Marketing and its functions. Part 5.
Competitive situation analysis.
The intensity and specific forms of competition between direct competitors in the commodity market vary depending on the nature of the competitive situation. It describes the degree of interdependence of competitors resulting from their actions. When analyzing the situation in a particular market, it is convenient to rely on various competitive structures proposed by economists and described in numerous theoretical and experimental studies. As a rule, several key structures are distinguished:
1. Pure or perfect competition.
The model is characterized by the presence of a large group of sellers in the market, opposing a large group of buyers, and none of these groups has enough power to influence prices. Goods have clearly defined characteristics, are fully interchangeable and are sold at prices that are determined only by the supply-demand relationship. Sellers in such a market have no market power and their behavior is independent of the actions of other sellers. The key characteristics of this market are as follows:
*Mass number of sellers and buyers;
*Not differentiated, fully interchangeable goods;
*Total lack of market power.
In the long run, the firm's interest is obviously to get rid of the anonymity of pure competition by differentiating its products and thereby reducing their substitutability or creating transition costs for buyers. This can be achieved, for example, through strict quality control, accompanied by a brand image enhancement policy that will help to build a brand. Another way out of the deadlock in net competition is to organize the chain around the stages of the technological cycle, which provides protection against demand fluctuations based on the commodity and thus creates added value.
This is a situation where the number of competitors is small or few firms dominate the market, creating a strong interdependence. In such markets with a high concentration, each firm is well acquainted with the operating forces and the maneuvers of any competitor are felt by the rest of the firms. The result of a strategic maneuver depends greatly on whether the competitors will react to it.
The greater the interdependence between competitors, the less differentiated their products are. Such an undifferentiated oligopoly can be contrasted with a differentiated oligopoly, when the goods have important distinctive features in the eyes of the buyer. This situation is most often encountered in the commodity markets at the stage of maturity, when the primary demand is not expandable.
3. monopolistic, or imperfect, competition occupies an average position. Competitors are numerous and their forces are balanced. However, their products are differentiated from the buyer's point of view, and they have distinctive qualities that are perceived by the entire market as such.
Thus, it stems from a differentiation strategy based on external competitive advantage.
Differentiation, which leads to the formation of preferences, customer loyalty and a decrease in price sensitivity, gives the effect of the firm's acquisition of a certain market power. Thus, the ability of the client to trade is partially neutralized. Differentiation also protects the firm from competitors' attacks, as the presence of differentiation element reduces the substitutability of goods. A monopolistic firm is relatively independent of the actions of its rivals. In addition, differentiation strengthens the firm's position with respect to suppliers and substitute goods. It is these competitive situations that the firm seeks to create strategic marketing.
Such a competitive situation, as well as pure competition, is a limiting case. The market is dominated by the only manufacturer that resists a large number of buyers. As a consequence, its product has not had any direct competitors in its category for a short time. It is an innovation.
If it exists, the company in principle has an increased market power. In reality, it is quickly threatened by new firms attracted by the growing market potential and high profits. Consequently, the expected duration of the process, which depends on the scale of the innovation and the existence of high entry barriers for new competitors, becomes an important factor.
Commodity markets in which business units operate can be assessed in terms of their attractiveness and the advantages that the firm has in each of these markets. The objective is to formulate a specific strategy for each business unit based on its positioning according to these two criteria.