Unit 5: competition

Everybody thinks that you are a success in business: your firm has a profit, people work as a good team and you run the company well. Nothing to worry about? Just the other way round! The more successful you are, the more concerned you are. Your trouble consists of 11 letters - C-0-M-P-E-T-I-T-I-O-N.

Text 1: Now read the text which will help you to understand the world of competition better. Say what is the most widely-spread type of it.

The competitive environment affects the number and types of competi­tors the marketing manager must face — and how they may behave. Al­though marketing managers usually can't control these factors, they can choose strategies and avoid head-on competition. And, where the compe­tition is inevitable, they can plan for it.

Economists describe four basic kinds of market (competitive) situations: pure competition, oligopoly, monopolistic competition, and monopoly. Understanding the differences among these market situations is helpful.

In monopolistic competition, a number of different firms offer market­ing mixes that at least some customers see as different. Each competitor tries to get control (a monopoly) in its "own" target market. But competi­tion still exists because some customers see the various alternatives as sub­stitutes. A subset of these firms may even compete head-on for the same customers with similar marketing mixes. With monopolistic competition, each firm has its own down-sloping demand curve. But the shape of the demand curve — and elasticity of demand — depends on how similar com­petitors' products and marketing mixes are. Most marketing managers in developed economies face monopolistic competition.

In monopolistic competition, marketing managers sometimes try to differentiate very similar products by relying on other elements of the marketing mix. For example, Clorox Bleach uses the same basic chemicals as other bleaches. But marketing managers for Clorox may help to set it apart from other bleaches by offering an improved pouring spout, by producing ads that demonstrate its stain-killing power, or by getting it better shelf positions in supermarkets. Yet such approaches may not work, especially if competitors can easily imitate the new ideas. Efforts to promote real — but subtle — differences may not do any good either. If potential custom­ers view the different offerings as essentially similar, the market will be­come more and more competitive — and firms will have to rely on lower costs to obtain a competitive advantage.

The economist's traditional view is that most product-markets head toward pure competition — or oligopoly — over the long-run. In these sit­uations, a marketing manager competes for customers against competitors who are offering very similar products. Because customers see the differ­ent available products (marketing mixes) as close substitutes, competing firms must compete with lower and lower prices, especially in pure com­petition where there are likely to be large numbers of competitors. Profit margins shrink until they are just high enough to keep the most efficient firms in business. Avoiding pure competition is sensible — and certainly fits with our emphasis on target marketing.

Effective target marketing is fundamentally different than effective de­cision making in other areas of business. Accounting, production, and fi­nancial managers for competing firms can learn about and use the same standardized approaches — and they will work well in each case. By con­trast, marketing managers can't just learn about and adopt the same "good" marketing strategy being used by other firms. That just leads to head-on competition — and a downward spiral in prices and profits. So target mar­keters try to offer customers a marketing mix better suited to their needs than competitors' offerings.

Most marketing managers would like to have such a strong marketing mix that customers see it as uniquely able to meet their needs. This com­petition-free ideal guides the search for breakthrough opportunities. Yet monopoly situations, in which one firm completely controls a broad prod­uct-market, are rare in market-directed economies. Further, governments commonly regulate monopolies. For example, in most parts of the world prices set by utility companies must be approved by a government agency. Although most marketing managers can't expect to operate with complete control in an unregulated monopoly, they can move away from head-on competition.