Based on the information contained in the case study and using concepts from B100 Block 5, Reading 42, analyse the market structure which best represents the market in which Plastico is operating.

case study

Written by Aqueel Wahga

Ali Raza completed his engineering degree in 2010, and he was considering his career options in Pakistan. The city of Gujrat where he lived had more than 200 small and medium sized businesses specialising in hand-crafted wooden chairs. The owners of these firms took pride in their artisanal skills which they had learnt from their ancestors and further refined through experience. The hand-crafted chairs were much appreciated across the country for their beautiful designs and high quality wood; and therefore carried a high price.

Pakistan is a developing country, and a large segment of the population has low purchasing power. Therefore, not everyone can afford to buy high-end, expensive, hand crafted wooden chairs. In the mid-1980s plastic moulded furniture was introduced in Pakistan. The first production units of plastic moulded furniture were set up in Karachi, and later on in Gujranwala, a city near the hometown of Ali Raza. Plastic moulded furniture is cheaper compared to wooden furniture. People with low purchasing power find it a good alternative to expensive wooden furniture. Wealthier families also like to use plastic furniture in their gardens and open spaces. Thus, the demand for plastic furniture has been rising in the country.

Having observed such trends in the furniture market and the demand patterns of people for plastic furniture, Ali Raza decided to start a business of plastic moulded chairs which could be a good substitute for expensive hand crafted wooden chairs. Compared to the traditional method of manufacturing wooden chairs, the production of plastic chairs was relatively less labour intensive, and the machine based production could also help manufacture larger volumes at a faster pace. Since Ali Raza did not have enough resources to buy new plastic moulding machines, he borrowed some money from his father and purchased three used imported machines to set up a plastic furniture manufacturing unit, Plastico, in his hometown Gujrat. Being an engineer, it was not difficult for Ali Raza to operate and maintain the imported machines. However, as he had to look after various other affairs of his business, he hired five semi-skilled workers and trained them to run and maintain the machines properly.

Entering into the emerging market of plastic furniture was initially not very challenging for Plastico as there were only three other companies producing similar products in Gujrat. They had created hardly any barriers for new entrants. Plastico quickly attracted a lot of customers and started to sell their plastic chairs through two medium sized regional retail chains as well as several individual furniture and hard-ware stores. In order to meet the growing demand, Ali Raza decided to use the retained profits to expand his business, investing in more machinery and hiring further workers. Plastico now employs 50 people.

However, since then good profit margins have attracted more investors and many new companies making plastic moulded furniture have been set up in and around Gujrat city. According to a rough estimate, Plastico currently competes against nearly 50 similar firms in the region. Out of these, half are small scale businesses, 15 are medium sized firms and the remaining 10 are large sized businesses. While Plastico remains of comparatively modest size , it takes pride in being a leader in the local plastic chair industry due to the unique designs and durability of its products and the reliable after sales support it offers to customers in the event of any problems or complaints. For producing differentiated plastic chairs, Ali Raza has set up a small research and development unit by hiring two competent graduates who not only work on innovative and durable designs but also look for efficient means of production.

Plastico has captured nearly 10% share of the total market of plastic chairs in the country. Being a better quality product, Plastico chairs are priced high compared to its competitors. However, they are much cheaper than hand crafted wooden chairs. Although, presently, Plastico is able to set the price of its products relatively freely, it does not do so without consideration to competitors' pricing and marketing strategies. Since the higher price it charges for its comparatively high quality products could lead to a reduced market share, Plastico has decided to advertise aggressively through electronic media, highlighting the quality and durability of its products. The choice of electronic media has been deliberate because it allows Plastico to reach potential customers across the country. The advertisement campaign has been successful, and the sales volume and profitability are rising for the firm every year.

According to Ali Raza, Plastico has addressed a market gap by offering a substitute to the hand-crafted expensive wooden chairs. Low income people can now buy plastic chairs and fulfil their needs. The affordability of chairs has been one of the greatest considerations of Plastico's management. With the passage of time people have developed a taste for using plastic chairs, and it is no longer regarded a product for only low income families now. No stigma is attached with using plastic furniture as was the case in mid 1980s and early 1990s in Pakistan. Then, the population size in the country is rising day by day and therefore more customers are coming into the market asking for plastic chairs. At the same time urban areas have attracted migrants from rural areas. They do not wish to buy expensive wooden furniture as they focus at making temporary arrangements for their living in cities. Such people are amongst the major customers for Plastico. Technological advancements have also supported the rising trends of the demand for Plastico's products.

Due to COVID-19, on the one hand, health conscious people make limited visits to the markets, and, on the other hand, government has also restricted the opening timings of the markets. As a result, many customers have shifted to online shopping in the country. Plastico has developed a user friendly website which not only provides all the information needed by customers about it products, but also highlights the offers on its products ,such as getting a free chair on buying 15 chairs, 10% discount on buying 10 chairs and free home delivery on orders within a radius of 20 miles. Such offers have raised the demand for Plastico's chairs by almost 5% during the pandemic. Moreover, online access to customers has expanded the market boundaries for Plastico and a reasonably good number of orders are made by people living in other provinces of the country, including Sind, Baluchistan and Khaybar Pakhtunkhwa.

Plastico is presently attracting a diverse range of customers including households, public and private offices, event management companies, schools, colleges and universities. Alongside, it is planning to expand its operations in the next two to three years. The aim is to diversify the product range and start the production of tables and spare parts for plastic home appliances. Moreover, Plastico also aims to enter into the international market in 2022 by targeting middle eastern countries to start with.