The Matchstick Economy

Have you ever wondered what margins stockists would make on a matchbox costing 50p. 5p? 10p? It is a volume game but is it worth the opportunity cost of their investment? So it seemed worthwhile to study the fascinating matchstick economy and here are my notes:

Now I dont have to remind you that like the table salt, matches are not a marketeer's friend. 

1. Do you care which brand the shopkeeper gives you when you ask for them?

2. Do you even know of any differences between the brands?

3. Would it affect you if their price went up from 50p to say 60p?

4. Do you ever count to see how many matches are there in your box? Would you notice if were 10 less?

5. How can matches be marketed? Ads on TV? Even if so, do you really care enough  to make a conscious purchasing decision?

..and so forth.Given all this, what is the incentive for a manufacturer to make good matches? 

I could not find any numbers for the matchstick economy in India. So I visited a few matchstick manufacturing hubs last week to understand their pricing. Here are the costs per box

Manufacturing - < 5p

Packaging - 3p + 2p

Transportation - 5p

Total < 15p

Commission for Middleman 1 = 2p

Commission for Middleman 2 = 3p

Wholesale commission = 3p

Retail commission = 5p

So the box of matches for which you pay 50p costs around 28p. Its good business. 

Woman1 has spent her around 30 years of her life stuffing matchsticks into boxes. She has to count 70 sticks and fill a box. For every 200 boxes she fills, she is paid six rupees. In a day she  and her co-workers fill as many as 2000 boxes, thereby earning 60 rupees. Woman2 packs the boxes into cartons. 200 boxes make a mini carton. She is paid 1 rupee a carton and packs around 50 cartons with 10000 boxes a day, thereby  earning  50 rupees. Woman1 and Woman2 work as a team from 7 in the morning to 6 in the evening. 

Middleman 1 is very astute. He inherently assumes that 10% of the boxes are faulty so he asks for 10% more stock. In a day he transports 1,00,000 boxes on an average earning 1300 rupees a day after costs   Middleman 2 charges more because transporting to a city is expensive you see, so he earns around 2000 a day on the same stock. The wholesale shop makes 2500 a day and the retail shop makes 4000 rupees if it has to sell the same 100,000 boxes.

As always, each one earns in proportion to the work they do. Thats how good a business this is!