Give a clear explanation of the market structures, and ...



Unit IntroductionUnit 9: Market Structures?The unit introduces you to a number of market concepts, types of?market structures?and how they define the business environment in which firms operate.In Economics, the concept of a market, whilst retaining the underlying principles of supply, demand, pricing and trade, does not focus on the actual entity of the place, physical or virtual, but is concerned with the wider?organisational and environmental conditions?in which the exchange of goods, services are operating. These?market conditions?manifest themselves as types of?market structure?within which sellers, usually in competition with one another, and buyers with a degree of free choice, will ultimately arrive at the?price?paid for goods and services.When we think about a ‘market’ we perhaps create a picture in our minds of a vibrant place, a town square or street, temporarily transformed by a collection of stalls and sellers imploring passing shoppers to buy their wares. From a regular British Market stall setup to the ancient souks of Marrakech, the forces of supply and demand play out as sellers and buyers interact to satisfy their everyday needs and make a living. Whilst this scenario has prevailed for thousands of years the ‘market’ has moved beyond the confines of the traditional town squares and souks, and with the advent of online retail fueled by the Internet, become a truly global and increasingly virtual phenomenon.The life blood of a market is?competition. Depending on the type of prevailing market structure, firms will have varying degrees of capacity to compete with one another to increase their share of business and increase profits. Consumers can also have a big influence on how firms compete as they strive to get the best deals in the marketplace.QualityIndicative Content for MeritThe student, student’s work or performance taken as a whole, demonstrates a very good response to the demands of the brief/assignment.Indicative Content for DistinctionThe student, student’s work or performance taken as a whole, demonstrates an excellent response to the demands of the brief/munication and presentationIndicative Content for MeritThe student, student’s work or performance shows very good command of format, language (including technical or specialist language), spelling, punctuation and referencing.Indicative Content for DistinctionThe student, student’s work or performance shows excellent command of format, language (including technical or specialist language), spelling, punctuation and referencing.Application of knowledgeIndicative Content for MeritThe student, student’s work or performance makes use of relevant facts and concepts, has breadth or depth that goes beyond the minimum to Pass, and has very good levels of insight and analysis.Indicative Content for DistinctionThe student, student’s work or performance makes use of relevant facts and concepts, has breadth and depth, and has excellent levels of insight and analysis.Understanding of the subjectIndicative Content for MeritThe student, student’s work or performance demonstrates a very good understanding of the different perspectives and approaches associated with the area of study.Indicative Content for DistinctionThe student, student’s work or performance demonstrates an excellent understanding of the different perspectives and approaches associated with the area of study.1.1Give a clear explanation of the market structures, and state which one the chosen firm fits into must be included.The subject of Economics is concerned with the factors that determine the production, distribution, and consumption of goods and services. We live in a world in which a seemingly infinite number of firms, large and small compete to offer a huge range of goods and services to a growing and ever-demanding population.In the market place, from the smallest stall to a global enterprise, price is everything. Firms have to sell their products at the best possible price which enables them, in the main, to make a profit whilst trying to avoid the risk of not being able to sell to consumers who will be restricted in what they are willing or able to pay.In the internet age, it’s perhaps very easy to forget or even take for granted how we fulfil our everyday and aspirational needs by simply shopping. From a trip to a local supermarket to buy essential items, to spending an increasing amount of time and money in virtual online stores, we rely on many firms and agencies to meet our ever-growing requirements. However, goods and services (essentially the physical products and the less-tangible things we need in our lives), are sold and bought, economic principles and forces will be at work that shape the markets we use. Today’s business environment has become incredibly complex. As more firms appear, producing and trying to sell an increasing number of goods and services to a more demanding world of consumers, it is possible to identify and define distinct types of?market structures?which give an insight into the forces at work which determine what’s on offer and, with reference to price, what might be bought within them.Before we consider each market structure let’s take a look at the players and variables which together make up a business environment.Buyers?– we are all consumers. We need things (goods and services) in our everyday lives, from essentials to sometimes frivolous items, and these things will need to be bought. We can assume that buyers are careful with their resources (money) and will always try to get what they want at the best price. Buyers like to have choice and their ability to shop around will have a big impact on firms trying to get them to buy their particular products. These days buyers have access to more information than ever before to make their buying decision. Their smartphone device, the responsive of the internet, peer review sites and independent review sites all give them the power of access to rich information, there is little place for producers to hide, they need to compete with information to gain traction and credibility with each buyer.Sellers?– are the producers and suppliers of the goods and services that we want and need.Market Share?– sellers want to get as much business as they can and will compete in the marketplace to keep existing and attract new customers. Their market share is the amount of customers that they have compared to total market size.Price?– as consumers, we are usually trying to get a good deal for the product or service we want that’s affordable and easily available. From the seller’s perspective, getting a good price for goods and/or services is critical. In a profit-oriented firm, the aim is to sell the goods and/or services for the best possible price which consumers are willing to pay.Pricing power?– firms have varying degrees of ability to set prices for their products and services. Firms who can affect price without incurring the risk of losing customers are known as?price-makers. Firms who have no power over pricing, and have to accept the going rate for goods and services are known as?price-takers.Barriers to entry?– markets are not simply places where anyone can set up in business and begin to trade. Sometimes conditions exist which prevent newcomers getting into and capturing a share of a market.Firms?– firms generally exist to make a profit for the sale of goods and/or services. Some firms are not profit-oriented and may for example exist to promote a cultural or social cause such as a registered charity.Every firm, will fit into one of?five types of market structure?that describe the prevailing conditions affecting their competitiveness, ability to influence price and their ability to make a profit on the goods and services they offer. These market structures are outlined below.Perfect CompetitionPerfect competition describes a market structure that is made up of many different sellers and buyers. The sellers (firms) are all selling an identical product and buyers (consumers) know exactly what they are purchasing. In such a situation, the sellers have no means of altering the prevailing price for the product which will be effectively fixed. If any seller tries to change the prevailing price for the good on offer, such as lowering or raising prices, then the equilibrium of perfect competition will be upset as alternatives (choice) will be introduced. If a firm tries to raise the price consumers will notice, why pay more for an identical product. The sales forfeit by the firm who has risen their price will go to the remaining market suppliers. If a market supplier reduces their price, consumers will record this information and purchase from this supplier. They will get all the sales in the market from consumers have noticed until either their supplies run out or the market pricing corrects itself and adjusts to the new lower price.Whilst perfect competition describes a theoretical state of affairs, a good real-life example might be the near-perfect competition prevailing in most fruit and vegetable markets.In our market, we have a situation where traders are selling their identical produce at very nearly the same price. Shoppers looking to buy potatoes for example, which are considered to be of equal quality, and know what they can expect to pay, and have free choice to buy them from any of the stalls on the market at that price. If one stall holder decides to drop their price to gain more of the market share then the shoppers would presumably flock to the stall to buy, resulting in all the other sellers to lower their prices. Once the price has settled across the market the balance of perfect competition is restored.Within a market structure characterising perfect competition, sellers have no market power to influence price and are considered to be?price-takers. The market is also characterised by the absence of any?barriers to entry or exit. Considering our physical market, entry into the fruit and vegetable market is relatively easy in reality. However, barriers to entry might exist in the form of restrictions that might prevent a new seller setting up a stall e.g. local authority regulations or lack of space. Traders can also leave anytime without upsetting the equilibrium of selling and buying.Did you know?Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which all other market structures are compared.Monopoly?In a Pure Monopoly, there is just one producer or seller of a particular product or service. The firm and the industry are in effect synonymous with that particular product or service. The goods or services being provided will also exhibit unique qualities, and so it is unlikely to have any substitute or alternative. With regard to price, the seller can charge whatever they like as there is no competition. Sellers are?price-makers. The buyers have no choice but to pay the specified price if they have the means and want/need the product or service.For the purposes of regulation,?monopoly power?exists when a single firm controls 25% or more of a particular market. In the UK, the gas industry is based on a monopoly as a small number of companies sell gas on a wholesale basis to suppliers such as Eon or nPower, who then sell it on to consumers. These suppliers are monitored by official regulators (OFGEM) who check that they are not taking advantage of their monopoly power by charging whatever they like for these essential goods.As well as being able to set high, incontestable prices, firms operating in a monopoly can have genuine power to affect other businesses who may depend on their livelihoods by supplying them with products which are then sold on to consumers. A topical example is that of large supermarket chains who have been criticised for paying low prices to dairy farmers for milk which is then sold on to shoppers, usually at heavily discounted prices with the aim of dominating the supermarket sector. The supermarkets can carry any short-term losses, but the impact may be felt much harder by dairy farmers who supply them with milk.Supermarkets operate in a monopoly and pay low prices to farmers for milk.Most firms like to anticipate and fulfil the needs of eager consumers and will often bring out new products or services to attract more business. However, monopolistic firms can become complacent where innovation is stifled through a lack of incentive to increase already near-perfect market share. That said, such firms might be expected to have greater resources available for research and development which can often be an expensive aspect of any firm’s business.Technological giants, whilst often criticised for dominating the mobile phone or computing sectors, are typified by a constant stream of new product development. Sometimes patents are used to create barriers to entry into the monopoly as a means of keeping out unwanted competition. Recently, Apple and Samsung have been embroiled in lawsuits relating to features of their respective products which appear to be similar thereby weakening Apple’s dominance in the market. Microsoft and Google have been under considerable scrutiny of their near monopolies in the software and internet search engine industries. Both firms have had such success in their respective markets that any competition has simply been squeezed out and left unable to catch up and challenge their dominance. From a consumer perspective if a Smartphone or computer is regarded as essential goods, it is said to be in high demand and they will simply have to pay whatever the key players in the industry decide is the going price.Oligopoly?In an Oligopoly, several producers or sellers get together to act like a monopoly in that by working together they can fix a price for their similar, if not identical products, and exclude any competition to mutual advantage. This is sometimes referred to as market collusion.This sort of market structure when formalised is described as a cartel. A good example would be the OPEC cartel, which is made up of large oil producing countries with the objective of co-ordinating and unifying oil prices among its members in order to secure stable prices for petrol producers and consumers. This works well for the members, but on a global market scale it means that other countries who do not have oil resources have to pay whatever the cartel decides. Governments can intervene to prevent oligopolies developing by blocking mergers between dominant firms who could then set prices which exploit or disadvantage consumers.Some oligopolies do not involve deliberate collusion. The soft drinks industry, and increasingly the beer sector, often offer nearly-identical products to consumers but there are only a few companies in the market. These companies will compete with one another rather than collude or collaborate. These firms will depend on advertising and establishing a definitive brand so as to differentiate their products from those of the competition. The car manufacturing industry can be considered to be an oligopoly. There are relatively few car manufacturers in certain segments due to the huge costs involved in setting up production plants and manufacturing the vehicles. Whilst the end products are very similar, the consumer has little choice than to buy from one of them.?Contestable marketsA contestable market is common in most industries, even when there appears to be one or more dominant businesses with significant market power. The key elements of a contestable market include access to technology, low consumer loyalty, and low barriers to entry and exit so that new suppliers can come into a market to provide fresh competition to established businesses. Contestable markets are different from perfect markets as it is feasible for one firm to have price-setting power, and for firms in this market to produce differentiated products.In order for a contestable market to exist, the firms involved must have the ability and right to make use of the best available production technology within their industry. Firms must also have the freedom to market and advertise their products and/or services, and enter a market with a competing product. One key feature is the absence of sunk costs – these are the costs that can be used to restrict new entrants into a market, and are therefore the costs that have been committed by a business and cannot be recovered once a firm has entered the industry i.e. research and development costs for new products. In a contestable market, these costs are absent so the risk of entering the market is reduced.In recent years, a number of markets and industries have become more contestable. There are several reasons for this development, some of which are explained below.Economic downturn?– this can impact the opening up of markets to new businesses. For example, the recession, and the subsequent slow recovery, has also led to an increase in market share for a number of discount food retailers such as Aldi and Lidl. This has seen some of the market share of the dominant food retailers in the UK fall.Deregulation of markets?– this involves the opening up of markets to competition by reducing some of the statutory barriers to entry that exist. Some good examples of recent deregulation include postal services and telecoms industries which were deregulated as part of the European Union competition initiatives. Another example is the Open Skies initiative that aimed to open up trans-Atlantic air travel.Open Skies allowed for a contestable market within the aviation industry.Monopolistic CompetitionIn monopolistic competition, a market structure emerges which in effect combines the features of perfect competition and monopolies. The market is characterised by many producers/sellers and buyers. No one business has complete control over the prevailing market price for their products. An important feature of monopolistic competition is that products, whilst similar in nature, will be sufficiently differentiated to offer the customer choice.Firms in monopolistic competition will need to work hard, usually investing heavily in branding and advertising, in order to differentiate their products/services. They may try to differentiate their products by using specific colours or shapes so that customers are aware of the product on a supermarket shelf. Packaging may be varied so that a distinctive brand image can be conveyed.Sometimes the public-facing image of a company can be made distinctive through staff uniforms or their approach to customer service. The distribution of goods and services can also be differentiated.The following video gives an insight into how firms in monopolistic competition can try to gain greater market share by employing a number of marketing strategies. You will also find other videos via this link which explain the different market structures outlined in this section. student must say why that conclusion was reached.The following video recaps the market structures that were explained in the previous section. It will also provide you with some key areas that you need to be looking for when trying to identify which market structure a firm operates within. You are therefore advised to make notes whilst you are watching, and if need be, watch the video on more than one occasion. help you to identify different market structures, or gain more insight in terms of a market that a firm operates in, you can also use the characteristics that are summarised in the table below.For each firm in question consider the characteristics in the left hand column and evaluate each in turn:Just how many firms are there in the market?Is the product being examined homogenous or is it differentiated?What are the barriers to entry?What level of profit can be made in the short to long run?Does the firm have any pricing power?How important is non price competition? (for more information see the next section)Did you know?Prime Minister Margaret Thatcher introduced one policy that led to more than 50 companies being sold or privatised in the 1980s as a way to improve Britain’s economic performance. This was done to eliminate the true monopolies of the industries that were nationalised in the 1960s and 1970s, such as British Coal, British Steel and British Telecom.It is also worth bearing in mind that any one firm can operate in more than one market. If we take Apple as an example they operate in all of the following markets:LaptopsDesktopsMusic streamingSmartphonesHome automationEducationSoftwareWatchesTabletsOrganisation that operates in multiple markets will need to be aware of this and adopt their strategies accordingly. In addition the way markets move depending upon technology. In addition markets for the same product may operate differently regional vs national, even international level. We will start to look at this in more detail in the next section.2.1The firms’ main competitors must be listed.Identifying the competitionWhen considering their business strategies firms must ask themselves if they didn’t exist, who else would meet their existing and potential future customers’ needs and what might those customers buy as alternatives? In today’s highly competitive business environments, and especially within a monopolistic competition market structure,?market scanning?and?competitor analysis?have become important dimensions to running a successful enterprise. A firm must find out as much as it can about its competitors.Identifying competitors is critical. In a traditional High Street setting it used to be easy to see where the competition was, or might come from. If a new shop opened down the road or someone arrived in town offering a new service it was obvious. Today, it’s not so simple. White-labelling, retargeting, re-selling arrangements and the fact it’s so easy to start-up a business means it’s very hard to keep on top of the competitive landscape. In doing this analysis it’s helpful to think of in terms of competition being either:Direct CompetitionIndirect CompetitionNew Entrants?Direct competition can be easy to identify. For most products you can simply:Check Their Advertising Space –?If you perform a Google search for a particular product/service segment you will get pages of direct competitors. You could also look in newspapers, magazines or any other industry publication.Check Their Shelf Space –?This is more applicable to more retail type products/services, however competitors typically occupy the same floor or occupy similar shelf space.Check Trade Specific Events -?At trade fairs competitors all have stands in the same area. In addition big public events that are trade specific will attract a certain kind of exhibitor or sponsor. This also applies to the media. For example TV adverts for sports events are dominated by betting companies. Businesses selling rival products/services are competing for the same audience. They know where their target audience is captive, indeed there are consultancies whose sole existence serves to tell them this precise information, and so will all occupy and /or compete advertising space together in the same areas (at a cost!).Typically when customers are making buying decisions they create a shortlist that usually contains the most obvious direct competitors, this may have been formed using some of the ideas already listed.? However identifying all the competition isn’t always that straightforward:What other factors do you need to look at to help identify competition for a product or service?What are the limitations of only looking in the obvious places for direct competition??Let’s now look at some of these factors in more detail.a) Regional vs National CompetitionLooking on the internet or looking at shelf space isn’t the only way to identify competition. Smaller regional providers don’t always have access to department store shelves, they may not have the budget to advertise on Google. It may also be the case that they don’t need to advertise. They can rely on word of mouth and people walking on local streets to gather information. As such you may scan Google or look at shelf space in big stores but this won’t help you identify regional competition at the local level, it would remain hidden from your analysis.?b) Changes In How Information Is Collected & Buying Decisions Are MadeBuying habits and the way buying decisions are made perpetually change. What an organisation thought wasn’t a direct competitor one day can change very quickly. A good example is estate agency. Ten years ago when you wanted to buy a house you would walk the streets in your chosen area and all the agents would be located in that area. If you were in the market, your direct competition looked you in the eye every day. These days the consumer doesn’t walk the streets and instead uses Zoopla, Rightmove or a DIY site where there is no estate agent. So in the past estate agents used to have a regional oligopoly where everyone charged the same fee. These days to find their competitors it’s whoever has enough money to pay Zoopla/Rightmove or the sellers themselves if they want to become their own agent.This example is a straightforward one but serves to show how organisations need to remain vigilant to track customer activity and how they are arriving at their buying/selling decision. Disruptive technology that helps consumers access information in different ways is one of the key catalysts that allows new firms competition enter the market.c)?‘White Labelling’ & ResellersSome firms do not have the necessary spare resources to constantly upgrade, diversify or modernise their products. Alternatively, for whatever reason they may not know how best to sell their product. Marketing or customer acquisition simply may not be a strength.?In these kinds of scenarios ‘white label’ products often appear on the market which are simply products made by one firm which are bought, re-labelled and sold on, usually with a few modifications or ‘added value’ features by another. The practice is prevalent in the consumer electronics industry. Television sets made by one producer might appear in the High Street being sold under different brand names by several consumer electronic shops. Computers made by one large manufacturer can be re-sold with different software bundles to make them more attractive to consumers and offer them choice. These companies are known as resellers or ‘value added resellers’ (VARs). The competitive advantage afforded to companies that use white label goods, is that they can offer them for sale at discounted prices as they have not already had to invest the necessary product development time or their cost of customer acquisition (ie marketing costs) maybe far lower than the original manufacturer. Dell is a good example. They offer their products as white label goods which can then be modified, rebranded and offered by resellers in the computing market.The notable success of Groupon is another good example. Groupon run different campaigns reselling other companies’ products every day. They have a sales team of 1000’s of people who are trying to get more and more products on their site that they can use to target at specified customers using focused marketing campaigns.?This works for a lot of companies who have no active marketing team and/or just simply want to access international clients. As such one day your business maybe trading fine one day but the next you are losing significant trade from a Groupon campaign or the joint decision of any 2 companies deciding to sell each other’s product.Dell products often form the basis of while label goods in the market.Outsourcing/PartnershipsWith regard to services, many companies with a strong brand and distribution network often look to cross-sell other services to their customers. For example if you are a supermarket in the UK your billboards and retail space have a footfall of literally millions every day. You have e-mail addresses of millions of customers so it would be short-sighted to only sell your customer groceries. In these scenarios it’s common for partnerships to be created where the partners leverage each other’s expertise. This can have a massively disruptive element to the competitive landscape.A good example is John Lewis offering store cards that whilst being branded with a company logo, are actually provided by HSBC. Clearly John Lewis would not have the resources to develop an infrastructure to support the banking operations associated with a credit card, and so they effectively outsource the service to a bank and gain competitive advantage through enhanced customer loyalty, sometimes supported with special offers and introductory interest rates. Store cards often encourage customers to sign up by offering a big saving on a purchase at the till with the balance then carried forward onto what is in effect a credit card owned by a bank.Whilst this is a focused example it’s interesting to consider HSBC’s stance in this. They have in fact facilitated another entrant in to the market. They have in effect created competition for themselves. However they have recognised banking itself is a competitive environment, every bank has a high sunk cost of their banking platform and so it makes sense to help the market entrant and get paid by monetising their banking platform by another means. If they didn’t one of their competitors would have facilitated John Lewis’ entrance into the market instead.The John Lewis Partnership Card provided by HSBC bankThe Internet & CompetitionThe advent and growth in internet retailing has had a huge impact on competitive rivalry between firms. With the use of the internet, it has become very easy for new firms to set up in competition with established retailers. With few barriers to entry, the threat of new entrants to a market has never been greater. The more firms that enter the market offering similar goods and services, then the more substitutes will be available to consumers who can find many suppliers, many of whom will be operating with a global reach.The internet offers?information?and this dramatically affects the bargaining power of buyers and suppliers of goods and services. Consumers are able to compare products and prices easily and quickly, and literally shop around for the best price at the touch of a button. It’s also easier to find substitute products. Consider the impact that Uber is having on the traditional taxi business. The bargaining power of buyers afforded by a simple app download is changing this traditional service beyond recognition.Uber?offers an alternative to the traditional taxi rmation relating to the quality of products, or a firm’s level of customer service, also gives buyers significant bargaining power. There are countless review sites available on the internet and on social media. ‘Likes’ and star ratings along with customer feedback gives the consumer a wealth of information which may affect their purchase decisions. A firm will need to be fully aware of what consumers are saying about their products and act swiftly to dispel any negative feedback if they are to remain competitive. These tools themselves are incredibly useful in terms of advertising competition particularly in different geographies.TripAdvisor is widely recognised for providing customers with feedback about holiday destinations, hotels and other travel related servicesMany firms with an online retail presence will often follow up purchases with emails to their buyers to try and collect feedback on the product bought and/or service provided. Firms with consistently positive feedback can expect to be more competitive, and attract a more loyal customer base than those who ignore the experiences of buyers.Search engines offer buyers huge choice, and some firms will try to gain a competitive advantage by encouraging shoppers to visit their websites with the hope of them making a purchase rather than clicking on and buying from a rival’s site.Pay per Click (PPC), ‘Paid Search’ and Organic Traffic‘Paid search’ is a means by which a firm advertising on the internet can attract attention to their websites – on a search engine results page, a firm can pay for their website to appear in specific sections of the results displayed. The screenshot below displays an example of the Pay Per Click phenomenon. You can see the user has searched for “fast cars”. Whilst there’s lots of information on fast cars you can see Jaguar have paid to be the top search item that appears for anyone who searches for “fast cars”. Every time someone clicks on the link Jaguar pay Google a fee, hence the advent of the phrase “Pay per Click”.Services such as Google AdWords enable firms to get their products to the top of a search result by combining the search words within a link to a firm’s website. These ‘paid for’ adverts will appear highlighted, or in a particular area of a shopper’s screen, with the hope of encouraging a visit to their websites over those of a rival. This method of advertising is very competitive and firms have to pay search engine companies a set amount for every time their advert receives a response from the browsing buyer; known as pay per click. You don’t have to start a pay per click campaign to get high up the page in terms of Google search. If an organisation has a popular website or Facebook page with lots of traffic a search engine like Google will recognise this. Using Google as an example again, their business is based on returning relevant search items. If your firm has an active Twitter account or Facebook page where you are producing contemporary content that is being shared or commented on regularly Google’s indexation tools will recognise this. You will duly be rewarded by featuring high up the search rankings for certain relevant keywords.? This will no doubt generate traffic to your site organically, ie you don’t have to pay for it via Pay per Click. An understanding of the search phenomenon is important. It is a useful tool in terms of identifying competition, ie:Who is bidding on the keywords associated with a product/serviceWho is featuring high up the rankings on certain termsIf we take Facebook and Twitter, they are free for anyone to use with zero costs up front costs for a business to start tweeting or publishing content. Anyone can start a business and generate web content, this just goes to show how competition can spring up very quickly. If a new business is lucky and has a PPC budget they can instantly start to steal web traffic and business from another with a single mouse-click. Identifying competition has never been more dynamic, exciting and important with the internet making it easier for new competitors to enter the market in many different ways.Globalisation & The InternetThe Internet has of course made a huge impact on our original idea of a market place. Today, the market for many goods and services is truly global. Previously shoppers might have only been able to buy products directly from a local, regional or national market. Now they are able to use the internet to shop from across the world and often at very competitive rates. The landscape of competition has shifted dramatically and identifying competitors has become ever-more complex. For example, local markets that were previously only served by local producers are now completely opened up. Historically the first place the consumer looked for meat was a local butchers. These days consumers can use click and collect, or, if they do a Google search a number of national and sometimes international providers will offer next day delivery to send packages of meat. Typically suppliers will respond by making efforts to differentiate their product and so try to gain more pricing power in their segment. If we continue with the example of meat, producers will look to differentiate on the basis of letting consumers know the provenance of the meat and other characteristics such as how the animal has been reared and linking these characteristics to improvements in the way the product tastes.Did you know?Of the $17.3bn Google made in 2015, $15.5bn was from advertising sales.3.1The different types of non price competition used by the firm must be listed.This video is a useful introduction on price competition before we start to look at non-price competition in more detail. competitionWhen a company wants to increase its share of the market it needs to proceed with caution. Simply lowering the price of goods or services within acceptable margins may risk triggering a destructive and ultimately non-profitable price war with its competitors. Rather than take the risk, most companies opt to engage in?non-price?competition strategies. These can often be costly, but aim to convince consumers of the?distinctiveness of their product over that of a competitor and draw in more customers. Firms use non-price competition to encourage consumers to buy and sustain their custom by stimulating brand loyalty as a means of holding on to and ultimately increasing share of the market for particular goods or services.Non-price competition is most common among oligopolies and monopolistic competition market structures, as within these environments firms are able to be extremely competitive. Firms can compete against one another through non-price competition by running advertising campaigns and through innovation and product development. Again, whilst often expensive to implement, these are preferable to engaging in?price?competition which would ultimately lead to decreased profits in a specific market.?Offering something extraFirms can increase the attractiveness of their products by giving the customer something extra. This is embodied in Tesco’s?“every little helps”?strapline. Many firms in the retail sector offer?’buy one get one free’?(BOGOF) offers that aim to convince shoppers that they are getting something for nothing. Bundling goods, such as buy two get one free, is also a tactic used to increase custom and sales. Many supermarkets offer money-off coupons to encourage future purchases. They also use loyalty cards where a customer accrues points on purchases that convert into a discount at the till or give the holder a free item on a future visit to the store.An example of a?buy?one get one free campaign.Boots run a loyalty scheme called the “Advantage card” that rewards repeat customDeveloping a ‘relationship’ with customersThe customer experience from walking into a store; or visiting a website, to leaving with purchased goods cannot be taken for granted by firms who want to improve sales, market share or enhance their reputation.Stores selling similar goods will try to distinguish themselves from each other by offering customers a more pleasant environment in which to shop, even for everyday essentials. Stores selling mass-produced furniture will often offer browsing customers a free coffee whilst they tour the store, as well as having staff highlight current deals such as free items with purchases. Free coffee is also on offer at Waitrose on production of a loyalty card.Waitrose offer free coffee, but only to those have their loyalty cardMany supermarkets have trolley parks, cafes and other customer-friendly facilities which aim to enhance the overall shopping experience. Even before customers reach a store firms may provide incentives to shop. For many years, large out of town supermarkets and retailers have provided free buses to their stores which are particularly inaccessible to those without private transport. Once a purchase has been made, many firms extend their relationships with their customers by offering extended warranties, easy or free trade-ups to new products, or free after-sales service.?Training staff in company values and imageMany firms invest in staff training to ensure that their reputation is maintained. Retailers who sell high-tech goods often employ staff as experts who can help customers to make a purchase choice by answering questions. They may also offer a free service to resolve problems with gadgets or equipment in store. A good example is Apple who have a meet and greet service in their stores, and offer an online appointments service for customers to consult with Apple ‘Geniuses’ who can answer questions or offer solutions to problems.The mobile phone industry, where competition is fierce, has also had to invest in a similar service in stores by offering a free service to resolve customers’ problems or answer questions about their devices. Ensuring that staff understand all aspects of a firm’s products is vital, and staff who are informed and customer-oriented can help to maintain reputation and standing in the market place. A firm that gets a bad reputation for customer service will find it difficult to attract new customers as well as risking the loss of existing customers.An Apple Genius?bar?in operation.Have a look at this short video which gives a succinct insight into how Apple provides?excellent?customer-service and encourages business. optionsWith the rise of online shopping, how and when products reach consumers has become of paramount importance to firms trying to gain an advantage over their competitors. Free delivery is always attractive to customers, but will come at a cost to the firm. Giving customers the ability to track their order means that products can be scheduled to arrive at a time or location (collect in store) to suit the customer.Click and collect is?increasingly?popularForward-looking companies like?Amazon?have even been considering using drones to take products directly to customers from their distribution centres. This sort of option is likely to be heavily subsidised, or even offered free, but might be considered worthwhile if the result was increased business.Drones are an?option?for the delivery of goods in the futureMatching and giving lifestyle choicesIn an increasingly busy world, non-price competition tactics can give a firm an advantage particularly if they address hectic lifestyles which do not conform to traditional shopping hours. Again, online shopping effectively means that stores are open for business 24 hours a day, 365 days a year. Supermarkets have also responded to their customers’ busy lifestyles by having particular stores open for 24 hours. If customers still aren’t able to find time to actually visit the store, then for a small charge, most supermarkets and other retailers, will deliver to your door.?BrandingFirms selling similar products will often try to gain a competitive advantage by promoting the quality and features of their particular products/services. These qualities are often embodied within a brand – a distinctive mark which aims to convey something of the quality or reputation of the firm which is usually in the form of a logo or strapline.Branding is a key aspect of non-price competition, and is defined as:“Simply put, your brand is your promise to your customer. It tells them what they can expect from your products and services, and it differentiates your offering from your competitors'. Your brand is derived from who you are, who you want to be and who people perceive you to be.”?(Entrepreneur, 2016)Did you know?According to Forbes, the world’s top five most valuable brands of 2016 were:Apple,GoogleMicrosoftCoca-ColaFacebookFirms know that getting new customers outweighs selling more to existing customers. Establishing a reputable and desirable brand through advertising and marketing, secures market penetration and a larger customer base. Whilst advertising can be very expensive, this dimension to non-price competition has been proven to be a worthwhile investment. Consider how much the advertising rights on sponsored goods and services, such as football teams, add value to a brand.Customer and brand loyalty can be very influential on our purchase decisions. Once established, consumers will often stick to a known, trusted and often status-affirming brand without considering any other product.Branding, has given rise to an entire lexicon of trademarks and logos, many of which are instantly recognisable and at their most successful generate strong emotional responses amongst existing and aspiring consumers. The wearing of clothing which prominently displays the brand is considered to be free advertising for a firm and fuels non-price competition within the fashion industry. Branding can range from a simple name, word, words, or logo which identifies a company to shapes, sounds, scents and taste.Did you know?One of the world’s oldest brands was produced by Ennion a first-century Roman glassmaker who added his mark (signature) to his wares.Psychological framing of advertising?When consumers buy things, they are of course concerned about price as well as function. They seek out the products they can afford and try to get the best functionality they can for the price they are willing to pay.There is usually another factor at play in influencing the purchase decision- making process. You may think that you can’t afford something, but you might be convinced that you can. Advertising, the vehicle for non-price competition as a dimension to a firm’s marketing strategy, appeals to our emotions. For example, an iPhone isn’t just a Smartphone, it confers social status.Apple benefit from the fact consumer’s value displaying their status through?having?the latest iPhone modelIn this way, products are framed to appeal to our purchase-decision making process to think beyond price. Products take on an aspirational dimension and create desire amongst consumers to have what they perceive as being the very best on the market.Social Media and online shopping have a growing influence on why people buy certain products. Peer review and being asked to rate or review items purchased online confers (or reduces) the status of goods. This means that companies have to take great care to promote positive images and associations which increase the desirability of their products by framing adverts and appealing to purchasing considerations which go beyond price.After sales serviceThis is the level of service that a customer can expect to receive once they have made a purchase. After sales service was originally only offered by car retailers and incorporated free servicing and warranties for new or used vehicles. It is now being adopted by a wide range of companies. For example, free tech support for a limited number of weeks after purchasing a computer, tablet or smart phone. This is an important element of non-price competition and can be used to encourage consumers to buy a particular product, and in some cases to justify a higher price for an item.Watch the following video which explains why taking care of customers after the sale is important. ................
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