Read the case study and answer the questions below.

EU YAN SANG

Winter 2010. Huge snowstorm swept many parts of northern Asia, Europe and North America. Airport were forced to close and flight cancelled. The movement of people and goods came to standstill for days, causing retailers to worry that they would not be able to get their stock in time for Christmas, the major consumer spending season of the year. The southern hemisphere was not spared either. Floods caused by days of torrential rain across eastern Australia shut downs road and inundated many communities in the state of Queensland and New South Wales. Crops such as flower, sugarcane and cotton were severally damaged by the wort flooding in 50 years in these places.

In relatively unscathed Southeast Asia, on the small island of Singapore, the Group Chief Executive Officer of Eu Yan Sang International, Richard Eu was getting increasingly worried. His business, the retailing of traditional Chinese medicine (TMC), depended mainly on China for the supply of raw material. Earlier in the year, suppliers in China had already doubled their prices for about a quarter of the raw material that TMC manufactures needed for their production. These Chinese sourced blamed the cost increase on the disappearance of huge tracts of herbal plantation due to a 6.9-magniutude earthquake in the Chinese province landslide in Gansu in August 2010. As a result, many suppliers had held on their stocks (a practice called `hoarding') while quickly increasing their prices to generate higher profits.

Making things worse was the steep rise in interest rates in China. With inflation rising to its highest level of 5.1% in November 2010, the Central Bank of Chin raised interest rates on Christmas Day, the second time in just over two months. This was followed immediately by an increase in mortgage rates across China.

Sitting in his office, Eu and his marketing team pondered the interactions between the macro-environmental and the industry- and firm-specific factors that affected Eu yan Sang's pricing strategy. They recalled that earlier in the year, they had decided to absorb most of the cost increases and not pass them on their customers. They were able to keep price increase to a minimum mainly because Eu Yan Sang had long-term bulk purchase contract with their suppliers. The fact that their shops were sitting on large inventories also helped to cushion the impact of the cost increase.

Started in 1879 by Eu Kong, the company grew under the leadership of his eldest son, Eu Tong Sen. By 2010, Eu Yan Sang had become the leading retailer of TCM region, with a total revenue of about $179 million (S$245 million) for year ended 30 June 2010. With 164 outlets, in Singapore, Malaysia, Hong Kong, Macau, and mainland China, the company was selling over 1,000 types of Chinese herbs and other medicinal products. Besides its own retail outlets, the Group also sold to drugstore, pharmacies, medical bills, supermarkets, convenience stores, hospitals, health clubs, and spas worldwide. The top selling products--Bottled Bird's Nest, Bo Ying Compound, Bak Foong Pills, Lingzhi Cracked Spore Capsules, and Essence of Chicken---continued to show steady growth. Understandably, Eu was reluctant to jeopardize their growth will an ill-timed price increase.

Other factors also weighed on the minds of the policy decision-makers at Eu Yan Sang. With 41 retail outlets in Singapore and another 49 in Hong Kong, the company was vulnerable to retail rental increase. A leading real estate consultancy, Knight Frank, expected rents in prime retail spaces in central Singapore to rise by about 3 percent in 2011, while the rental estate in the suburban areas of Singapore were projected to rise by 2 to 3 percent. The spike of rental rates in the Chinese cities would be even more dramatic, said Knight Frank. Thanks to a surge in domestic demand and optimistic market sentiment, demand for retail space had been robust in the major mainland cities of Beijing, Guangzhou, and Shanghai. Eu Yan Sang would have to compete with international brands like Louis Vuitton, Ermenegildo Zegna, H&M, Starbucks, Marks & Spencer, Swatch, and Nike, as well as local brand-name retailers for retail space.

Another major consideration was the transportation cost. With extremely cold winter in Europe and the U.S., the demand for heating fuel had driven the price crude oil to above $91 a barrel, its highest level since October 2008. Analysts were projecting that oil price would trade between $85 and $95 per barrel in 2011. Whether Eu Yan Sang contracted to buy its raw material from China on FOB (free on board) or CIF (cost plus insurance and freight) terms, someone would end up having to pay for the cost of transportation. The team at Eu Yan Sang had no illusions that the customers would eventually be the one to foot the higher cost.

With the gradual and deliberate weaking of the U.S. dollar against the Chinese yuan, the Hong Kong dollar, the Malaysian ringgit, and the Singapore dollar, suppliers who used to get paid in US dollars would therefore likely demand higher prices for their goods to offset the lesser amount of money they would receive in the weaker U.S. dollar.

"What about competitors?" asked Eu, turning to his Managing Director, Vincent Lim. "According to reports," the latter replied, "major competitors in Singapore are also trying to hold price increase to the minimum. "For example, Bao Zong Tang TCM Centre was trying to bargain with its suppliers for lower costs, using its strong purchasing power for leverage. Another competitor that manufactures Chinese medicine, Tong Jum Chew, was reported to be adopting a "wait-and-see" attitude, and would try to absorb cost hikes as much as possible. It had already raised its price 10 to 20 percent earlier in the year.

Thus, as the bitter snowstorm of winter 2010 whipped through northern hemisphere, the marketing team at Eu Yan Sang pondered the factors that influenced the pricing decision would be watched by all the players in the industry. Governments would also be scrutinizing its move to ensure that consumer would be treated fairly. However, with news reports coming in every day about natural disasters in the regions that supplied his company with raw material and with increased raw material and with increased raw material costs, Eu was not sure if he could hold off passing the cost increase to his customers.

Source: Kotler, et al. (2012). Marketing Management: An Asian Perspective. 6^th ed. Pearson

QUESTIONS:

1.Identify and explain FOUR (4) impacts if Eu Yan Sang were to go ahead with increasing the price of its products.

(20 marks)

2.In your opinion, should Eu Yan Sang delay implementing a price increase? Justify your answer.

(10 marks)

3. Visit the online resources and discuss how Covid-19 have impacted an organization such as Eu Yan Sang.

(10marks)

4. Visit the Eu Yan Sang's online store webpage and other resources (https://www.euyansang.com.my/en_MY/home). Discuss about the packaging and labelling used by Eu Yan Sang.

(10marks)