Competition and market conditions

Competition is the economic rivalry that occurs among businesses when producers in a given industry attempt to gain a larger share of the market. Economists use the term 'market structure' to describe how competitive specific industries are. Perfect competition and pure monopoly are the opposite extremes of the market structure continuum. Perfect competition has many sellers of the same product, while pure monopoly has only one. Perfect competition exists when there are many buyers and sellers, none of whom control prices. In contrast, pure monopoly exists when a single firm controls the total production or sale of a good or service.

The most competitive type of industry is that with perfect competition. Four conditions must be present in the market structure for perfect competition to exist.

First: a particular good or service must have many sellers and buyers available. In addition, each seller must account for just a small share of the overall sales in the market. The goal of these sellers is to attract enough buyers to their businesses to earn a profit.

Second: the good or service being offered by one competing firm must be similar or identical to those offered by other firms. In such a situation, buyers may choose freely from the selection.

Third: buyers must have easy access to information on the products and prices available. This information allows buyers to make intelligent choices about which goods to purchase based on price and quality.

Fourth: entrance to and exit from the industry must be relatively easy and inexpensive. In a purely competitive market structure, firms can easily enter a profitable industry or leave an unprofitable one. Low start-up costs, the need for little technical know-how and the lack of control the existing companies have in the industry determine the ease a new firm has in gaining entry.

The conditions necessary for the existence of pure monopoly are very different from those necessary for the existence of perfect competition. In general, pure monopolies exist when three specific conditions are present.

First: one firm is the sole producer or seller of a good or service. Even though monopolies do not have to compete with other firms for a share of the market, monopolies often advertise their product or service to promote the company's image.

Second: no close substitute goods are available. Electric power companies are examples of monopolies because each company is the exclusive supplier of electricity in a specific geographic area. While consumers may choose to substitute kerosene lamps and wood stoves for electricity, these substitutes are not close substitutes.

Third: prohibitive barriers to entry in the industry must exist. Most often high investment costs and the need for technological expertise prevent firms from trying to enter monopolistic markets. In addition, a number of legal restrictions make entry into government supported monopolies nearly impossible.

In many countries, airlines are monopolies. For example, only Aviaco, an airline owned by the Spanish government, provides service between Spanish cities. In theory, Aviaco has the freedom to charge any price for airline tickets. In reality, however, Aviaco must consider the law of demand when setting fares. If the price is too high travellers will use alternate forms of transportation, such as automobiles, trains, or buses. In addition, the Spanish government sets limits on what fares Aviaco charges.

The United States government has determined that four types of monopolies are beneficial to the entire economy and are thus legal enterprises. These monopolies include natural monopolies, technological monopolies, government monopolies, and geographic monopolies.

Natural monopolies. Public utilities are the leading examples of natural monopolies. The government gives utility companies the exclusive right to provide service in a specific geographic region. In return, the government closely regulates the natural monopoly to ensure that it provides quality service at reasonable prices. In the communications industry, the American Telephone & Telegraph Company (AT&T) is an example of natural monopoly on telephone service.

Technological monopoly occurs when a firm develops new technology that changes the way goods are produced or creates an entirely new product. General Dynamics, for example, is the only defence contractor in the United States with the technology to build Trident submarines.

Firms and individuals apply for patents to protect their technological discoveries. A patent grants a firm or individual the exclusive right to produce, use or dispose of an invention or discovery. Patent laws encourage firms to invest in the research and development of new products and production techniques. The new and protected technology helps firms to gain an advantage over competitors.

Written works and works of art are protected in the same way as scientific works. By granting a copyright, the United States Copyright Office gives authors, composers, and artists exclusive rights to publish, duplicate, perform, display, or sell their creative works. The huge income from the works of recording artists, for example, makes protection of the works extremely important to those artists.

Government monopolies is the third type of legal monopoly. Towns and cities own and operate water and sewer services as government monopolies. The states control the building and maintenance of roads, bridges, and canals as government monopolies. The federal government dominates mail delivery through the Postal Service. The Tennessee Valley Authority (TVA), the major producer of electricity in the southeastern United States, is also a federal government monopoly. Most government monopolies tend to provide goods or services that enhance the general welfare rather than seek profits.

Geographic monopoly is the fourth type of legal monopoly. A geographic monopoly occurs when a firm is the only producer or seller of a good or service in a specific location. Geographic monopolies form when business or the potential for profit is insufficient to attract a competitor to the area.

Words and Expressions

access n - доступ;

easy access - свободный, открытый доступ

apply for a patent - подавать заявку на патент

beneficial adj - выгодный, полезный, прибыльный

compete v - соперничать, конкурировать

competition n - конкуренция

competitive market - конкурентный рынок (рынок конкурирующих продавцов и покупателей)

competitor n - конкурент

control prices - регулировать цены

copyright n - авторское право

earn a profit = make a profit - получать прибыль

enhance v - увеличивать, усиливать, улучшать (особ, качество, значимость, ценность, важность, привлекательность чего-л.)

exclusive right - эксклюзивное, исключительное право

general welfare - всеобщее благосостояние

geographic monopoly - географическая монополия

government monopoly - государственная монополия

grant v — дарить, предоставлять

invention n - изобретение

mail delivery - доставка писем

natural monopoly - естественная монополия

patent laws - патентное законодательство

perfect competition - свободная (немонополистическая) конкуренция

public utilities - предприятия общественного пользования (средства связи, городской транспорт и т. п.)

pure monopoly - чистая монополия

share of the market - доля рынка

supplier n - поставщик

technological monopoly - монополия на технологию

total production - общий объем произведенной продукции, совокупный продукт

water and sewer services - служба водоснабжения и канализации

MARKET SEGMENTATION: TARGETING AND POSITIONING

Markets can be segmented on the basis of geography, demography, social class, consumer behaviour, etc.

TARGETING OF SEGMENTS

Undifferentiated marketing

The company might decide (to ignore market segment differences and go for the whole market with one market offer. This approach focuses on what is common in the needs of consumers rather than on what is different. Product and marketing programmes are designed to appeal to most buyers. Mass distribution and mass advertising are relied on. An example of undifferentiated marketing would be the launch of a new chocolate bar targeted at everyone

This approach provides cost economics. Production, inventory and transportation costs are kept low by the single product line. Similarly, advertising, market research and product management costs are kept low. However, most modern marketers have strong doubts about this strategy. It is very difficult to develop a product or brand that will satisfy all consumers. Heavy competition will usually be attracted and therefore margins will often be low.

Differentiated marketing

A company may decide to target several market segments and design separate offers for each. General Motors tries to produce a car for every 'purse, purpose and personality'. By establishing a strong position in several segments, consumers' overall identification with the company will be strengthened and therefore provide a better chance of repeat purchasing. Differentiated marketing typically creates more total sales than undifferentiated marketing. But the production and marketing costs are increased. In some cases, 'oversegmentation' can occur and a company may try to broaden its base. For "example, the target market for Johnson & Johnson's baby shampoo was broadened to include adults.

Concentrated marketing

Many countries see a third possibility that is especially appealing when company resources-are limited. Instead of going for a small share of a large market, the firm goes for a large share of a submarket. Many examples of concentrated marketing can be found. In computers, Sinclair targeted the bottom end of the home computer market; in cars. Saab focuses on the luxury sports car market; in clothes, Laura Ashley originally targeted a distinct segment of [he women's clothes market.

Through this approach, a strong market position can he achieved, operating costs can be kept low and, if targeted well, the firm can earn a high rate of return on its investment. At the same time, higher than normal risks are involved. The particular market segment can turn sour; larger competitors may well enter the same segment with many more marketing resources. For these reasons, many companies prefer to diversify in several segments.

In terms of application, many factors must be considered when choosing one of the above strategies. When a firm's resources are limited, concentrated marketing makes the most sense. Undifferentiated marketing is more suited when the product is homogeneous like grapefruit or steel. The product's stage in its life cycle must also be considered. When a new product is introduced, it is often practical to launch just one version and in that case undifferentiated or concentrated marketing makes the most sense. Differentiated marketing is more applicable to maturer products. Finally, competitors' marketing strategies are important. It can be suicidal to use undifferentiated marketing when the competitors are actively segmenting the market.

 

ESSENTIALS OF MARKETING

 

Essential Vocabulary

adapt v –приспосабливать; (to, for) приспосабливаться (to - к чему-л.)

advertising n –рекламирование, реклама

affect v –воздействовать, влиять

anticipate v –предвидеть; предвосхищать, предугадывать

bargain n –выгодная покупка; дешево купленная вещь

bulk buying –оптовые закупки

charge a price –назначить цену

cheap adj –дешевый, недорогой

cheap and cheerful –дешево и сердито (дешево и добротно)

cheap and nasty –дешево да гнило (дешево и некачественно)

cheerful adj –радостный, веселый; живой, энергичный

coverage of the market –границы рынка

discount n –скидка

distribution channel –канал распределения

forward-thinking –прогрессивно мыслящий

identify v –распознавать

interest-free –беспроцентный

inventory n –инвентарь, опись товаров

lack n –отсутствие (чего-л.)

launch n –выпуск новых товаров на рынок

launch v –выпускать товар на рынок

length n –продолжительность, срок

list prices –прейскурантные цены

marketing n –маркетинг (комплекс мероприятий по изучению спроса и оптимальному сбыту продукции)

marketing mix –маркетинговая смесь

meet v –удовлетворять, соответствовать

nasty adj –отвратительный, неприятный, плохой, сквер­ный

opportunity n –благоприятная возможность

personal selling –личная продажа, персональная продажа

point of sale –розничная торговая точка

preference n –предпочтение; преимущество

price n –цена

pricing policy –политика ценообразования, политика цен

product life cycle –жизненный цикл товара

promotion n –мероприятия по продвижению товара, деятельность по организации спроса и сбыта

rest on past achievements –почивать на лаврах (прошлых достижениях)

retail outlet –розничная торговая точка

sales promotion –продвижение товара, стимулирование сбыта

strength n –сила; сильная сторона

SWOT analysis –SWOT анализ (анализ сильных и слабых сторон компании, возможностей и угроз рынка)

threat n –опасность, угроза

weakness n –слабость, слабое место

 

What is marketing? Marketing is the process responsible for identifying, anticipating and satisfying customer requirements profitably.

What is 'the marketing mix'? The marketing mix is made up of four components, sometimes called the four Ps. These are:

1. Product: the firm has to identify what products the consumer wants and the way existing products can be adapted to meet consumer preferences more successfully.

2. Price: a firm has to decide on its pricing policy for list prices, discount for bulk-buying and interest-free credit. A low price may make consumers suspicious ('cheap and nasty') or the low price may be thought of as a bargain ('cheap and cheerful'). If the price of the product is too high then the company may be pricing itself out of the market. If the price of the product is higher than what competitors are charging then it must be justified in some way, e.g. because the quality of the product is higher.

3. Promotion: this amounts to choosing methods that can generate sales of the product. Possibilities here include advertising, personal selling, publicity and other promotional work.

4. Place: the product has to be in the correct place – retail outlet – In order to capture sales. Exactly where a firm decides to sell its product will depend on the nature of the product.

Aspects to be considered in marketing a product include its quality, its features, style, brand name, size, packaging, services and guarantee, while price includes consideration of things like the basic list price, discounts, the length of the payment period, and possible credit terms. Place in a marketing mix includes such factors as distribution channels, coverage of the market, locations of points of sale, inventory size, and so on. Promotion groups together advertising, publicity, sales promotion, and personal selling. The next stage is to create long-term demand, perhaps by modifying particular features of the product to satisfy changes in consumer needs or market conditions. The marketing task is to manage demand effectively.

It is quite noticeable that the marketing mix differs according to the type of product that is being sold. The fact that the term 'mix' is used implies that the four Ps – product, price, promotion and place – can be combined in different ways. One important factor that affects the marketing mix is the position of the product in its life cycle.

The period of time over which a product appeals to customers is called the product life cycle. At a given point in time a product will be at a particular stage of its life cycle. The length of this product life cycle differs from product to product, e.g. the life cycle of certain items such as clothing (flared or drainpipe trousers) and pop records may be very short indeed, perhaps a matter of months, or a few years at the outside. Other products, particularly consumer durable products such as telephones and colour TVs, may have a much longer product life cycle.

Before a product is introduced it generally has to be tested on a sample of consumers. The product's introduction may be accompanied by a blaze of publicity, heavy advertising and promotional work, e.g. the launch of a new car typically involves large amounts of advertising to inform the consumer of its existence and features. A lot of new cars are first introduced at a prestigious motor show.

In the introductory phase the sales of the product tend to be low and sluggish, and the price of the product may be higher than it will be at later stages in the product life cycle due to the lack of competition and because the firm is trying to get back some of the costs of developing and launching the product.

What is SWOT? SWOT stands for strengths, weaknesses, opportunities and threats. A company that believes in marketing is forward-thinking and doesn't rest on its past achievements. It uses SWOT analysis to be aware of its strengths and weaknesses as well as the opportunities and threats it faces in the market.

Consequently, marketing is the process of developing, pricing, distributing and promoting the goods or services that satisfy customers' needs. Marketing therefore combines market research, new product development, distribution, advertising, promotion, product improvement, and so on. According to this definition, marketing begins and ends with the customer. Truly successful marketing understands the customer so well that the product or service satisfies a need so perfectly that the customer is desperate to buy it. The product almost sells itself. Of course this will only happen if the product or service is better than those of competitors.