Strategic analysis of addictive goods

Abstract

Chai Point was looking to expand and diversify in related areas and hence we had initially planned to focus on searching for options and evaluating the feasibility of each option in order to build growth strategies which would help Chai Point expand in a steady manner. We had planned to evaluate different aspects of the options proposed like the breakeven point, the profitability, the right time for expansion/diversification and the areas of expansion/diversification. Initially starting out with the above idea and framework we eventually moved on to exploring entry deterrence options for Chai Point and how it could maintain and increase its customer base. At this point it was thought that we could expand and generalize to look at the entire ambit of addictive goods and how its consumer theory works. This led us to research and explore addictive good consumption patterns and theory with the aim of creating a theoretical model of our own. Starting with our own initial hypothesis of how addictive good consumption patterns would flow we did a detailed literature study. We explored the following aspects of addictive goods * Price elasticity-How does the demand for addictive goods vary with a change in price, differentiating in turn on the characteristics of the products and the consumer? * Difference in the short run and the long run- Behaviour of consumers differs in the short and long run for addictive goods since it depends on the effect it has on them function of their costs and benefits. In turn an important aspect we looked into was the discount rate of addicts. * Difference between high and low addicts- Depending on the stage of their consumption they are in their consumption and control over it varies. *Comparisons of addictive goods with non addictive goods- Contrasting the two on various parameters such as quantity of consumption, price elasticity etc. * Utility theory- Defining and calculating the utility consumers get from consumption of a unit and bundle of goods which give them equal satisfaction. * Marketing strategies- How do sellers of addictive goods use this attribute to their advantage in selling to people and capturing a large loyal customer base? On the basis of our initial analysis we wanted to validate our hypothesis in order to be able to give it a concrete structure. Hence we created and floated a survey to test the same. The aim of this project was to understand the consumption patterns of addictive goods and contrast them with that of standard goods in an attempt to be able to exploit these differentiating patterns to create brand loyalty, price effectively and predict demand amongst other things. The topics discussed in the report are in chronological order and show the transition from discussing the various aspects related to Chai Point, to addictive goods, people preferences, forming a hypotheses and then validation of the hypotheses through surveys and finally the survey analysis.