Chapter 34: Marketing and Comopetitiveness

Markets and market structure In general, four different market structures explain the broad range of competitive environments in which most firms operate: Monopoly – if there is little or no competition in providing a particular product or service, and therefore few or no alternative supplies of it, monopolists can charge high prices and offer poor service Oligopoly – a market dominated by a small number of large businesses, rivalry between firms usually takes the form of ‘non-price competition’ such as special offers and advertising Monopolistic Competition – where a large number of firms are competing in a market, each having enough product differentiation to achieve a degree of monopoly power and therefore some control over the price they charge Perfect Competition – all the sellers produce homogeneous (identical) products and are ‘price takers’, meaning that they accept the ruling market price.

CharacteristicPerfect Competition Monopolistic Competition OligopolyMonopoly No. and size of firms Many and small Few and largeOne (in theory it’ more than 25% of market) Nature of Product IdenticalDifferentiated Unique ExamplesForeign exchange market, stock market, fruit and veg Hairdressers, plumbers, cafes and insurance companies Supermarkets, banks, motor vehicle manufacturers Nationalised industries (pre- 1980s), Royal Mail (for letters) Barriers to entry None; it’s easy to enter or leave market None; it’s easy to enter or leave the market High barriers to entry Effect on business Price takers, cost-efficiency needed to survive, very low profit margins Some control over price, benefits from marketing Non-price competition, high overheads, high profit margins, collusion between firms Price setter, can become complacent, power depends on importance of the product, high profit margins

Porter’s five competitive forces 5 features of markets that determine how a successful business might cope with its competitors Intensity of competitive rivalry Threat of entry to the industry by new competitors Threat from substitute products or services Power of suppliers Power of buyers

Factors that determine whether a firm is competitive Investment in new equipment and technology Staff skills, education and training Innovation through investment in research and development Enterprise The effectiveness of the marketing mix Incentive schemes for staff Improvements to operational procedures Quality procedures Financial planning and control

Methods of improving competitiveness Marketing Reducing costs Improving quality Staff training