2.19 Marketing and Competitiveness Marketing and the Competitive Environment Marketing and Competitiveness “The big will get bigger; the small will get wiped out.” Meshulam Riklis “In business, the competition will bite you if you keep running, if you stand still, they will swallow you.” William Knudsen “Concentrate your strengths against your competitor’s relative weaknesses. Bruce Henderson

2.19 Marketing and Competitiveness Marketing and Competitiveness In this topic you will learn about: The possible impact of market conditions and degree of competition Determinants of competitiveness Methods of improving competitiveness

2.19 Marketing and Competitiveness Market conditions Firms need to be aware of market conditions. These are factors outside of the control of the firm that will have an impact on the firms activities: Interest rates – higher interest rates will lower demand Competitors – what are they doing and how do they respond to you? State of the economy – are we in a recession or the boom stage of the business cycle? New technology and innovations – what are the latest products and technologies? How will they impact on your firm? Firms should be aware of changes in these factors and amend their business plans to take them into account.

2.19 Marketing and Competitiveness The Degree of Competition in the Market MONOPOLYDUOPOLYOLIGOPOLY MONOPOLISTIC COMPETITION PERFECT COMPETITION The spectrum of competition The degree of competition in the market refers to the number of firms that exist within a market: 1.Monopoly – one firm dominates the market 2.Duopoly – two firms dominate the market 3.Oligopoly – a small number of firms are in the industry 4.Monopolistic Competition – many firms compete in the industry selling differentiated products 5.Perfect competition – many firms in the industry with no influence on market price

2.19 Marketing and Competitiveness Monopoly A monopoly exists where there is only one firm in the market. However, the Government refer to any company that has at least 25% market share as having monopoly powers. Monopolies can exploit consumers by charging high prices. Therefore, monopolies are regulated in order to protect the customer. Barriers to entry exist in monopoly markets that stop firms from entering the market. These include: high costs to enter the market, especially high capital costs economies of scale experienced by large firms e.g. bulk buying legal barriers e.g. only pharmacies can sell prescription drugs

2.19 Marketing and Competitiveness Monopoly and the marketing mix Monopoly will affect the marketing mix of a firm: Price – monopolies are price leaders. They can charge high prices but are often restricted from doing so by government regulation. Product – with no competition product development is not as important. Promotion – with no competition promotion is not as important. Monopolies will still try to inform and persuade customers. They can increase sales revenue through increasing market size. Place – the importance of this depends on the type of product. For example, the water companies must supply water to their region. How Microsoft have been found guilty of abusing their monopoly position. You will need access to the internet to watch this video clip

2.19 Marketing and Competitiveness Duopoly A duopoly exists where there are only two firms in the market. Like monopolies, duopolies can also exploit consumers by charging high prices. Similar barriers to entry that exist in monopoly markets also affect duopolies. Duopolies tend to compete on non-price competition such as promotion. Duopolies are often accused of collusion (making agreements between each other that restrict competition). This is illegal and firms that collude can be heavily fined.

2.19 Marketing and Competitiveness Oligopoly An oligopoly exists where there are only a few firms in the market. Like monopolies and duopolies, oligopolies can exploit consumers by charging high prices. Barriers to entry exist in oligopoly markets, particularly through advertising. Oligopolies tend to compete on non-price competition such as promotion and there may also be an element of collusion. It is important for oligopolists to take into account the reaction of competitors when making decisions regarding the marketing mix. For example, if one firm cuts price, then others are likely to follow suit, resulting in a lower income for the market as a whole. Therefore, oligopolists are unlikely to lower price as a long term strategy.

2.19 Marketing and Competitiveness Oligopoly and the marketing mix Oligopoly will affect the marketing mix of a firm: Price – oligopolies do not tend to compete on price in the long run. However, oligopolists might compete on price as a tactic. Product – oligopolists tend to spend heavily on developing the quality of the product. Promotion – this is a very important element of the marketing mix. Branding is crucial to an oligopolist. Place – this is also important to the oligopolist. Firms must ensure that their products are accessible if they are going to be successful.

2.19 Marketing and Competitiveness Oligopoly and the marketing mix The following markets are oligopolies: Soft drinks e.g. Coca Cola Chocolate e.g. Mars Bars Sports wear e.g. Nike ACTIVITY In small groups choose one of these markets and, using the internet, research into the marketing mix for the major firms in these markets. Present your findings to the rest of the class.

2.19 Marketing and Competitiveness Monopolistic Competition Monopolistic Competition exists where there are a large number of firms in the market selling differentiated products. This leads to a small degree of monopoly power as each firm offers something different to the others. In this type of market barriers to entry are very low. Therefore, it is easy for firms to enter the market. This creates strong competition. This mix between monopoly power and competition leads to the term monopolistic competition. Firms within this market will try to brand their product. This might be through the building up of a reputation. There are numerous examples of this type of competition such as hairdressing, restaurants and the health and beauty industry.

2.19 Marketing and Competitiveness Monopolistic Competition and the marketing mix Monopolistic Competition will affect the marketing mix of a firm: Price – non-price competition is the norm in this type of industry. Product – this is a vital element of the marketing mix. Although products are similar it is often the quality of customer service and the reputation that the firm builds up that increase their customer base. Promotion – firms tend to work to a budget in such competitive markets but there are limited forms of promotion Place – this can prove to be very important in such a competitive market – convenience to the consumer is often a priority

2.19 Marketing and Competitiveness How to be different in a crowded market Reading Football Club, Coffee Republic, Pret, the Eden Project, Ann Summers – all these firms have something in common. They work in markets where there is lots of competition. Whether you are a football club or sell coffee to the public it is important that your product stands out. With so many alternatives for people to choose from how do firms make their product stand out from others. Watch this clip to see how some celebrity entrepreneurs differentiate their businesses and products. You will need access to the internet to watch this video clip

2.19 Marketing and Competitiveness Perfect Competition Perfect Competition exists where there are a large number of firms in the market each selling homogenous products (Products that are the same). Firms in this type of market have no influence on price and are therefore price takers. In this type of market there are no barriers to entry. Therefore, it is easy for firms to enter the market. Consumers have perfect knowledge i.e. they are aware of the price of products sold in these markets. In this type of market firms will not raise price as consumers will simply go to other firms. If a firm lowers price then all other firms will have to follow suit. Some firms in the farming industry show elements of perfect competition. However, this is more of a theoretical model and is unlikely to be assessed in the BUSS2 exam.

2.19 Marketing and Competitiveness Types of market ACTIVITY Look at the following types of market: Monopoly Oligopoly Monopolistic Competition For each type of market choose two firms from different industries e.g. cars and music. In table form describe each element of the marketing mix for both firms.

2.19 Marketing and Competitiveness Determinants of Competitiveness Competitiveness refers to the degree to which a firm is successful at selling its products in the face of competition in the market. A number of factors affect a firm’s ability to be competitive: Effective market research Pricing strategies Product Promotion Place Reducing costs Improving quality Staff training

2.19 Marketing and Competitiveness Methods of improving Competitiveness The AQA specification distinguishes between marketing and non-marketing methods of improving competitiveness. Marketing methods include: Effective market research – identifying the needs of the markets is important in meeting consumer requirements. Price – firms need to decide if they are to use a low price strategy or premium pricing. They will need to take into account the price elasticity of demand for their product to ensure that they maximise total revenue. Product – what products they produce and sell will enable the firm to differentiate their product in the market. Promotion – firms must make use of the promotional mix in order to inform and persuade the target market. Place – how a firm distributes and sells its products is a vital component in achieving competitiveness. New technologies have opened up a whole new world for small businesses and the advent of the Internet has provided a global market for firms.

2.19 Marketing and Competitiveness Methods of improving Competitiveness Non-marketing methods include: Reducing costs e.g. lower labour costs, cheaper sources of raw materials and stock, reduced costs of running the business. These will all allow the firm to lower their prices or increase their profit margins. Improving quality – increased product quality and customer service can differentiate a firm from their competitors. Staff training – firms should encourage their workforce to continually improve their skills, so that they can offer a better standard of service to their customers.

2.19 Marketing and Competitiveness Activity – Jamie Oliver and the School Restaurant Quality school dinners? The school restaurant or canteen has come under attack based on the nutritional quality of the food served in schools up and down the country. Jamie Oliver has led the way in trying to teach the nation about the importance of good food in schools. You have been employed as a consultant working with Jamie’s Ministry of Food and looking to improve the competitiveness of the school restaurant. Look at the following areas and give a presentation to the class on how the school restaurant could improve its competitiveness: Marketing Reducing Costs Improving Quality Staff Training You will need access to the internet to watch this video clip