Formula Milk Companies Use Premium Image, Consumer Behaviour To Drive Up Prices

Brand loyalty and a penchant for premium products among parents here have driven formula milk companies to invest heavily in marketing and research and development.

And this, in turn, could reinforce such consumer behaviour, the Competition Commission of Singapore (CCS) said.

This was among the findings in the commission’s report released on Wednesday (May 10), which showed that manufacturers have resorted to non-price competition and aggressive marketing to increase their share of a small Singapore market with limited growth.

As a result, formula milk prices here as of May last year were found to be higher, compared with several other countries such as Australia, United States and United Kingdom. Total marketing expenditure by all six major manufacturers — including Abbott, Mead Johnson and Danone — soared by 42.4 per cent between 2010 and 2014, contributing to more than double the average retail price of formula milk over the past nine years.

Triggered by public concern over the rising prices, CCS’ year-long market inquiry sought to understand the supply chain, suss out the nature of competition in the industry, and assess if there was scope to increase competition, among other objectives.

Feedback was gathered from manufacturers, distributors, retailers, hospitals and government agencies.

The commission found that manufacturers, which were well aware that the only alternative to formula is breast milk, have chosen to shun price competition. Instead, they focused on constructing a premium brand image and introducing new ingredients purporting attributes desired by consumers.

“Such ‘premiumisation’ strategies further strengthen consumer perceptions and entrench consumer purchasing behaviours, which in turn give formula milk manufacturers the market power to increase wholesale prices, in the face of limited volume growth prospect due to low birth rate and rising breastfeeding rate,” said the CCS.

The report cited the experience of an unnamed supermarket, which had previously brought in a “value-for-money” formula milk brand after receiving customer feedback on the high prices of other options.

Although the new product belonged to an established brand and was priced lower than other premium brands, sales were poor and the product was discontinued by the manufacturer.

Other retailers had similar experiences: Another supermarket noted that this product had been underperforming while a pharmacy stopped selling it after less than a year due to a lack of demand.




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