One of the hottest topics in the last two weeks that has taken the city-state by storm is a 87 page report published by the Competition Commission of Singapore regarding the increase in price of baby formula in Singapore. If you are interested in the full report, you may click here.
The impetus for the study was the price increase in baby formula. Apparently, prices has more than doubled over the past 9 years, and right now, a tin of 800-900g of formula milk for newborn could easily cost more than SG$50 across all major brands that are retailed in supermarket. In addition, as compared to other international benchmarked economies, it seems like we are paying so much more for the same product. Here’s an interesting chart that you can see the comparisons.
Basically, the CCS study verifies two aspects, the increase in price could be attributed to two main factors – Increase in R&D cost, as well as marketing price.
Was I surprised to read this?
Not really. Companies has been improving their formulas to better “premium quality” over the last few years so part of the rising cost could be attributed to that.
What about marketing? Well, as someone who has been in this field for almost 10 years, I am not surprised to read that either.
To side track a bit, ladies, those expensive makeup brands that we pay for in Sephora, you know those small bottle of creams (maybe 30 -50ml) that we paid hundreds for, to be honest, the cost price is probably just a small fraction (by that it could be almost 10% or less) of the retail price. What about the rest? A huge chunk of it goes to marketing. Hey, you don’t think that Nicole Kidman is modelling for that Chanel perfume for free do you? Or what about the maintenance of that aquarium at the counter itself to create that “deep ocean” effect which key ingredients of the products are perceived to be sourced from?
Similarly, back to the topic of baby formula here. Endorsement deals by celebrities, promotional events, etc. all these add to the cost. However, that’s probably not as significant compared to the amount that these companies pay to the hospitals.
Baby formula is largely a price inelastic product. I dare so to say that almost all mums will not dispute with the notion that breastmilk is best for their kid. Having said that, there are situations where the babies would still have to rely on baby formula, whether because of insufficient production by the mother, or other health related reasons. As such, even with the price increase, that is still money that has to be spent regardless.
If there’s anything surprising about this, I would say that it probably has got to do with the fact that it actually took so long before there was a wide study about the trend of increasing price of baby formula. The price increase has been going on for more than a decade and a few years ago, most parents have already voiced out their frustrations over the increasing prices.
Nevertheless, better late than never. It was great to have a study conducted after all this time and the CCS has also presented various recommendations, including a review of the sponsorship programs that are in place with hospitals.
Another aspect probably has got to do with education and changing mindsets. How old should we feed our babies formula? A lot of these formula powder in the market are event targeted for older kids, even up to the age of 10 years old. There is very little information available locally for parents on what would be a good age to wean them off formula milk. Having said that, I know of parents who give their toddlers normal full cream milk when they turned 2. And for most foreign parents I know, they start feeding their babies these after they turned one. Parents here, without a set of guidelines to follow, are confused, and tend to follow through with the following stages of the same brand of formula milk available. In addition, it is also perceived that formula milk is more nutritious than normal full cream milk. Which is obviously not wrong – for that extra price you pay, they better add in some extra goodness. Having said that, there are also some children who for various health reasons, might require formula milk compared with the normal full cream milk.
Parents want the best for the kids, and tend to become irrational consumers when it comes to their offspring. Marketers, make use of this irrational purchase behavior in their marketing gimmicks to drive up their sales. But you can’t blame the marketers can you? It’s true that they might be gimmicky, but after all, we should be mature and sensible adults who are able to make our choices. But when it comes to our kids, we might just be a bit foolish. And insensible at times.
And that is perfectly normal. And understandable.
It will be interesting to see what changes will be introduced moving forward. The lack of parallel imports for one, is something that I would love to see some change. After all, have encouraging parallel imports, it also encourages competition, as well as increase the variety in the market.
As for education, that is definitely a welcomed move. Changing mindsets, that will probably take a while.
As for the prices of the formula milk, will they ever come down? Or perhaps stopped increasing? That is something that we will have to wait to see.