Category: Competition

The price increase of commodities, especially of basic necessities such as groceries is a matter of concern for members of the public. In recent years, sustained criticisms have been leveled against the Australian retail grocery sector because of rising prices of goods.

Various reasons have been advanced to explain the reason why the sector has been experiencing the problem over the past couple of years. Questions have been raised about the role that competition plays in determining prices in the Australian grocery market.

A study commissioned by the Australian competition and consumer commission, (A.C.C.C) estimated that two stores; Coles and Woolworths accounted for about 70% of package grocery sales and nearly half of all the fresh food products that were sold in Australia. To comprehensively analyze the groceries market in Australia, it would be useful to apply microeconomic principles.

The Concept of Perfect Competition

In understanding the concept of Competition in the Australian market for groceries, a critical factor to consider is whether the market is perfectly competitive. A perfectly or purely competitive market is a phrase that is used in reference to a condition or situation where consumers and producers are too many and too small to have the ability to significantly alter the price of goods or services (Machovec, 1995 p3).

Essentially it is a state wherein, the buyers or sellers cannot initiate any measure of individual control in determining the prices of goods and services. (Dewar, 2010 p.71-72).

A perfectly competitive market is further characterized by having large numbers of producers and consumers who are free to enter and leave the market at will and who all have equal awareness and access to information about the prices, volume, availability and quality of goods and services that are being traded (Baumol & Blinder, 2007 p.201).

Moreover, the perfectly competitive market is distinguished by the fact that the goods or services being traded are homogeneous in nature and thus, it is possible to substitute one product or service for another.

The situation is also characterized by the presence of a complete mobility for the resources that are used in production. It is important to note that the perfectly or purely competitive market exists only as a theoretical framework or model and is impossible for it to be applied in reality (Goldberg, 2000, p.84-87).

This description of the perfectly competitive market model makes it abundantly clear that the Australian retail grocery market is not a perfectly competitive market (justfood.com, 2009). This is because; although there is homogeneity in terms of the products being traded and a large consumer base, the market does not conform to the determining characteristics of the perfect competition model.

An integral hallmark of the perfectly competitive market model is the fact that it is made up of a large number of buyers and sellers who do not have the individual ability to initiate any measure of control over the prices of commodities and services (Dewar, 2010 p.108).

This is not the case in the Australian retail grocery market sector. In an inquiry commissioned by the Australian competition and consumer commission, (A.C.C.C) to determine the competitiveness of the retail grocery prices, it was revealed that the market was dominated by two retail grocery stores; Coles and Woolworths.

The statistics indicate that these two stores had a substantial share of the retail grocery market, amounting to about 50% of the fresh food products and nearly 70% of the packaged food sales that were sold in the country. (accc.gov.au, 2008).

This implies that these two stores have virtually cornered the retail grocery market and consequently are in a prime position to determine the retail grocery prices. This is a fundamental deviation from the perfect competition model that is characterized by the fact that no individual buyers or sellers have the capacity to individually affect the prices of goods and services.

The Australian retail grocery sector is not a perfectly competitive market because Woolworths and Coles, the largest players in the market have an advantage in terms of getting advance information and awareness about the prices, quality and availability of goods from their suppliers (wotnews.com, 2007). The two organizations enjoy this advantage because they are the largest market for the suppliers.

This is an advantage that is not enjoyed by other smaller players in the industry. This is in direct contrast to the characteristics of a perfectly competitive market that, according to Goldberg (2000), is characterized by equal awareness to information about the prices, volume, availability and quality of goods and services that are being traded.

The fact that the Australian grocery market is not a perfectly competitive market has significant implications for the consumer. In recent years, consumers in Australia have been suffering from the adverse effects of rising grocery prices.

This problem has been attributed to the fact that the market has been dominated by Woolworths and Coles, both of which have been criticized for setting high commodity prices and systematically increasing those already high prices. This situation has negative implications on the consumers and urgent intervention is required.

Workable Competition

Economic theorists have reached the consensus that the concept of perfect competition has numerous shortcomings and limitations in the determination of public policy. In reaction to this, the alternative theory of workable competition was formulated.

The workable competition, also known as the effective competition model was proposed in 1940 by J.M. Clark, a prominent economic theorist.

The model is used in reference to a state of affairs that is characterized by the existence of a monopolistic power that exerts a significantly high measure of control over the market; however, the effects of this control are mitigated by the existence of adequate competition that is provided by near-monopolies. This has the effect of protecting the consumers from the effects of a monopolistic system. (Ferguson, 2008 p.78-80).

The application of the workable competition model would be more relevant to the Australian retail grocery market because the perfect competition model has been shown to be ineffective in the market. The workable or effective competition model is geared towards protecting the consumers from the effects of monopolistic practices. (Masters, 1955 p.37).

The domination of the grocery market by Coles and Woolworths implies that these two stores are enjoying what has been described as a duopoly of the market. In recognition of this fact, the workable model that is characterized by the presence of near monopolies that are meant to protect the interests of the consumers would be highly relevant (Ferguson, 2008 p.87).

A comprehensive assessment of the Australian retail grocery market reveals that effective or workable competition does not exists in the sector. To justify this contention, it would be useful to examine the presence or absence of several indicators.

According to Barthwal (2000) any given industry is said to be workably competitive if it has a number of companies that are selling or providing similar or closely related goods and services and that these companies are not in collusion with each other. Critical examination of the pricing trends adopted by both Woolworths and Coles reveals a level of complicity, especially in price increases.

Barthwal further contends that a workably competitive industry is characterized by the fact that the average cost-curve that will be applied to a new investor in the sector will not be significantly higher than that applied to an established company.

The situation in the Australian retail grocery market is such that, new investors in the sector have a considerably higher average cost curve than that of established companies, notably, Woolworths and Coles This is because, the two companies have sufficient scale to leverage the costs of supplies.

These factors serve to comprehensively justify the contention that the Australian retail grocery market does not conform to the workable competition model.

Vertical Integration

Retail stores are an integral component of the economy of any given country. Retail stores have the essential function of acting as the link between the manufactures and the consumers of products. The retail stores also have the important functions of adding value to products before they are sold to the public and offering the producers a means of selling their products directly and effectively to the public.

Research indicates that a majority of profitable retail stores are vertically integrated. Vertical Integration is a micro-economic principle that is used in reference to a situation whereby all the supply chains, production processes, marketing initiatives and all other processes that are involved in the functioning of a company and organization are controlled by a single management or administrative body.

Vertical integration stands for procedures in which all steps involved in the contraption and distribution of goods fall under the control of a single firm in order to increase dominance of its market area (Parker, 2007 p.18-20).

Vertical integration can be further distinguished into forward and backward integration. Backward integration occurs when a company establishes control or ownership of the suppliers of its products (Vincent, Grantham,1997 p. 315).

On the other hand, forward integration is where a company establishes control over the distribution of its products.(Ibid 317) These measures are instituted in an attempt to minimize dependency on distributors and suppliers and also to minimize expenses.

Vertical integration is the management style that is the direct opposite of horizontal integration. Horizontal integration is the management principle that is distinguished by the fact that the various processes that are applied in the functioning of a business, company, organization or any other entity are controlled by a multiplicity of functionaries. (Hill & Jones, 2010, p.228).

Horizontal management also focuses on the expansion of a business at a similar position in the supply chan. In reference to the retail grocery business, the horizontally integrated retail store may sell groceries in addition to a wide selection of non-food items in an attempt to increase profitability. (Miler, 2010 p.12-17)

Vertical integration is widely applied in the retail sector because it has several advantages. Vertical integration has the benefit of reducing logistical costs and fostering efficiency in the supply chain. (Grant 2005, p.393) The principle also has the advantage of restricting or limiting the entry of potential competitors into the market by means of having the sole access to a supplier.

Vertical integration also ensures efficient supply and distribution of goods. However, the biggest advantage of vertical integration is increases in the profit margin. However, the principle is also associated with a number of disadvantages. Among these is the fact that vertical integration implies the lack of supplier competition and consequently higher costs.

Another drawback that is associated with the principle is lack of flexibility and decreased capacity to increase the diversity of products on offer. Furthermore, the fact that vertical integration requires the acquisition of new departments for supply and distribution may lead to increases in the bureaucratic costs. (Parker, 2007 p.27-30)

Vertical integration has adverse effects on the competitors in the grocer retail market. This is because, vertical integration enables an established company in the market to limit or restrict the entry of competitors into the market. This is because; the established vertically integrated company may have the sole access to a particular supplier. This is especially problematic in the case of scarce commodities. (Parker, 2007 p.33).

To illustrate this fact, the supply of groceries such as gourmet food products for example truffles and caviar is practically impossible for new entrants into the grocery retail market in Australia. The supply problems eventually led some retail grocery stores to be forced out of business.

The vertical integration also extended to the fact that Woolworths and Coles had a clause in their lease that restricted the smaller stores from being set up in the same shopping mall (theage.com.au, 2009). However, eventually, this practice was discontinued. In summation, vertical integration has negative impact on competitors.

That being said, the most successful strategy for an entrant into the grocery retail business in Australia is the adoption of horizontal integration. Despite the fact that most retail businesses have adopted the vertical integration model, this model would not be well suited for a new entrant into the market, it is best applied by the established companies like Coles and Woolworths.

The business should focus on diversification. Offering groceries for sale can be accompanied by venturing into non-food items such as magazines and cosmetics. This is the best strategy to compete in a market that is virtually a duopoly.

Payoff Matrix

To illustrate the contention that horizontal integration would be the orientation that would be best suited for a new entrant in the Australian grocery retail market, it would be useful to construct a payoff matrix.

The payoff matrix reveals that both vertical and horizontal integration have advantages and disadvantages. However, the horizontal integration orientation would be the best option that would enable a new entrant in the Australian grocery retail sector to be successful

References

Accc.gov. au. (2008). Australian Competition and Consumer Commission. Inquiry into the competitiveness of retail prices for standard Groceries. Web.

Barthwal, R. R. (2000). Industrial Economics: An Introductory Text Book. India. New Age International Publishing. p.87-88.

Baumol, W. J. & Blinder, A. S. (2007). Microeconomics: Principles and Policy. U.K. Thomson Corporations Inc p.201.

Dewar, D. M. (2010). Essentials of Health Economics. MA: Jones and Bartlett Publishers LLC p. 71-72.

Ferguson, C. E. (2008). A macroeconomic theory of workable competition. California. Duke University Press, p.78-79.

Goldberg, K. (2000). An introduction to the market system: California. M. E Sharpe Inc p.84-87.

Grant, R. M. (2005). Contemporary strategy analysis. MA: Blackwell publishing Inc. p.393.

Hill, C. & Jones, G. (2010). Strategic Management Theory: An Integrated Approach. U.S.A.: Cengage Learning Inc p.228.

Just food. (2009). Australian Retail Grocery Market Case Study: challenging the dominance of Coles and Woolworths. Web.

Machovec, F. M. (1995). Perfect competition and the transformation of economics. NY: Routledge Publishers.

Masters, R. D. (1955). Workable competition: a case study of the relationship between economic analysis and public policy. MA: Harvard University Press p.3.

Miller, F. & Vandome, A. F. & McBrewster, D. (2010). Horizontal Integration. Canada: Alphascript Publishing, p.12-14.

Parker, R. C. (2007). Vertical integration by grocery retailers: a market structures Analysis. Wisconsin: University of Wisconsin – Madison Press p.18-20.

Theage.com.au. (2009). Coles and Woolworths duopoly to be shelved. Web.

Vincent, T. L. & Grantham, W. J. (1997). Vertical integration by grocery retailers: a market structure analysis. Canada: John Wiley & sons inc. p.315-316.

Wot- news. (2011). Woolworths and Coles. Web.

Oligopoly is a market system that is intermediate between monopoly and perfect competition. It is a type of market that is dominated by only a number of firms. These firms control the prices of the commodities they sell and the industry they dominate is characterized by significant barriers to entry.

Oligopolistic markets are also characterized by similarities of the products they sell and thus the firms practicing oligopoly are normally interdependent in terms of policy formulation and competition strategies. The competition strategies are normally meant to make the minor differences in their products attractive to their customers so that the particular firm may have a competitive edge. Examples of oligopoly markets here in the United States are the automobile and the steel industry (Friedman 11 – 14).

Since oligopoly is characterized by a few numbers of firms in the industry, each individual firm must predict the response of rival firms before it formulates output or pricing strategies. This leads to the aforementioned interdependence and thus the firms are forced to engage in what is termed as non-price competition.

This kind of competition involves differentiation of virtually similar products by using means that are not price-based for fear of price wars. Therefore, companies achieve their competitive advantage by investing in promotions, improvement of the quality of their goods and services, offering of special services like delivery, provision of their goods/services at locations that are convenient for the consumers etc (Hannaford 1).

Firms in oligopoly markets also practice price discrimination to maximize on their profits or win a larger proportion of the customer base. As mentioned earlier, the firms in oligopoly engage in the manufacture and/or sale of goods that are not easy to manufacture.

The goods may be difficult to manufacture due to large capital requirement like in the automobile industry, unavailability of raw materials like in the steel industry, etc. The above stated reasons act as barriers to entry together with a number of other factors. Since the products are normally of high value, the industry is characterized with a high elasticity of demand.

It is this elasticity of demand that makes price discrimination possible in these markets. For instance, different people pay different amounts of money for the same car depending on the amount they are willing to pay for the car and their skills in bargaining. The above described price discrimination is one of three possible price discrimination strategies. It is known as first degree price discrimination. The other price discrimination strategies used by oligopoly markets are second and third degree price discrimination.

Second degree price discrimination involves charging of higher prices for larger quantities of goods while third degree price discrimination is the most common and it depends on the firm’s understanding of its market. The latter takes many different forms and it is the one commonly used for achievement of competitive advantage by oligopolies (Pietersz 1). Some of the possible forms it may take include the ranking of customers into groups depending on their income and selling goods to different groups at different prices.

The competitive strategies used by oligopoly markets have a lot of effects on the industry. For instance, price discrimination leads to the reduction of consumer surplus and thus it negatively affects the welfare of the consumer. On the other hand, the extraction of consumer surplus makes the firms make supernormal profits which are in the interests of the firms.

Such price discrimination is, therefore, advantageous to the firms since the primary concern of any business enterprise is profit maximization. Some firms may also set prices below cost for some customers in a bid to have a competitive edge in terms of market share. This kind of price discrimination will be advantageous to the consumers and disadvantageous to the suppliers. Similarly, non-price competition has a lot of influence on consumer behavior in an oligopoly market.

Consumers tend to prefer goods that have been promoted and those that are convenient in terms of delivery or those goods, whose minor details, like color, match the preferences of the consumers. Non-corporative strategic behavior also has numerous effects on the industry. It mostly results to unhealthy competition between the involved firms and tends o be advantageous to the consumers (Friedman 19).

As evidenced in the discussion above, oligopolistic firms have a major challenge in laying down competitive strategies and policies. This is because price competition in this industry is disastrous and can, possibly, drive all the firms out of business. The firms also sell virtually identical products and this magnifies the difficulty that they face in achieving a competitive edge.

As mentioned earlier, the firms settle for competition strategies like non-price competition, non-corporative strategic behavior etc. This is normally due to the interdependence of the firms. These competition strategies have the aforementioned injurious and beneficial effects on the consumers and the suppliers. It is therefore of, essence, that oligopolistic firms set policies and competitive strategies that are beneficial to both the firms and their consumers.

Works Cited

Friedman, James. Oligopoly Theory. New York. Barnes & Noble.

Hannaford, Steve. “Oligopoly Watch.” 2007. Web.

Pietersz, Graeme. “Oligopoly.” 2006. Web.

Introduction

The purpose of this study will be to explain why competitive markets are usually better for consumers when compared to monopolistic markets. The study will also evaluate the policies that are used to try and achieve competition in Australia. A monopoly or a monopolistic market is defined as a type of market that has only one supplier and many consumers who have no control over what takes place in the market.

This type of market is mostly characterised by high prices of goods and services, excessive barriers to entry in the market and also supply constraints. Because this market is made up of only one supplier, consumers have no choice but to purchase products or services mainly from these firms.

If a monopoly market lacks any government legislation or controls that will limit its powers in the market, then it has the authority to increase the prices of goods or services without in any way affecting the demand for its products or services. A common example of monopolistic markets is the public utility companies that offer services such as water or electricity.

Competitive markets are the complete opposite of monopolistic markets as they have many suppliers and consumers operating in one market. Each of the market’s participants lacks the power to control the price of goods or services offered by the various suppliers in the market which means that they cannot increase prices based on the number of customers who rely on their products.

Some of the characteristics that are used to distinguish competitive markets from other types of markets include the infinite number of buyers and sellers that exist in the market where there are many consumers ready and willing to purchase commodities produced by willing producers, low/zero entries and exit barriers meaning that it is easy for a business to enter and leave the market, existence of perfect information where the prices of products are known by all suppliers, producers and consumers, homogenous products and zero transaction costs.

Competitive markets that are perfect in nature will be productively efficient and they will allocate resources equally amongst the various participants in the markets. These markets however prove to be inefficient in the short long term as outputs will not occur if the marginal cost is equal to the average cost.

Why Competitive Markets are better than Monopolies

The presence of competition in the market will ensure that there is efficiency as competitive markets equate the marginal cost to the average cost of goods that are brought to the market. Competitive firms usually offer consumers with the quantity of goods that are equitable to the price they are willing to spend for the products or services.

The efficiency that exists in competitive markets is also attributed to consumer surplus and also producer surplus which is maximized to ensure that there is no deadweight loss in the market. The average cost of these markets will also be maximised because outputs will always occur when the marginal cost is equal to marginal revenue.

Marginal cost in this case refers to the change in total cost that arises when the quantity of a produced good changes by a single unit. In the case of monopoly markets, the price of goods and services is usually higher than the marginal cost which means that this type of market will be inefficient in meeting the needs and expectations of consumers who buy products from this market.

For example in the public utility companies, any unit change to the volume of water or electricity supplied to consumers corresponds to an equally higher cost of the total price for these services.

This type of market is also inefficient because the consumer surplus and producer surplus is not properly maximized which results in deadweight loss. This does not however affect the profits that are gained by companies that operate within this industry because of the high barriers to entry that exist in the market.

Another reason why a competitive market is usually better for consumers compared to a monopoly market is that competitive markets provide incentives to producers for production innovations and channels which will facilitate the creation of new products or services.

Competitive markets ensure that innovative efforts have been directed towards meeting the needs and expectations of members within the society. The existence of perfect information within these markets ensures that producers are able to create new products to satisfy the ever changing needs of customers in these markets.

The signals for price changes that exist in these markets also allow producers and consumers to adapt swiftly to any price changes in the market which is not possible with the monopoly markets.

Monopoly markets do not provide any form of incentives to producers or suppliers of raw materials which makes it difficult for them to engage in product design or innovation activities. Because these types of markets sell products that lack any close substitutes, it becomes difficult for producers to engage in new product innovation activities.

The high barriers to entry and exit that exist in these markets also make it difficult for other companies that want to offer new products and service innovations from breaking into the industry.

These markets do not meet the changing needs and expectations of consumers given the existence of imperfect knowledge within these markets. Imperfect knowledge in monopoly markets refers to how the prices and quality of goods/services is assumed to be unknown in these markets.

Competitive markets are usually better for consumers when compared to monopoly markets because the decision making process that exists in competitive markets is conducive since it allows producers and consumers to be able to adapt swiftly to any changes that might occur in the market.

This allows the various competitors in the market to create products and services that will guarantee their survival in the market place. The level of competition that exists in competitive markets ensures that firms operating within these markets are able to adapt to the changing demands of the consumer market.

Companies in these markets therefore engage in decision making processes that are meant to meet the needs and expectations of consumers by constantly engaging in product innovation activities. Monopolistic markets on the other hand fail to take into consideration the needs of customers because the decision making process is mostly limited to the firms operating within this industry.

This means that any changes to price or the quality of goods and services offered by these companies will be limited to the decisions made by the monopoly. The diagrams below depict the demand curves for both monopoly and competitive markets.

Policies used to Achieve Competition in Australia

Australia has developed a pro-competitive reform policy that will be used to achieve competition in the country. The policy which is known as the National Competition Policy was developed in the 1990s to demonstrate the political backing for market-based approaches in Australia.

The National Competition Policy paved way for the National Reform Agenda that was meant to provide a constitutional framework in enhancing the increase of competition in the various industries and markets that exist in the country.

The enforcement of the competition policy lies in the hands of the Australian Minister for Competition Policy and Consumer Affairs and also the Australian Competition and Consumer Commission (ACCC). An enforced competition policy is meant to create suitable regulations and infrastructures that will be used by producers and suppliers in maintaining a competitive market.

Another policy that was created to increase the level of competition in the country is the Trade Practices Act which oversees aspects such as competition, fair trading and consumer protection.

The Trade Practices Act ensures that competition within the country has been regulated and that restrictive agreements have been created to govern the practice of competition amongst the various participants of competitive markets.

The Trade Practices Act also ensures that companies in monopoly or monopolistic markets do not abuse their dominance over the market by misusing their market power for their own personal gain. The act ensures that the needs of Australian consumers have been met by protecting consumers from high commodity prices and by also ensuring that the quality of products distributed into the market are of a high quality.

The Trade Practices Act underwent several reforms that would ensure that it had the power to prohibit any predatory pricing by suppliers and producers and that price fixing was restricted on commodities that were not easily available in the Australian market.

The main purpose and goal of both the National Competition Policy and the Trade Practices Act is to correct the relationship that exists between the government of Australia and the business community within the country.

By creating policies and acts that would limit the exemptions placed by the government on the level of competition, the policy makers in the country wanted to rationalise the regulation of infrastructure within the country because the regulations created for the various states were not subject to the competition law developed by the Commonwealth.

The creation of competition policies and reforms were undertaken to review the existing laws and regulations that created impediments to competition in Australia.

Conclusion

The purpose of this assignment has been to determine why competitive markets are more suitable options for consumers instead of monopoly markets. The study has evaluated the various reasons that make competitive markets more preferable to consumers given that they allow the consumer to purchase various products at different prices.

The study has also evaluated the policies that have been developed to achieve competition in Australia as well as the various bodies that are concerned with ensuring competition has been regulated in the country. The policies have ensured that competition is fostered in a positive way to ensure that their no misuse of market power or any price fixing on necessities.

Bibliography

Hubbard, Glen and Anthony O’Brien. Economics. 3^rd Edition, New Jersey: Pearson International, 2009.

Brassil, Belinda. Excel HSC legal studies. New South Wales: Pascal Press, 2007

A Monopolistic competition is a market structure which is identified through the large quantity of comparatively small firms with the products of the firms being similar with only a slight variation to differentiate them. Therefore, the similarity in products makes the firms that exist in a monopolistic competition to be very competitive.

However, due to the fact that each of the firms has a slightly unique product compared to the rest of the firms, then each firm has a specific consumer and hence each of the firms maintains market control to a lesser extent. Examples of monopolistic competition include restaurants and clothing stores.

Features of a Monopolistic competition

There are basically four features that are used to identify a monopolistic competition. The first feature is the noticeable large amount of small firms which leads to the production of comparable products which are however not alike in detail (Ison & Wall, 2006). The mobility of a monopolistic competition is more or less excellent but it does not amount to the ideal resource which therefore makes it widespread but not perfect in comprehension of products to the consumer.

Large Number of Small Firms

In a monopolistically competition, almost every production business has a large number of small firms (Ison & Wall, 2006). The size of each of the firms is comparatively small when compared to the extent of the market as a whole.

This therefore means that all the active firms more or less compete against each other for consumer attention and since the firms are many and are all successful in producing the needed products, then each of the firms controls a small market share thus have limited control over the market price or the number of products in the market (Colander, 2008).

Relative Resource Mobility

Firms in a monopolistic competition are free to go into or go out of a production business venture especially when compared with a perfect competition or a monopoly (Pindyck & Rubinfeld, 2001). The rules governing the operation and the general business of the firms in a monopolistic competition are relatively few or none.

Such firms are for the most part free of government interference, a standardized system, operational policy and are at liberty to raise their own capital and endure start-up costs without facing any stern obstructions from the government or other firms (Ison & Wall, 2006). This therefore makes the firms less mobile in an ideal threshold especially when compared with the mobility of a perfect competition.

Extensive market Knowledge

In monopolistic competition, consumers have reasonably comprehensive knowledge about the prices of different products as well as the fairly complete information regarding the subtle differences in the products for example color, brand names among others(Pindyck & Rubinfeld, 2001).

On the other hand, sellers of the products also have reasonably inclusive information in relation to production methods which affect prices and hence sellers are also aware of the prices of their competitors’ products (Pindyck & Rubinfeld, 2001).

Similar Products

The firms in a monopolistically competitive market produce analogous products which are however not completely identical (Colander, 2008). This makes each of the firms and the products to aim at satisfying very similar basic want or need.

Therefore, the products that are put into the market by these firms are near proxies and are very comparable but are nevertheless not perfect substitutes (Ison & Wall, 2006). Even though the products might in actual sense have substitutes or slight physical differences, consumers of the products are the only ones who might perceive them to be different because the similarities between the products are usually more than the differences (Pindyck & Rubinfeld, 2001).

Therefore, firms in a monopolistically competition at any given moment have a great number of potential competitors since the products are usually almost the same and at the same time have a great number of potential consumers who are currently buying the competitors’ products.

Reason why monopolistic competitive firms can only make normal profits in the long term

A firm in a monopolistic competition increases on the profit by opting for the output that creates the maximum difference between the total income line and the total cost line. However, over the long run, a firm produces less output and charges a higher price which is even greater than its marginal cost (Pindyck & Rubinfeld, 2001).

The difference in price and marginal cost effectively goes against the vital order of efficiency because income is not being utilized to create the utmost level of consumer satisfaction. The graphs in Figure 1.1 represents the trends of such;

Fig 1.1: Marginal Revenue Curve and Operational Barrier Curve by (Chamberlin, E. 1999).

TC= Total Cost

TR= Total Revenue

This leads to inefficiency which is basically caused by the minimal market control monopolistically competitive firms have over the overall market, and hence most of the firms experience a negatively-sloped demand curves where price is greater than marginal revenue where the price is placed equivalent to marginal cost in order to maximize profit (Figure 2).

Therefore, as firms continue to receive income through sales, the income is translated into production in order to produce more goods of higher quality to satisfy the market needs (Ison & Wall, 2006).

Furthermore, monopolistic competitive firms can only make normal profits in the long term because they only control a small portion of the market which cannot be expanded due to the presence of several competitors (Colander, 2008). If the firm were to produce superior quality goods, then the cost of production would be at a similar ratio to the percentage sales hence the profits will be normal in the long run.

Conclusion

A Monopolistic competition is the toughest yet most common market structure due to its relatively unregulated mode of operation. It is also quite simple to establish a firm in a monopolistic competition as compared to other market structures. Firms that operate in a Monopolistic competition each have a small portion of the market in their control and hence due to the dissimilarity in product, neither of the firms has control of the price of the products hence the price becomes market driven.

References

Chamberlin, E. (1999). A Supplementary Bibliography on Monopolistic Competition. The Quarterly Journal of Economics, Vol. 75, No. 28, pp. 629-638.

Colander, D. (2008) Microeconomics. 7th Ed. London: McGraw-Hill.

Ison, S. and Wall, S. (2006) Economics. 4th Ed. New York: Financial Times in assoc with Prentice Hall.

Pindyck, R & Rubinfeld, D. (2001) Microeconomics. 5th Ed. New York: Prentice-Hall.

Introduction

Competition plays a pivotal role in determining the profitability and survival of businesses in various industries. However, the level of competition varies from one market to another, thereby leading to different market structures, which affect the market place differently.

One of the most prominent market structures is monopolistic competition. This paper shall set out to discuss this market structure. This shall be done by applying its structural and competition characteristics to KFC, which is an internationally renowned quick service restaurant franchise.

Monopolistic Competition: A Brief Overview

According to Mankiw (2011), market structures are defined by their level of organization and their differences in characteristics. Monopolistic competition markets are characterized by the presence of a large number of small firms, sale of differentiated products (similar but not identical), limited barriers to enter or exit an industry, and extensive technological and pricing knowledge among buyers and sellers (Mankiw, 2011).

Lambin and Schuiling (2012) state that as a result of large numbers of close substitutes produced within this market structure; firms display a demand curve that is relatively elastic.

KFC Case Study

In any given state in America, there are over 50 different quick service restaurants dealing with close substitute products. According to Mankiw (2011), a monopolistic competition market structure is characterized by the presence of numerous small firms, each being relatively small in comparison to the overall market size. Due to this saturation of firms, sellers of differentiated products have minimal market control in determining the prevailing price or quantity of their products.

KFC is one of over 100 eateries operating in America. As such, if the price of a chicken burger is about $3, each restaurant (KFC included) sells its chicken burger within that price range. Setting a higher price would give KFC’s numerous competitors a competitive advantage as the quantity demand for KFC products drop and clients switch to other restaurants.

Similarly, Lambin and Schuiling (2012) assert that firms in monopolistic competition industries sell similar products, which are slightly different (differentiated products). Product differentiation enables firms in a monopolistic competitive industry have a competitive advantage over their rivals. For example, chicken sold by KFC, Red Rooster or Nandos may come from the same supplier. However, each of these restaurants cook, pack, or serve their end product differently from each other.

Thirdly, resource mobility in a monopolistic competition industry is relatively easy in regard to entry and exit. This means that entry barriers such as state policies, regulations, start-up costs are minimal. Similarly, firms can exit the industry with little to no restrictions (Taylor & Weerapana, 2007).

In addition, firms can acquire resources, labor and capital without being discriminated upon. This can be evidenced from the fact that KFC has penetrated different regions around the world, and can leave or switch to a different business without incurring high expenses.

Finally, buyers and sellers have extensive knowledge regarding the prices or technology used in a monopolistic competition industry. Lambin and Schuiling (2012) further explain this by stating that while buyers may lack some information, they are relatively knowledgeable about the prices, as well as the differences between various close substitutes. On the other hand, sellers know the price range of close substitutes.

For example, chicken sold at KFC is almost the same price as chicken sold at Red Rooster. Technologically, all the restaurants competing with KFC have the same knowledge on how to prepare chicken. As such, they may be using the same production technology. Examples include ovens, cutleries and fryers.

Competition Analysis

KFC faces a non-price competition at the market place. According to Taylor and Weerapana (2007), competition between monopolistically competitive firms is based on perceived, physical and support service differences that result from product differentiation. Key competitors include but are not limited to Red Rooster, McDonald’s, Nandos and Hungry Jack’s among others.

Market Power Recommendation

According to Mankiw (2011), monopolistically competitive firms have minimum control when it comes to determining the terms and conditions of exchange. With this in mind, KFC should focus its attention on raising its products’ level of brand awareness. Through innovative product differentiation, KFC can efficiently come up with new products. In so doing, the level of competition will be low and the profit margins high in the short-run.

Additionally, having fewer competitors will enable KFC to increase prices without necessarily loosing all its clients. Alternatively, KFC may decide to lower its prices due to the fact that the few competitors that exist cannot afford to get into a price war with an already established brand. Conclusively, it is only through innovation and creativity that KFC can eliminate competition, thereby ensuring that its market power is increased.

References

Lambin, J., & Schuiling, I. (2012). Market-Driven Management: Strategic and Operational Marketing. Chicago: Palgrave Macmillan.

Mankiw, N. G. (2011). Principles of Economics. New York: Cengage Learning.

Taylor, J., & Weerapana, A. (2007). Economics. New York: Cengage Learning.

From time immemorial, consumption has largely been the yardstick for signaling one’s position as regards social status, membership to a given group, or even one’s own self-esteem. The expenditure incurred out of these, therefore, is directly influenced by the symbolic value they bestow upon the buyers as these are the motivators that create the need, for one, to associate themselves with such (Clammer, 1997). This fact is based on the socially accepted norms within a given society. Competition has pushed businesses to tap into the imagination of their clients, thus new marketing tools have been devised as a means to stay afloat. They, therefore, classify their clients according to their social class within the given society.

This, aptly put, dictates that the consumption of the given product is influenced by the symbol attached to it, and the value appended is directly proportional to its symbol in society, such is regarded as symbolic consumption. Clammer (1997), in another simpler definition, states this as “the use of cultural capital and consumer information to satisfy desires that transcend the mere status that is intrinsically accompanied by the goods consumed” (Clammer, 1997). This paper, therefore, seeks to define the values attached to the symbols and the competition that arises within the Japanese set-up socially.

The Japanese, on prima facie, is a classless society when observed from afar. It is an assumption that given the fact that their earnings are almost on the same scale, but that is only an external observation. They have a consumptive society which, in their undertakings, has a tendency for semblance in terms of their choices; as such, they imbue their national values as a people. Japanese society, though uniformity, has created a unique social set-up that has a totally different set of standards for the definition of a given persona.

Independence and eccentricity are attained by a given gradation in their consumer behaviors. Symbolic competition as a concept among these people is necessitated by the need to classify the different people in terms of their persona, their uniqueness, and their acceptance to the norms that define their culture (Clammer, 1997). However, this has not dampened the fact that differentiation is still a part of this culture and that differentiation has come about as the effects of property ownership, control of space, and their general lifestyles. The difference in possession of these has proven to be the symbolic boundaries between the classes.

The Japanese society in itself is almost a homogeny culture, meaning the distinction of the self is rather uncommon. However, international trade and commerce have resulted in a conflict between the Japanese values and a people’s need for self-identity fuelled by their appetite, to keep and maintain a homogenous society (Clammer, 1997). Homogeneity in Japanese society is intrinsically desired and overtly present in the form of small differences in the levels of income the workers earn. Income, to a large extent, dictates expenditure, naturally implying that most Japanese would buy the same things as they earn almost the same amount in terms of salaries. Therefore, it is necessary to separate the societal values from individual ones and the psychological need for differentiation. The balance between individual and societal values becomes an essential factor in Japanese society (Skov & Moeran, 1995).

Symbolic competition, therefore, provides a balance between these foreign and domestic values. The difference in the conflict is that their values are the complete contrasts, for instance, in America and other societies, competition is exaggerated and is displayed through opulence in consumption; the Japanese frown at this as they practice uniformity in their culture. Aside from wealth attachment, the difference in the two societies stems from the fact that their earnings are totally different, America has truly huge disparities in the incomes of its people whereas the Japanese have exceedingly small wage differential gap (Skov & Moeran, 1995). Therefore, the Japanese cannot compete materially to a great extent, thanks to their small wage difference. This limits them on several factors, such as the choice to buy whatever commodities, information, aesthetics, comfort, taste, and leisure. Additionally, Japanese like to downplay overt differences, thus, they are less likely to compete based on such (Clammer, 1997).

Other than culture and the values attached, symbolic competition is perpetuated by several other factors. The most notable among them is gender and the role of gender in the constitution of factors that define consumer culture in Japan. In essence, the working population in Japan is a composite of both male and single women (Clammer, 1997). When they marry, they resign from their occupations, to go tend their homes; they are the primary caregivers in their society. They are the ones who do household shopping; therefore, determine what is to be used in the house. Major or big purchases such as a house or a car are determined by the man. Other things the man can purchase, though he is sometimes also restricted, are food, clothing, and general appliances that are used in the house (Skov & Moeran, 1995). This, in a nutshell, implies that women drive the consumer economy since they are the ones who determine household expenditure on consumables.

To the housewives, shopping is a key activity in their daily lives and is, therefore, a pre-planned event of significant importance. Several strategies are employed when it comes to shopping i.e. the use of catalogs, do-it-yourself shopping, and the use of co-operatives to do shopping (Clammer, 1997). Information on the products one consumes is crucial in Japan. This information is accessed from the thriving Japanese advertising industry and is essential in the determination of consumer choice geared to the portrayal of the desired image (Skov & Moeran, 1995). Information and advertising thus form an integral part in the consumer culture of Japanese people as it helps people sharpen their taste while staying relevant to the cultural codes they desire and, keeping within the limits of one’s income.

In some sense, shopping to Japanese women forms an essential recreational activity. Women are mostly tethered to the home and, unlike men who have designated activities of play like sports; women get few opportunities to pursue leisure (Clammer, 1997). Shopping is thus a good part time activity, presenting women the opportunity to actualise themselves through choice, imagination and consummation of desires. Shopping is deemed essentially as a hobby; therefore, most of the shopping activities are done from a perspective of fun and fulfilment of desires rather than the inherent utility of the purchased goods.

This form of play achieved through consumption also forms an integral part of the self of Japanese women. The self is expressed and defined by the interaction between the shopper and the things they purchase. The self in Japanese culture is more of a relational entity, as such; the self is expressed through the relations that one has with the things around them as well as the people surrounding them. Shopping enables one to express his/ her identity through purchasing goods that may have a symbolic form of expression, and at the same time, it gives one a sense of belonging to a preferential purchasing class.

The normal ideas of display play a minor role in the differentiation of self in Japanese society. Since the society is a conformist, the idea of overt display, is used to create a sense of belonging to a certain group. The real target of the display is the self; the value outward appearance of consumer goods is preceded by the personal significance the goods have to the owner (Clammer, 1997). The irony of display in this case is that it takes a subjective form rather than a conventional intention in a public sense.

Another feature of Japanese consumption linked to the idea of symbolic competition is cosmopolitan consumption. While it is true that Japan is economically superior to most nations, most Japanese feel culturally inferior. The major essence of international goods within Japan is, therefore, aesthetic, motivated by the need to appear eclectic and stylish (Clammer, 1997). Cosmopolitan consumption is symbolic and appears to be a reflection of one’s taste and style, which results in buying not just locally but from other cultures, as well. It should be noted that this consumption is quintessentially Japanese and not necessarily the subversion of the Japanese culture through foreign influence. This is displayed in the traditional Japanese wrapping of gifts. This consumption is political in nature and, therefore, does not undermine the essential feeling of nationalism that the Japanese possess (Skov & Moeran, 1995).

Class in Japanese society is more relational and less conscious than it is with other nations. Class, in this sense, is marked by preference, taste and similar cultural capital. This intra-class competition is largely symbolic and occurs in consumption (Clammer, 1997).

Symbolic competition in Japan, therefore, denotes a complex social phenomenon precipitating from the local culture, consumption, nationalism and the unique economic situation in the country. In a nation where egalitarianism and restraint are normal, symbolic competition is used to differentiate the different social classes.

References

Clammer, J. R. ( 1997). Contemporary Urban Japan: Sociology of Consumption. Oxford: Blackwell Publishers.

Skov, L., & Moeran, B. (1995). Women, Media, and Consumption in Japan. Hawaii: University of Hawaii Press.

The advent of technological changes and the new media in an economy where every context of marketing channel is changing has transformed marketing. Technology places the customer at the centre of marketing. Marketers will find it useful to have a thorough understanding how the current technology works, integrate it to maximize profit. They should take initiative to reappraise their expectations and the role of marketing in a digital and networked marketplace (Ferrell & Pride 39).

The new technology defines the new customer-powered marketing concepts that are now possible due to digital channels. Technology facilitates permission, location, viral, real-time marketplaces and auctions in dynamic marketing environment.

Marketers can identify customer-centric marketing goals that technology takes to the next level, sales promotions, relationship marketing techniques, wide and narrowcast forms of advertising. Therefore, the current goal of marketing is to use digital, networked channels such as the Internet, mobile, interactive television as marketing tools that marketers can integrate in their work.

Technological advancement has now made it possible for Qatar to participate in the international markets. NYSE, Qtel, and Qatar Exchange technologies have connected the country to the Global Trading Network. Technology enables financial participants in Europe and the US to connect through a secure network platform in Qatar markets (Mashni 2011).

Qatar now joins high-performance financial network of the global community through technology. The major communities of the world leading financial institutions consisting of brokers, investors, and investment banks now have access across Asia, Europe, and the US. Connectivity enables the traders to faster and easily reach trading zones to provide and offers other services.

Advanced technology provides a robust world-class secure and reliable connectivity to ensure that Qatar exposes it international presence and provides more benefits to investors. The networking gives the country a strategic advantage in the region and further develops the cross-region financial trading across the three continents (Mashni 2011).

Competition: Summary of the article, “Mideast carriers forge ahead with aggressive expansion plans, but challenges loom”

Times have changed. Marketing competition is fierce. Consumers are savvier. Communications are faster, and once-successful companies are in crisis mode. Marketing should focus on how to adapt, compete, and finally succeed in an overcrowded marketplace. Marketers need to beat the competition to stay afloat. Businesses need to challenge their rivals by differentiating their products and increase value to enable them stand out in a crowded market.

Marketing strategies should change with time in regard to competition. They invest and adopt the latest technologies, multimedia and communication resources to connect with their customers. At the same time, marketing strategies should focus on managing crises. They identify how to cope with losses, rising costs, and even negative publicity (Ferrell & Pride 59).

In order to keep ahead of competition, marketing should find out how increasing product lines may affect the company’s overall sales. It should also look into why emerging new brands might outsell their established products, and how to position their brands. Marketing techniques should identify how to attack the competition and the value of emphasizing value.

Consumers have too many products and services to pick from in the marketplace. Marketing should focus on why consumers should pick a brand over another. There is a need to understand the psychological motives that drive today’s consumers in order to reposition the brand among competitors.

In Middle East, there are leading three regional airways carriers. These are Etihad, Emirates and Qatar Airways, which are the main competitors of the region. Boston Consulting Group puts it that the passengers’ movement in the region will increase to 140 million by 2015. As a result, the leading three carriers are now implementing their aggressive expansion initiatives (Florian 2011).

Emirates’ financial position puts it ahead of the competition. It has an immense advantage and flexibility to increase capacity and market share. Analysts say that Emirates enjoys significant costs in savings through fuel consumption and operating costs.

Now, it is repositioning itself in the market by consolidating to a smaller fleet to simplify its maintenance and costs of the operating crews. Cost-saving strategies of Emirates put it ahead of the competition. They save of fuel, cost of the crew, they pay a minimal fee at the Dubai hub, and the staff do not pay any personal income tax to the United Arab Emirates (Florian 2011).

The other two carriers also enjoy relative cost advantages. They follow the national policies of their countries. The three competitors are can compete with each other aggressively due to these benefits, and with other financial challenged airlines in the region. Industry leaders say that, within the next few years, there will be even fierce competition in the airline sector.

They are adding carrying capacity beyond the demand, expanding their networks aggressively by increasing frequency of flights and adopting more fuel efficient flights to manage costs. Managers will also focus on challenges posed by expansions, competitions and these rapid shifts.

The airlines must also contend with competition from emerging markets such as India, Turkey, and possibly China. These competitions also have the same cost-advantage models used by the three leading Middle East airlines. At the same time, the emerging competition now is connecting the airlines’ traffic to regions with no hubs in the Middle East. The leading airline companies also face potential changes from foreign governments’ restrictions of market access and changes in pricing.

Conclusion

This paper is focusing on two forces that drive the market. Firstly, technology is now a critical driving force in today’s fast-paced marketing environment. In the article, “Qtel, Qatar Exchange and NYSE Technologies connect Qatar to the World Trading Network” by Mashni Rima, shows how advent in technology is transforming financial trading across the three continents of Europe, Asia and the US foreign exchange markets.

Technology is opening international markets to traders across the globe. Faster and secure connectivity provides traders with real-time trading zones. Qatar now joins high-performance financial network of the global community through technology. The world-leading financial institutions consisting of brokers, investors and investment banks now have access across Asia, Europe and the US.

Secondly, competition in a marketing environment is now fiercer. The local article, “Mideast carriers forge ahead with aggressive expansion plans, but challenges loom” by Jeff Florian shows how competition among the three leading airlines of Middle East region is taking new dimensions. The airlines are expanding their fleets in anticipation of an increasing number of passengers to the region. It also focuses on the future anticipated competition and threats to the airline industry of Middle East region.

In conclusion, marketing strategies need to change with advancements in technology and competitive environment. Marketers should think ahead in order to match competitions and technology advancements in order to remain relevant. What works today might not work tomorrow. A successful company may be out of business tomorrow due to competition and technological changes, which it fails to adopt so as to match its rivals. Therefore, need to adopt what works today and tomorrow is of the essence in a dynamic marketing environment.

Works Cited

O’Ferrell, Sally Dibb and William Pride. Marketing: Concepts and Strategies.15th Ed. Boston: Houghton Mifflin, 2003.

Florian, Jeff. ”Competition.” AMEinfo. The Ultimate Middle East Business Resource. 19 Sept. 2011. 12 Oct. 2011 <https://www.ameinfo.com/>.

Mashni, Rima. “Technology”. AMEinfo. The Ultimate Middle East Business Resources. 19 Apr. 2011. 12 Oct. 2011 <https://www.ameinfo.com/>.

Quality management has greatly developed from a basic business and statistical model that is centered on numerical quality control into a concept that includes a wide variety of subjects and concerns within an organization. This kind of quality management is known as Total Quality Management (TQM) and it dominates the existing generation of quality concepts.

The core concepts that lie behind TQM and are considered to be crucial in its successful implementation are clearly instituted and include client value satisfaction, constant improvement and complete organizational involvement. Despite this paradigm being very appealing and being used in many organizations with significant positive effects, the practicability of this idea remains questionable especially with the modern actuality of global markets and manufacturing entities.

Industrialization brought with much opening up of the economic and trade sectors of most countries in the world. The constant progressing in the industrial sector has also lead to merging of neighboring countries to form trade blocks that simplify the trading process.

Due to this, the global market has largely opened up in recent years and most companies and organizations have aim to advance their products to a global level. As a result of the large consumer base that the global organizations are expected to serve, their quality management slightly differs with that of the local organizations which have a much smaller consumer base.

In this paper, I will use a local electronic company, Sollatek Electronics Ltd to compare the total quality management against a global electronics company, Ametek, Inc. These two companies both deal with the manufacturing of electronic devices and electromechanical instruments such as voltage switchers, voltage stabilizers and uninterruptible power supplies.

Since every company’s goal is to have continuous growth as well as reduce its costs, it is essential to use total quality management so as to produce high quality products at a low cost and at the same time ensure that the customers are satisfied (Janakiraman & Gopal 2006).

The first point of comparison is the modes of production orientation which are seen to be similar in both companies. However a global company such as Ametek might end up extending their orientation to a point where dysfunctions begin to emerge. This is because it involves all operations and units in all the countries and thus automatically involves an apparently seem less set of potential designs. In addition, if Ametek came to UK and found that the local market is not competitive enough or is incompatible, it will be forced to link with other companies from overseas.

Market orientation is also be similar between global company Ametek and the local company Sollatek, but the diversity of customer necessities across various consumer markets means that customer satisfaction may be more difficult to achieve in the case of Ametek. This is especially so if the resources from the company are inadequate.

This is because the perceptions clients in regard to value are likely to differ more widely than in the case of Sollatek whose consumer base is within one country.

Cultural sensitivity is predominantly a great contributor to the opinion of customer value. The objective of a global company such as Ametek is to produce goods and services that are developed, manufactured and distributed under a global organization and yet they should be locally acceptable in every country that they have established a branch. Sollatek is rarely faced with such a challenging situation being in its home base and with a clear idea of what its clients expect from them.

The strategic concepts behind TQM are easily upheld in a local organization such as Sollatek, but in the case of a global organization such as Ametek there is need to enlarge the range to include the concerns of various purposes across numerous countries such as state power, cultural divisions, geography, and tax and currency concerns (Young & Ryun, 1995).

A successful quality management system in an organization brings the management together in a commitment of producing goods that ensure customer satisfaction. This is very important both in the local and global market as the ranking and dependability of an organization rely on the perceptions of its consumers.

Sollatek for example is ranked highly in the local market because of its steadfastness in producing reliable products. Managerial improvement ensures that protocols are being properly followed and the company targets are met on time. This leads to constant company improvement and hence attracts more clients and improves the position of the company in the perspective of its target consumers.

In conclusion, for the success of any company, total quality management is required as it acts as sufficient proof of the commitment the company has towards providing quality goods and services to its client base.

Reference List

Janakiraman, B.J, & Gopal, G. (2006). Total Quality Management Text and Cases. New Delhi: PHI Learning Pvt. Ltd.

Young, K. & Ryun, C. (1995). Global quality management: A research focus. Decision Sciences, 15, 37-52.

Introduction

Today, more than ever before, the global economy is transitioning from a products-oriented economy to one of value creation, employment generation, and economic prosperity dependent on services. As demonstrated by Bardhan et al., globalization, technology advancements, and shifts in the global economic environment has generated a triple convergence of new organizations, operating in a new economic environment, and developing new procedures and processes for horizontal collaboration (17).

This has resulted in a potentially impulsive opportunity for organizations all over the world to participate and compete in global value chains, where the provision of services as opposed to manufacturing of products is becoming increasingly essential.

This new approach of conducting business in the global economy has necessitated researchers and other theorists to give special attention to the managerial practices, techniques, and knowledge that can effectively be used to create an enabling environment for the enterprises to configure service competition and relationships that ingeniously generate extraordinary new value for their own existence and profit motives (Brody 28).

Aim/Purpose of Research Paper

The present paper aims to critically discuss the most important management practices in service competition. The rationale behind this broad objective is derived from the fact that it is important for interested parties to comprehensively understand all facets of managing service organizations and service competition since economies across the world are not only becoming more service-oriented, but technology convergence, globalization, and shifting customer needs are increasing the prospects to come up with fundamentally new services that have ultimately transformed the traditional way of conducting business (Prahalad & Ramaswamy 1).

Currently, competition in the service-oriented organizations has greatly intensified to a point of upending the status-quo that was traditionally held by organizations engaged in manufacturing products.

In the mean-time, profit margins continue to shrink as these organizations strive to outdo each other. As such, managers must not only focus their attention on costs, processes, efficiency, and quality of the services on offer but must endeavour to acquire new knowledge that will enable them become more innovative and creative in the ever-competitive business environment.

This paper purposes to come up with a body of knowledge that will enlighten managers and other interested parties on the most important management practices in service competition.

Background

Most countries have by now experienced shifts in their economic frameworks from goods-oriented to service-oriented economies. The western world, in particular, “…has experienced a post-industry service economy for several decades,” with the services sector contributing over 70% of the Gross Domestic Product (GDP) in some industrialized nations such as the United States of America and the United Kingdom (Gronroos 1).

In developing nations, services represent over 50% of GDP, and as their economies persist to develop, the fundamental importance of service organizations in their respective economies continue to grow. According to an OECD concept paper on service economy, manufacturing currently represents less than 20% of GDP in some of its member countries (3).

In the meantime, service organizations have managed to create more employment opportunities within the last few decades than manufacturing-oriented organizations.

As a matter of fact, “…employment figures had grown to 76% in 2002 in the USA and 75% in 2003 in the UK” (Gronroos 1). The importance of this maturing sector can further be demonstrated by the fact that the current cataloguing of Fortune 500 companies includes more service organizations and fewer manufacturing entities than was previously the case (Bardhan et al. 45).

Concept of Service Organization

It is a well-known fact that all products manufacturing enterprises currently provide a multiplicity of services to their customers (Gronroos 2). For example, Schindler, a major player in the elevator manufacturing business, recently declared that only 8% of their labor force was directly engaged in manufacturing processes, while the rest were involved in the provision of services.

Computer giants IBM and Dell also treat their businesses as service-oriented in spite of the fact that they are to some extent engaged in manufacturing computers. The ‘servitization’ of products, as it is commonly referred to in management literature, has necessitated many researchers to take a deeper analysis of the emerging sector with a view to establish standards and best practices that could be used to drive the sector forward.

Logic of Service Competition

One of the areas that have received extensive attention in various discussions on service organizations is service competition. According to Schneider et al., there exist many models that attempt to explain service competition – from passive models to active ones (19). A distinctive aspect of many services, as reported by Cachon & Harker, is the close participation of customers or clients in the overall service delivery process (1).

Although services are transforming economies on a substantial scale, service organizations must develop and nurture practices that will allow them the opportunity to retain their customers – thus their competitive advantage – since competition in many service areas such as banking, insurance, distribution, tourism, education, and health has reached fever-pitch (Gronroos 2).

The basic assumption among many scholars and management theorists is that organizations can increasingly benefit when they make choices and offer services that stimulate competition and allows creativity and innovation at the marketplace (Poisant 19).

Main Discussion

This section aims to discuss the most important management practices in service competition. Among the topics intended for discussion include: management of customer relationships; nature of service and service consumption; customer loyalty; customer satisfaction; quality management in services; development of processes that offer value; and market-oriented management, among others.

Managing Customer Relationships

Customers are the focal point of any service-oriented organization and, as such, how well they are managed becomes an important benchmark of evaluating success in the service industry. According to Schneider et al., customer relationship management is a widely distinguished approach for managing an organization’s interactions with its core customers (19).

In the 21^st century, technological interventions which allow for the integration and alignment of customer needs with critical business processes are increasingly been used to manage customer relationships in the service sector.

The objectives of establishing customer relationship processes are to source, attract, and win new customers, foster and retain existing customers, persuade those that may have left to come back into the fold, and develop mechanisms that can effectively be used to reduce direct and indirect costs related to customer service (Brody 113).

Many analysts have formed the opinion that service competition is at its highest ever since it was introduced into the market a number of decades ago as a direct outgrowth of the expanding service sector (Gronroos 27). In equal measure, customers will always prioritize their needs, and will always choose a specific organization based on the prices, lead times, and a priori preference for the services on offer (Cachon & Harker 1).

An effective platform geared towards managing customer relationships, therefore, must have the capacity to mitigate the risk of failing to comprehensively satisfy customer demands, increase revenue for the organization, enhance customer satisfaction, and realize substantial savings in operational costs and other financial outlays.

It must also have the capacity to balance competing priorities that are critical to the establishment of an efficient customer-enterprise relationship, such as cost implications, lead time, reliability, quality, and flexibility (Jin & Ryan 1). Realizing that service is a noteworthy differentiator, many enterprises are progressively turning to technology platforms to assist them manage and improve customers’ relationships while aiming to enhance efficiency, competence, and specialization.

The Nature of Service and Service Consumption

Services can simply be defined as a diverse group of economic activities that characteristically involves the “…provision of human value added in the form of labour, advice, management skill, entertainment, training, intermediation and the like” (OECD 7). Bardhan describes services “…as the application of competence and knowledge to create value between providers and receivers…

This value accrues from the interactions of services systems that involve people, technology, organizations, and shared information in addition to language, laws, measures, and models” (21). Services, unlike other economic activities, can neither be inventoried nor consumed outside the point of delivery.

Typical services include visiting the doctor, eating at a restaurant, or frying from London to New York. It should be noted that services are consumed in a scenario whereby the consumer of the service is in direct interaction with the organization or entity that offers the service. However, technological advancements through time are now enabling customers to take part in a rising number of service-related activities without having to maintain a physical presence.

For example, technology has now necessitated online trading of shares, online betting, online banking, telemedicine, real estate, and software applications can now be developed and packaged like other manufactured goods – the fact that they have a high service-oriented content notwithstanding (OECD 7).

The capability of aligning the nature of services on offer with customer needs and expectations determines how much a particular service-oriented organization will gain from economies of scale. According to OECD, “…technology now allows [service] providers to produce a single product, which is not mass-produced, but which is capable of being mass-consumed, either on a standardized or customized basis” (8).

The capacity of an organization to adapt newer technologies, therefore, becomes a defining facet on how well it is able to offer its services to customers and the level to which such services are consumed.

The nature of services ultimately determines not only the strategies to be used to necessitate their consumption, but also the prices that will be tagged on them. Service-oriented organizations must invest in the best strategies to ensure maximum returns and customer satisfaction.

In time-sensitive service industries such as banks, hospitals, and stock exchange markets, for example, respective organizations enjoys the flexibility to select diverse strategies with the aim to optimize their profits per unit time, in full cognizance of the fact that other entities operating in the same field desires to achieve the same objective (Cachon & Harker 5).

For instance, one organization can charge a premium price and adopt a strategy to serve customers quickly depending on the nature of goods on offer, while another might choose a low-pricing methodology but offer their services at a slower rate depending on consumption patterns. Therefore, the capability to choose the correct strategy based on the nature of service and service consumption patterns proportionately determines the organization’s capacity to handle competition in the service sector.

Building and Maintaining Customer Satisfaction & Loyalty

Repetitive malfunctions at the organizational level cost entities millions of dollars in redesign outlays, liabilities, and other related costs. However, by far the most costly of these breakdowns is the lost business that organizations experience when customers are not satisfied with the services or products offered.

For service-oriented organizations, the task of offering error-free services becomes even more exigent based on the fact that their intangible nature and scope provide a framework for customers to give subjective perceptions regarding the quality of products on offer (Vermillion para. 2). Equally bothersome, according to the author, is the uncontrollable component of customer involvement in the service process largely due to the fact that production and consumption of a particular service occur as an instantaneous process.

In service competition, customers will always look for new organizations that have the capacity to deliver services to the desired expectations and, as such, it can be safely argued that service quality and timeliness on the one hand and customer satisfaction on the other are intimately related constructs.

The task for the management and employees of service organizations, therefore, should be to develop and nurture mechanisms that ensure maximum customer satisfaction (Gitomer 24). There exist established tools that could be used to ensure customer satisfaction, hence creating an environment through which the organization can enhance its competitive advantage.

For instance, the management can use the Failure Mode and Effects Analysis (FMEA) to identify and eradicate probable causes of customer dissatisfaction. Vermillion postulates that “…with FMEA, potential failure modes in the process are identified in anticipation of the service encounter…In this way, the potential for errors is reduced or eliminated, allowing for only the smallest probability of customer dissatisfaction” (para. 4).

Still, some organizations conduct attitudinal studies to measure service quality and customer satisfaction, but this has been found to be lacking in objectivity since a customer may not be satisfied with a particular service but still fail to pinpoint where the problem might have arisen from (Sharp et al. 1135). Other strategies that can be used by service organizations to enhance customer satisfaction include:

• Involving the customers to present descriptive reactions regarding the actual service received (Sharp et al. 1136).
• Training ‘mystery shoppers’ to provide a detailed record of particular services on offer.
• Requesting employee to factually and objectively report what they did or did not do.
• Employment of internal records to avail information on what customer satisfaction interventions the client was or was not exposed to.
• Employment of industry-wide settings such as delivery failures, lead times, and customer-employee relationships, among others.

Service quality is also inexorably linked to customer loyalty. According to Gitomer, satisfied customers are more likely to return for more services, while dejected ones are more likely to find new service providers (54). Customer loyalty is a direct offshoot of customer satisfaction, and one cannot be nurtured in the absence of the other.

As such, it should be the task of the management, assisted by members of staff, to identify the most important basics that relate to subsequent buying behaviours, including identifying and eliminating all rudimentary components within the service organization that is related to customer dissatisfaction (Sharp et al. 1136; Gitomer 63 ).

This way, customer loyalty will certainly be cultivated and the organization will be in course to accomplishing its business goals and objectives. According to Sharp et al., “…a more traditional alternative [of building customer loyalty] is to ask customers directly which service elements are most important to them [while] a better approach is to determine relative importance [of service] from statistical and experimental techniques” (1137).

Quality Management in Services

As already mentioned, the quality of service fundamentally influences an organization’s capacity to maintain a competitive advantage, thus its capability to accomplish business goals and objectives in service competition. The management must endeavour to develop and actualize systems aimed at overseeing that the quality of services on offer meets or surpass customer expectations (Kandampully et al. 51).

Specifically, quality management should be focused on the customer, and mechanisms should be put in place for continuous improvement of the services. In addition, the systems tasked with the responsibility of quality management must always ensure consistency of quality to further enhance customer satisfaction levels and loyalty.

Such a system must have the capacity for process measurement and controls geared towards establishing critical areas that need to be redesigned to enhance continuous improvement of services on offer, not mentioning the fact that it must have the capability to benchmark industry best practices for adoption by the organization (Kandampully et al. 58).

Customers will come back for more if they establish that a particular service-oriented organization is not only dedicated to total service commitment, but the level of service is consistent over time, and with their own expectations.

Developing Processes that Deliver Value

The creation of processes that are aimed at delivering value to customers, members of staff, and shareholders is of fundamental importance in service competition. Organizations, according to Burlton, are only able to survive the harsh business environment of the 21^st century depending on how well they formulate strategies and processes that will deliver value and enhance their critical competencies and work methods (11).

Processes that deliver value should be implemented on a daily basis and must aim to convince the customer that everything is being done to enhance a cordial and fruitful relationship between the organization and its employees on the one hand and customers on the other. Value-based processes are extremely important in service-oriented organizations since they bring the customer closer to the organization (Kandampully et al. 101).

In this perspective, the management must always strive to develop processes that will maximize the entity’s potential towards the attainment of its goals and objectives. Specifically, more emphasis should be placed on enhancing employee competence, technology uptake, devising ways for effective leadership, improving work processes, and enhancing the organization’s intellectual capacity.

Market-Oriented Management

As is the case with manufactured products, services must also be effectively marketed to the target consumers if the organization is to remain productive in service competition. According to Becker & Homburg, “…market orientation as a business organization’s orientation towards its customers and competitors has been emphasized as a central key to company success by academics and managers alike” (17).

There are many approaches that organizations can use to entrench their services in the marketplace, and no single approach can be termed as the panacea of marketing challenges that continue to bedevil organizations worldwide. It should, however, be the responsibility of the management to develop proper frameworks for marketing that can be used to measure performance outcomes and critical determinants of customer needs and preferences (Becker & Homburg 26).

Cost implications, intended audience, and capacity to reach the audience in good time are some of the other factors that must be taken into account in the development of a winning marketing strategy for service-oriented organizations.

Conclusion

This paper has effectively discussed the most important management practices in service competition. It should be noted that although some practices are more important than others, an all-inclusive approach is more likely to bear maximum outcomes for the organization, customers, employees, and stakeholders (Gitomer 27).

Still, some practices depend on the presence of others for them to be effective. For instance, it is practically impossible for a particular service to attain customer loyalty in the absence of customer satisfaction since satisfaction nurtures loyalty.

As such, the uphill task for service managers is to devise ways in which all the above practices can be successfully implemented at an organizational level to guide the enterprise in service competition. More importantly, these practices should be formulated in such a way that they derive the most benefits to the customer while ensuring that the organization continues to meet its objectives and obligations since customer is ‘king’ in the service industry.

Recommendations

For the above management practices to take effect, employees must be provided with the right tools and leverage to solve the issues or problems arising from the customers. This is especially so if the organization is to maintain good relationships with its customers.

Second, organizations must increasingly invest in modern technology solutions such as call centre solutions and intelligent call routing to ensure that customer demands are not only attended to, but they are attended on time. Finally, service organizations need to embrace modern methods of collecting data on customers rather than relying on attitudinal surveys, which do not tend to generate managerially actionable results.

Works Cited

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Waitrose puts a lot of energy and investment in research as a strategy of ensuring that it always has an edge over its competitors in the market. Two types of shopping have been found to be points of emphasis. These are secondary and one stop hopping.

Waitrose as would be expected faces a lot of competition in its niche of market. Some of its major competitors include Wegmans, Sainsbury, Morrisons, Asda, and HE Butt in the United States and Somerfield.These are the main competitors particularly in the area of online shopping.

Waitrose launched an online organic product service which allows customers to buy online have their produce delivered to them. Their website allows customers to register with them and be able to do their shopping from the comfort of their homes. It has managed to restore confidence in its buyers about online shopping security by being innovative; they allow customers to swipe their own items and use hand print identification to ensure security.

Most competition on online shopping therefore is based on innovation and security of client money. Wegmans for instance has come up with a new feature that allows shoppers to develop a shopping list online while spotting saving and filling a feed back form. This allows them to go to the stores while sure of how much they will spend.

Wegmans also allows users to for example check out recipes online and buy the ingredients in their recommended amounts. This innovative venture ensures convenience and a free service (online recipes) and helps retain customers.

HE Butt on the other hand uses OneClip.com to facilitate their online shopping. Research has shown that OneClip.com sales increased rapidly with introduction of their one clip coupons (Prevor 2008). HE Butt also gives the customers the option to have their goods delivered. This enables them to counter Waitrose’s after sales service

Morrisons have invested in keeping their clients and partners very informed about their services, location and offers. This has been enhanced even more by use of a very wide and informative website. Their website is very detailed in terms of service provision, their location and any due offers.

Asda, another competitor in the retail business, has a different strategy. They base almost all of their promotions on pricing. Their main marketing tool is making all perceive them as the store with the lowest prices. This is a good reputation because it attracts low end consumers who form majority of most populations.

It however has a negative effect on the upper and high class clients because they hold class dear to them and would not like to be associated with ‘cheap’. These promotions are advertised o their shopping sites and attract lower end users.

Sainsbury have recently set up strategies to attract farmers. They introduced anew and wide range of fresh produce available online. They also have innovative by developing an online catalogue that allows users to check out and purchase their products by a click of the mouse.

In general therefore, online shopping competition is centred around innovation and bringing the service as close to the customer as possible. Mainly assurance of security and convenience score for which chain taps the most market.

List of references

Prevor, J P. 2008, Wegmans Phasing Out Tobacco, Perishable Pundit, available at http://www.perishablepundit.com/index.php?date=01/08/08&pundit=2 [06 March 2010].