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The Competitive Situation

marketing, markets, competition, perfect competition, imperfect competition

Marketing is not carried out in a vacuum but usually in a highly competitive situation. Classical economics talks of the state of perfect competition, where prices and profits are pushed down to the minimum because new suppliers will be attracted to the industry if prices rise, and the extra amount available over what is demanded by customers will force the price down. On the other hand, if prices fall too low, some suppliers will leave the industry, and the drop in quantity will make prices rise. So there is an ‘equilibrium price’, which anyone trading in the market has to take; firms are ‘price-takers’.

This is, of course, the real-life situation in some specialized markets-commodities, fresh farm produce, the Stock Exchange. However, this simple model does not fit the facts of the real world since economists have realized that it is necessary to develop the concept of imperfect competition which reflects the reality in a much more realistic way. One of the main factors in imperfect competition is that all products are not the same. In general, firms do not wish to be price-takers with no control over their level of profit whether or not they can stay in business. They will do all they can to develop ways in which they can satisfy customers’ needs in a better way than their competitors.

This has given rise to the concept of ‘competitive differential advantage’. Firms will try to outdo their competitors by offering customers a clear-cut difference in the products and/ or services they offer in the hope that customers will find the difference an improvement on what competitors are offering. The difference may be created in a number of different areas:
Product. The product or service itself may be different. The soup may have a richer flavor or take less time to prepare; the car may have better performance or use less fuel;
Cost. There may be a cost advantage to the customer, because the initial price is lower, because maintenance will cost less, because better credit terms are available;
Services. As well as the basic performance the product or service gives, there can be a whole range of services offered as part of the marketing process:
-Pre-sale. A civil engineering company may do a free feasibility study; a television rental firm may offer a week’s free trial, a car dealer a test run;
-Post-sale. Free maintenance for a period, training of operators, a supply of ‘updating’ material;
Distribution. The abundant availability of a product may be a very attractive feature. Car rental companies will have desks to deal with customers at the station or airport, Coca-cola is available in lean-to shops in African bush villages as well as in big city centers;
Promotion. The way a product is presented may enhance its appeal to the consumer. Perfume attractively packaged and exotically advertised, bakery products with a presentation ‘like those mother made’.
One of the reasons why the idea of the marketing mix is so important is because the elements of the mix can be developed in such a way that a strong competitive differential advantage can be created to be offered to the customers.

Michael E. Porter in his book Competitive Advantage argues: “The fundamental basis of above average performance in the long term is sustainable competitive advantage. This can come from a cost focus (enabling a company to offer customers unbeatable low price) The differentiation can be designed to suit a wide or narrow range of customers, e.g. it may be directed at a particular segment or niche.”

It is often important to analyze just who really are the competitors, both direct and indirect. For example, a supplier of audio-tape players will have as direct competitors other supplier of similar machines. However, potential buyers of such machines include people who want to listen to music. They have a wide range of choices. Not only can they get their music from tape-players but also from compact disc players or radios. Alternatively, they can attend live concerts or even make their own music with a group of friends. All of these are indirect competitors for our tape-player supplier.

Often the most important question is: are our potential customers most likely to spend their money to buy from us or not?
Published: 2007-04-14
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

www.martin-hahn.net

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