping by to say hi to my dear fren..=) Missed sending ya off..it's August!! It's the Nation's birthday and the Leos' birthdays round the corner!! *ROARS*

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  3. Mr H, your explanation was quite impressive esp for sth written at 2.29 am! I think monopolistic competition is on the right track, but can you call it monopolistic competition when there is no other competitor at the moment? Or is it monopoly in disequilibrium with potential / fear to evolve into monopolistic competition? And then did Playtex lose a price war or what? (J&J has deep pockets - cross-subsidies from other products...?)

    I am also wondering my inability to formulate a perfect answer is due to the fact that the microeconomics we have done is static comparison rather than dynamic... My industrial organization prof (used to be at UW and now at Yale - just like me!) should have alot to say about this.

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  4. Hello!

    Thanks for popping my blog and I must say that I like your new home! Me, my wife, my kids, my Dad, my Mum, my Gran, my Uncles, my Aunties, the postman, the milkman and the funny old lady who feeds soup to the seagulls will be coming to stay with you soon (is the Month of November okay with you?)

    What are these Tampons all about? I have never heard of them but they are obvoiously very popular with you girls, perhaps I will see if I can buy some to suprise my wife with them for her Birthdy next year. Do you eat them or smoke them?

    Any way I must go now so take care and I will blog you soon, sorry but I have been so busy and have not had a chance to pop to anyones blog for a while.

    Bye bye

    Martin

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  5. 3 million young women? Hmmmm, I do not think so. Considering the fact that my friend's mom who's a health care provider still tells her daughter tampons are only to be used by married ladies.

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  6. Hey Joanne!
    Little update: i finally found a new applicator tampon brand in China, it's called Wishu Tampons! No more digital tampons and bye bye forever ugly pads ;)
    Cheers,
    Kelly

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