2020-06-29
185
The model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product. Monopolistically competitive markets exhibit the following characteristics:
1. Each firm makes independent decisions about price and output, based on its product, its market, and its costs of production.
2. The entrepreneur has a more significant role than in firms that are perfectly competitive because of the increased risks associated with decision making.
3. There is freedom to enter or leave the market, as there are no major barriers to entry or exit.
4. A central feature of monopolistic competition is that products are differentiated. There are four main types of differentiation:
· Physical product differentiation, where firms use size, design, colour, shape, performance, and features to make their products different. For example, consumer electronics can easily be physically differentiated.
· Marketing differentiation, where firms try to differentiate their product by distinctive packaging and other promotional techniques. For example, breakfast cereals can easily be differentiated through packaging.
· Human capital differentiation, where the firm creates differences through the skill of its employees, the level of training received, distinctive uniforms, and so on.
· Differentiation through distribution, including distribution via mail order or through internet shopping, such as Amazon.com, which differentiates itself from traditional bookstores by selling online.
5. Firms are price makers and are faced with a downward sloping demand curve. Because each firm makes a unique product, it can charge a higher or lower price than its rivals. The firm can set its own price and does not have to ‘take' it from the industry as a whole, though the industry price may be a guideline, or becomes a constraint.
6. Firms operating under monopolistic competition usually have to engage in advertising. Firms are often in fierce competition with other (local) firms offering a similar product or service, and may need to advertise on a local basis, to let customers know their differences.
7. Monopolistically competitive firms are assumed to be profit maximisers because firms tend to be small with entrepreneurs actively involved in managing the business.
8. There are usually a large numbers of independent firms competing in the market.
Product Life Cycle
Most products go through what is known as a product life cycle. This cycle is a series of stages from first introduction to complete withdrawal from the market. The four stages of a typical product life cycle include introduction, growth, maturity, and decline.
People involved in marketing products need to understand the stages of each product’s life cycle because marketing programs are different for each stage. A product in its introductory stage has to be explained and promoted much differently than one in its maturity stage. Also, pricing can vary depending on the stage. Prices of products tend to be relatively high during the growth stage.
Many marketers attempt to extend the life of old products. They may redesign the packaging or find new uses for the product. Advertisements attempt to persuade consumers that they need the product for its new uses.
Distribution Channels
Decisions about distribution, or moving goods from where they are produced to the people who will buy them, is another function of marketing. The routes by which goods are moved are known as channels of distribution. Some consumer goods, such as clothing and farm products, are usually sold by a producer to a wholesaler and then to a retailer, who sells them to consumers. Other consumer goods, such as automobiles, are normally sold by the producer directly to a retailer and then to consumers. With each transaction, or business deal, the price increases. Few goods go directly from producer to consumer. An example of some that do would be vegetables sold at a farmer’s roadside stand.
Wholesalers Businesses that purchase large quantities of goods from producers for resale to other businesses (not to consumers) are called wholesalers.Various types of wholesalers exist. Some may buy goods from manufacturers and sell them to retail stores that then deal directly with consumers. Others may also buy and sell raw materials or capital goods to manufacturers.
Retailers Businesses that sell consumer goods directly to the public are retailers.You are probably familiar with many of them: department stores, discount stores, supermarkets, club warehouses, mail-order houses, specialty stores such as bookshops, and so on.
Traditional retailers have also “set up shop” on the Internet. More and more, there are e-commerce retailers that have no physical store anywhere. They are “virtual companies.”
Storage and Transportation Part of the distribution process includes storing goods for future sales. The producer, wholesaler, or retailer may perform this function. Most retailers keep some inventory on hand for immediate sales. Many have a two- to three-month supply, depending on the type of merchandise.
Transportation involves the physical movement of goods from producers and/or sellers to buyers. In deciding the method of transportation, businesspeople must consider the type of good, such as perishable food. The size and weight of the good are also important. Airfreighting tons of wheat is impractical, but airfreighting small machine parts is not. Speed may be necessary to fulfill a sale or to get fresh fruit to a food plant. The cost of the different types of transportation helps determine how to ship items.
