For the monopolistic competition practical observation, two brands of chocolate production were chosen: Dove and Hershey. Specifically, the dark chocolate candy bags of two brands were analyzed. The prices for the Dove chocolate bags were approximately 10 dollars higher than the Hershey ones. Regarding the design, Dove used the traditional for the company logo and color pallet with the additional images of the colorful-packaged chocolates included in the bag. Hershey’s production had more gloom combinations of brown, green, and red colors (Du and Wang, 2018). The peculiar design feature of the bags was the standing out sign of organic production. The Dove chocolate bags, as well as the Hershey’s production, were placed on the middle shop shelves where people could quickly notice the product. The essential criterion was that the goods differed in ingredients (Dhingra and Morrow, 2019). The price changing was conditioned by the uniqueness of the product and its quality. Hershey’s production was likely to be oriented toward the price-conscious consumer because it had a wide variety of price categories.
The repeated observation allowed me to figure out that the mentioned example is a monopolistic competition because the brand companies can change the prices, adding specific features to the products. Hershey’s chocolate bags without organic components had lower costs than Dove’s ones. The non-price competition was the marketing strategy used by brands because they strived primarily to improve the quality of their products rather than to upper the cost (Parenti et al., 2017). The differentiated products were unique but, at the same time, had similar features, which defined the chocolate market as having monopolistic competition.
During the observation, I could have applied my theoretical knowledge in practice to analyze the products. I found out that monopolistic competition is a widespread phenomenon because many goods were suitable for my observation. I have also learned that when a new similar product is released, many brands lower the costs slightly unless they have a new unique product. Therefore, the prices change in monopolistic competition has its limits. In conditions of monopolistic competition, the main differentiating feature of the goods is cost. Each firm can control the price only partially because the producer may attract the customer by presenting the unique product or lowering the price. Although, as was described earlier, price competition can influence the market under particular conditions, monopolistic competition also refers to non-price competition. The producers strive to increase the quality of the products or present new designs to differentiate the product from the competitors’ ones.
The sixth market principle, which states that markets are usually a good way to organize economic activity, can be addressed during my chocolate bags brands observation. Economic activity should be treated as a means of determining, for example, quantity and quality regarding the demand and supply. The practical observation allowed me to figure out that as far as monopolistic competition ensures almost-free price formation, the economic activity is organized without additional ruling power. More precisely, the markets decentralize the economy because the customer determines the demand while the producers establish the supply level. Previously, Hershey’s chocolate bags product line was not popular enough among customers. Therefore, the brand lowered costs and produced new healthy products, which gained popularity right away. This example illustrates that the market brands can regulate the correlation between demand and supply, thereby organizing the economic activity.
Chanel is one of the leading fashion shops in the United Kingdom. Started out as a simple fashion shop on a brick and moter basis, this shop has grown to become a giant shop that operates an online shop, besides its physical shops. The management of this firm has been keen on adopting new market trends, which has ensured that the firm remains relevant in this industry.
The fashion industry is very competitive and very sensitive. The majority of those who visit these shops are from the upper class. This group is always very sensitive on issues of quality.
They do not have any problem with the price, but they do not tolerate substandard or outdated products (Ulaga & Chacour 2001, p. 67). Chanel has come to realize this and has been keen on providing its customers with products of desirable quality.
This company has been named as one of the leading shops for fashion products. The company stocks such items as bags, designer perfumes, designer wristwatches, jewelry, and shoes, among an array of fashion products. The firm has a market share that spans in the entire United Kingdom.
The marketing team of this firm has ensured that the firm’s products find the right value proposition, an act that has seen Chanel products become popular (Andreson, Narus & Rossum 2010, p. 56). The brand Chanel is very strong within the markets of United Kingdom. Although the firm’s effort to assert its presence has bore good fruits, the brand is not very strong within the international market.
The management has tried to capture the markets currently dominated by large online market firms such as the Amazon, with very little success. However, the gain made by this firm is an assurance that has made it possible to gain the market share beyond the United Kingdom.
Competitor Analysis
The fashion industry is one of the most developed industries in the United Kingdom and by extension, the entire world. Those who patronize these shops are individuals who are rich and willing to spend a lot of money on any single item needed from the shop.
For this reason, many investors have gained interest in this industry, as it is considered one of the most lucrative industries within this country (Barnes, Blake, & Pinder 2009, p. 89). Competition is very stiff. With a market that has free entry and exit, there has been a huge influx of firms, some of which are international companies with, other branches in several countries.
Most of these international firms are well developed, having been in this industry for several years. Competition has been taken a notch higher. Many of these firms have adopted different competitive strategies. With price not being a major competitive tool, many of the firms have considered such other services as home delivery of the products to their customers who purchase their products online.
Others have considered to stock custom made products for specific customers. They would get a special order from such customers and then send those specifications to the manufacturers. As such, Chanel has to manage this competition, with focus being on maintaining or even expanding its current market share. This is very tricky because in this industry, maintaining the current market share alone is not easy.
Many firms have developed very strong strategies for competition, threatening to eat into Channel’s current market share. As Ahmed and Rafiq (2002, p. 46) say, in industries where competition is very stiff, a firm’s focus should not be increasing but maintaining its current market share.
In this industry, competition is rife, and there are signs that it may even get stiffer. Many large American firms that had withdrawn from this industry due to the recent recession are coming back stronger and with better strategies. Other new entrants are also coming with new strategies that are superior to many of the current firm’s strategies.
Some of the leading apparel shops in this country include Absolute Vintage, Ace Collection, Ad Hoc Boy, Agnes B, Ahadi Shops, All Saints, American Apparel, Butterfly, and Caroline Charles among others. This list is very long and yet many more firms are coming into existence (Best 2009, p. 78). As can be seen from the above list of apparel shops, American firms are back to this industry and they are competitively strong.
A firm like American Apparel has international coverage. It has branches in many other countries other than United Kingdom. As Woodruff (1997, p. 153) states, this firm has been very strong in this fashion industry, a fact that can be contributed to its international experience.
Most of the top management of this firm, according to Eggert & Ulaga (2002, p. 153), are people who have held managerial positions in various other countries before and therefore have a wide experience in this industry. They understand the market forces and as such, are in a position to withstand pressures of the market.
Another very strong firm in this industry is Absolute Vintage. It also has a market coverage going beyond United Kingdom. Within the country, this firm is one of the market leaders as it has its presence felt in almost all the major cities in the kingdom.
Going against this strong competition may need this firm to develop strategies that would make it a superior firm. The firm must design its marketing strategies to give it a competitive edge in the industry. The brand Chanel, although not very strong in the markets beyond the United Kingdom, has managed to penetrate the local markets. It brand has managed to gain fame within its London branches.
This would give it a competitive edge because this region has a large number of customers. Despite other firm’s strength in this region, Chanel can start its expansion plans from this region by developing superior marketing strategies.
Basic Segmentation Analysis for Chanel
Chanel, as a company and a brand, falls under the fashion industry. This firm has several lines of products falling in several market segments within the industry. The products are presented to the market under a similar brand name that is, Chanel.
This firm has four major segments for its wide range of products. The segments are the Foundation, Chanel make-up segment, Chanel Fragrance and Chanel fine jewelry. In the Foundation, the firm stocks new products that have just been introduced into the market. These products may fall under different categories, but because they are new in the industry and to the firm, they would be put under this category.
Customers would go to this section to know some of the new products that are currently available in this market. The motivation behind this section was to help not only in advertising the firm’s new products, but also enable customers fashion trends. Through this, they would be in a position to know which products are new in the industry and the competitive advantage they have over other existing products.
This section also helps the firm inform the market that it is out to ensure that it provides new and better products at a relatively close interval to ensure constant satisfaction. This segments targets customers from across the genders and age group. In Chanel Makeup segment, this firm stocks such items as eyeshades, lipsticks, and other makeup products. This segment targets women of various ages.
Men make a very small percentage of the customer base here. In the Chanel Fragrance, the firm stocks perfumes and other such products. Just like the Foundation segments, customers here are of both genders and all the ages. In the Chanel Fine Jewelry section, this firm stocks wristwatches, bangles, golden, and diamond chains among other precious items.
Though the market for this segment is female, a considerable number of male customers also frequent its stores (Dubois, Jolibert & Muhlbacher 2007, p. 76). Segmentation is done to make it easy for the customers to locate desired items.
When the customers visit the firm’s website, they would have a clear sense of direction of where to go when searching for new products, instead of navigating from one section to another guessing that by chance he or she would bump into the desired product.
The Role of Change in Technology
Technology has proven to be a major competitive tool for this firm. With a neck-break competition, which has seen many firms exit this industry, emerging technologies have proven to be the only way through which this firm can manage the current market competition.
As Flint, Woodruff and Fisher (2002, p. 90) notes, technology is a double-edged sword. It has both negative and positive effects in equal measure, depending on the approach that a firm would give it. Not all technological inventions are appropriate for a firm such as Chanel. Some technologies are irrelevant and some are completely disruptive.
However, there are those that are very important if a firm seeks to gain a competitive edge. Lindgreen and Finn (2005, p. 29) say that, although it may not be easy, current firms have no otherwise but to ensure that they shift emerging technologies for relevance and applicability.
Shifting in this case refers to analyzing the technologies to determine which of them can be implemented and which can be ignored. The basis of this is to ensure that the firm identifies which of the technologies are worth implementing and which would be avoided so that the firm would avoid scenarios where the wrong technologies are implemented at the expense of the right ones.
Piercy (2009, p. 78) explains that there are three categories of technology adapters. The first category is the innovators, then technology enthusiasts, early adapters, late adapters and finally the technology skeptics. Chanel has been so keen with adoption of emerging technologies. It has avoided being the innovators or technology enthusiast. It has been an early adapter of technology.
This has a number of advantages (Ward 1999, p. 90). Although early adapters always find other firms already in use of the technology, they are better positioned to determine how relevant a given technology is. They can do this by taking time to analyze the technology or simply monitoring the effect of such technology on other firms Payne & Holt (2001, p. 103). This way, it would be easier to know which way to go.
Chanel shops around the United Kingdom show strong signs that the firm is keen on adapting emerging technologies. The entire shop at the Hertford Road branch and other branches within various cities in this country are installed with current technological devices.
The CCTVs, the sensors, automated tellers, the lighting systems are all signs of emerging technological innovations (Eggert, & Ulaga 2002, p. 56). The use of internet marketing is also another sign of adoption of emerging technologies.
The Role of the Internet for the Company
Internet plays a very important role in ensuring that this firm remains relevant within this industry. Competition in this market has gone a notch higher and all firms are trying to outsmart each other using all the available tactics. The internet has been one of the tools that have been put on use. Internet has been used on many fronts. The website is the first front. Chanel has designed a website, which is very interactive.
By following the link, www.chanel.com/en_GB, one is led to the rich accessories that this firm stocks. A customer is able to easily navigate this website and have a look at the products stocked at various stores of this firm. The website has richly employed the use of graphics in this website.
A customer is able to communicate with the company easily through its website, a fact that has seen it increase its interactivity with customers (Fifield 2007, p. 98). Although the website is yet to allow direct purchase of products on-line, the current capability has made this firm to be known to many customers. Moreover, this website would direct customers to the nearest shops where the products of the firm can be found.
Another way through which internet has been of benefit to this firm is through internet marketing. Social media marketing has gained relevance in the near past. Face book has a fan base of over half a billion, most of who are from the upper class citizens, who can afford internet connectivity in their houses (Kotler, Keller, Brady, Goodman & Hansen 2009, p. 39).
In the United Kingdom alone, over two thirds of citizens are regular visitors of Face book. The majority of this group is the youths, who make the most attractive market segment for Chanel fashion shop. By advertising on this site, this company has been in a position to ensure that it reaches its targeted market. Another media that has gained relevance very rapidly is the YouTube.
Because it supports heavy graphics such as videos, the youths have become addicted to it any moment they visit the internet. Although Chanel has not been able to utilize this media to its full potential, it poses good opportunities for this firm. Many of the youths cannot avoid the allure to be in this site.
They are able to watch movies and share videos through this site. Chanel therefore stands a better chance of reaching them out through this site.
Chanel has considered advertising its products using this media. Twitter has also gained popularity. As Woodruff (1997, p. 72) notes, many firms are moving away from traditional forms of advertisements, which heavily depended on mass media. It has come to their realization that not many people are currently able to read the entire newspaper or listen to news or soap operas that carry advertisements.
However, these individuals cannot ignore the allure of the internet. The best way to reach them therefore would be through the internet that they could not avoid (Holbrook 2003, p. 38). Chanel has realized this and is making the best out of it.
Conclusion
Chanel is operating in a very competitive environment. It has been able to manage market competition but with a lot of difficulty. This industry is well developed and some of the competitors that Chanel has been facing are international firms with worldwide market coverage. This firm has had to ensure that it protects its current market share are protected as it tries to gain more.
This has not been easy as the market is full of competition. However, because of the large capital base that it has been able to amass, the firm has been able to introduce new products at close intervals following market research. It can be concluded that the Chanel faces both threats and opportunities. This can be attributed to among other factors, the strengths and weaknesses it.
The main challenge is how to balance the strengths and against the weaknesses. In this regard, the management has a role of identify those technologies that are suitable and apply them in strengthening the firm. Emerging technologies may be the best solution for this firm because the dynamism of this industry. The firm should also conduct market research to establish the opportunities that can strengthen its market share.
List of References
Ahmed, K & Rafiq, M 2002, Internal Marketing tools and concepts for customer-focused management, Butterworth Heinemann Elsevier, Oxford.
Andreson, JC, Narus, AJ & Rossum, W 2010, “Customer Value Propositions in Business Markets”, Harvard Business Review, Vol. 1, no. 3, pp 91-99.
Barnes, C, Blake, H & Pinder, D 2009, Creating & Delivering your Value Proposition, Kogan Page, London.
Best, RJ 2009, Market-Based Management Strategies for Growing Customer value and Profitability, New Jersey, Pearson.
Dubois, P, Jolibert, A & Muhlbacher, H, 2007, Marketing Management A Value-Creation Process, Basingstoke, Palgrave Macmillan.
Eggert, A & Ulaga, W 2002, “Customer-perceived value: a substitute for satisfaction in business markets?” Journal of Business & Industrial Marketing, Vol. 17, no. 2, pp 107-125.
Fifield, P 2007, Marketing Strategy: The Difference between Marketing and Markets, Elsevier Butterworth Heinemann, Oxford.
Flint, DJ, Woodruff, RB & Fisher, GS, 2002, “Exploring the phenomenon of customers’ desired value change in a business-to-business context”, Journal of Marketing, Vol. 66 no. 4, pp 102-117.
Holbrook, MB 2003, “Customer value and auto ethnography: subjective personal introspection and the meanings of a photograph collection”, Journal of Business Research, Vol. 58, no. 1, pp 45 – 61.
Kotler, P, Keller, KL, Brady, M, Goodman, M & Hansen, T 2009, Marketing Management, Prentice Hall, Harlow.
Lindgreen, A & Finn, W 2005, “Value in business markets: What do we know? Where are we going? Industrial Marketing Management, Vol. 34, no. 2, pp 732- 748.
Payne, A & Holt, S 2001, “Diagnosing Customer Value: Integrating the Value Process and Relationship Marketing”, British Journal of Management, Vol. 12, no. 2, pp 159 – 182.
Ulaga, W & Chacour, S 2001, “Measuring customer-perceived value in business markets: a prerequisite for marketing strategy development and implementation”, Industrial Marketing Management, Vol. 30, no. 6, pp 525 – 540.
Ward, K 1999, Cyber-ethnography, and the emergence of the virtually new community, Journal of Information Technology 14: 95-105.
Woodruff, RB 1997, “Customer Value: The Next Source for Competitive Advantage”, Journal of the Academy of Marketing Sciences, Vol. 25, no. 2, pp 139-154.
Appendix. Chanel SWOT Analysis
The best way of understanding a firm from its internal front is to conduct a SWOT analysis on it. Through this, it would be easy to determine if the firm is in a position to manage the current market forces and if it is in a position to experience market growth. Chanel fashion shop can be understood through this analysis.
Strength is the abilities of a firm that makes it be in a position to manage the market forces and compete against other firms favorable. They are factors that make the firm stand out among the rest, as the preferred firm.
Strength of this firm arises from a number of facts. One such fact is that this firm has been in this industry long enough. Chanel has been operating in various United Kingdom cities for a number of years and has therefore developed a deep understanding of the market.
Through this understanding, it has been very easy for this firm to predict the market forces that would play off in different seasons. As such, Chanel has mastered the products to stock in different seasons, making it one of the popular shops in London. Many customers admire it because they feel that this firm knows how to predict what they need and then provide products in the best ways possible.
The firm has also amassed a huge financial base following several years of financial prosperity. Because of this, the firm is able to adopt emerging technologies, without straining its finances. The brand Chanel is also popular within the entire country, making it even stronger in this market. Because of this, the firm has been in a position to manage competition in this industry.
Weaknesses refer to the inability of the firm to perform certain functions that are expected. These factors make a firm vulnerable to other firms in any given market. Chanel has a number of weaknesses. One great weakness of this firm is the fact that its website does not have a direct access to the shop.
Currently, people have been absorbed so much in their profession to an extent that they rarely find time to go shopping. Online shops were created upon this basis. They allow customers to shop from the convenience of their sitting rooms.
Chanel therefore risks losing its customers to its competitors that have their shops online. Having a beautiful website as it does is not enough. The website should allow its customers to shop online. Another weakness of this firm has been its pace of adapting emerging technologies.
Although this firm has been able to make use of the current technologies, the pace has been rather slow. This can be very dangerous for a firm operating in such a competitive firm. Other firms might easily overtake it since competition is rife. In this industry, firms seem to adapting technology fast.
Opportunities refer to the market forces that a firm stands to gain by its presence in a given industry. They are external factors that the firm cannot either control nor have little control over them. Chanel stands to benefit from various opportunities due to its existence in this firm.
Currently, the country has recovered from the recession and the upper class can now consider spending on such items as jewelry and other goods of ostentation. This means that business would be booming for such firms as Chanel.
The recent recession that took place in the United States saw many American firms withdraw their operations from a number of countries in order to concentrate on the domestic markets while specializing on jewelry and other fashion products. This was a relief to firms in the United Kingdom such as Chanel. Chanel can now capture markets that were previously held by these American firms.
Threats refer to those external factors that may hinder a firm from achieving its set objectives. A firm may not have control over them. In this industry, Chanel faces a number of challenges. The biggest threat that Chanel faces in this industry is competition.
Chanel faces high possibility of being eliminated from the market. Although some firms quit this industry during recession period, it has not been easy for Chanel to manage the level of competition because there are still numerous other firms in this industry that have taken substantial portion of the market share.
This makes it very difficult for this firm to expand. The increasing cost of living is making a section of the market reconsider the need to buy such expensive items as fashion wears.
Many people currently consider leading modest lives that allow them to live within their means. Technology, inasmuch as it is a tool of prosperity for this firm, has been a major threat that Chanel has had to deal with.
Emerging technologies have been a challenge to this firm, as it has been very difficult to predict appropriate technologies, and the ones that should be disregarded. As such, Chanel has always found itself lagging behind in adoption of many emerging technologies. This has a threat of making it a weaker firm in the face of competition.
The target market for Kate Spade, Juicy Couture, Joie, and Zara comprise of fashion and trendy consumers, who like fashion designs. The companies offer clothes, accessories, and handbags that target women, children, and youth, as well as the old people in the society. For instance, Kate Spade focuses on products that range from clothing to accessories, while Joie aims to deliver products that are casual, comfortable, and luxurious. Moreover, Juicy Couture offers casual wear and targets the market that comprise of individuals, who live in the United States. The focus of Zara is mainly on the Spanish market (“Zara: Company” par 1). From the target consumers, it is clear that Kate Spade, Juicy Couture, and Joie demonstrate intratype competition, whereas Zara displays an intertype competition.
Visual Presentation
In the visual presentation, marked differences exist between intratype and intertype competitors. In the aspect of style, the intratype competition exhibited by Kate Spade, Juicy Couture, and Joie have some subtle differences. While Kate Spade arranges its products in a crowded style, Juicy Counter displays its products in windows with some spaces for the passage of customers. Comparatively, Joie displays its products on the walls of their stores in a well-arranged style, while other products are placed on tables in the middle of its stores (“Joie: Collections” par. 3).
Moreover, visual presentation varies according to the intertype competition in terms of style. Comparative analysis shows that the style exhibited by Kate Spade, Juicy Couture, and Joie is a close arrangement of products with minimal spacing in stores, while Zara displays products with extensive spacing. Hence, the arrangement styles vary from one fashion company to another depending on their style of visual presentation.
Regarding color, different fashion companies have products of different colors and use lights to enhance their visual presentation. Intratype competitors such as Kate Spade, Juicy Couture, and Joie use colors and light judiciously to enhance their visual presentation. Kate Spade and Juicy Couture have products with bright colors and use bright light to enhance their appeal to customers. Likewise, Joie has products with dull colors and uses dull lights in creating an appealing presentation in their stores.
In the intertype competition, while Kate Spade, Juicy Couture, and Joie use bright or dull colors, Zara mixes both bright and dull colors, as well as bright and dull lights in enhancing presentation of products. Regarding the aspect of size, there are no marked differences in sizes of products that intratype and intertype competitors display in their stores. What is evident is that the intratype and intertype competitors arrange their products according to sizes and display them in strategic locations, where customers can easily view and purchase.
Figure 1: Kate Spage Display.Figure 2: Juicy Couture Display.Figure 3: Joie Display.Figure 4: Zara Display.
Customer Service
Presently, organizations that do not meet the standards expected by customers experience a quick decline in their sales and exit the market easily, as opposed to those that comply with these standards. It is imperative to understand that fashion stores like Kate Spade, Juicy Couture, Joie, and Zara target clients, who are fashion-oriented (“Juicy Couture: About Us” par. 3). As a result, the organizations provide services that match the ever-changing demands of customers.
The organizations use media like the Internet, telephone, and direct correspondence to get ideas from clients in the target markets and convert them into the products that buyers desire and expect in the market. Contrastingly, the organizations use diversity when advertising their products so that they can outsmart their competitors. Some of the factors that organizations employ in creation of diversity in the marketing environment include relationship marketing, public relations, and customer care. Creation of customer care desks, provision of report areas in the Internet, and the use of social sites like Facebook, Twitter, and YouTube provides a platform that enhances customers care and increases the appeal of the subject organizations. Essentially, the differences that exist among the fashion stores depend on the quality of services that they offer to consumers.
Main Merchandise Depts/Areas and Unique Product Offerings
The similarity that the organizations display in terms of products and merchandise include shape, color, and design. Products like clothes, accessories, and handbags that the organizations offer in the market portray the similarities in their colors, designs, and shapes since they target similar markets and consumer segments. Evidently, customer segments that the organization targets comprise of individuals, who have similar likes and preferences.
As a result, organizations have to comply with these behavioral aspects and convert likes and preferences into products. Conversion of these preferences and likes makes the organization deliver products that demonstrate similarities in color, shape, and design. The contrast that exists among organizations like Kate Spade, Juicy Couture, and Joie Retailers is on the differences in colors, shapes, and designs of individual products, whereas the products that Zara Retailers offer focus on color, shapes and designs that people living in Spain love and admire (“Zara: Company” par. 1). Since the organizations supply similar products to the market, their differences emanate from the uniqueness of shapes, designs, and colors of products.
Price range of main merchandise classifications
The organizations offer products at prices that are within the reach of the target consumers. Fundamentally, the importance of ensuring that the products are within the reach of potential clients is essential because luxury and fashion related products display a wide price and elasticity of demand. Therefore, changes in the prices of products lead to a tremendous change in their demand. Since the tremendous changes in demand emanate from changes in prices, it implies that the prices of these products should be within a range that clients can afford to purchase comfortably without straining their budgets. A close observation of the prices of handbags offered by organizations such as Kate Spade, Joie, and Juicy Couture reflect a close range. For example, the price of handbags from Joie Retailers ranges between $200.00 and $400.00 (“Joie: Collections” par. 5).
Remarkably, the differences in the prices of products in various organizations lie in the quality and design. Moreover, the differences are dependent on pricing strategy since some organizations reduce the prices of their products to a level that is slightly lower than that of their competitors. A small reduction in the price of products leads to a significant increase in their demand because the consumption of luxury products shows higher price and elasticity of demand.
Best Selling Items
Best selling items of the organizations include handbags, accessories, and women’s wear. Since the demand for products is ever changing, women and individuals using accessories and handbags are likely to purchase the products frequently. For instance, some of the best selling products of Juicy Couture are perfumes, while Zara enjoys high sale of handbags and accessories. Those of Kate Shade comprise of wallets, handbags, and purses (“Kate Spade: Company” par. 8).
The best selling items for Joie are women’s clothing and accessories. As a result, Joie receives increased returns from the sale of handbags and accessories because of their frequent and regular sales. Notably, the diversity in the organizations is evident from the price, shape, and design of their products. Each organization develops and sells its products in a unique manner, a factor that increases or reduces the level of demand for the product subject to the prevailing demands of the potential clients.
It is important to understand the nature of competition and the competition that exists within the marketplace for the sake of businessmen and consumers. In an ideal setting, all businessmen a rewarded from their efforts and that all consumers are able to get their money’s worth. But in reality completion and monopoly makes life more interesting.
The proponent of this study would like to know more about competition and monopoly by looking into monopolistic competition, a type of completion that contains both elements of monopoly and competition. Furthermore, these principles of economics must be used to know more about the US computer software industry.
Monopolistic Competition
A firm has a monopoly of the market if it is the only company that supplies 100 percent of the market (Kew & Stredwick 14). A monopoly is achieved if the firm has control of the price. Thus, the same company can manipulate the quantity that can be produced in a particular span of time. It can easily create an inefficient system because firms no longer have an incentive to achieve cost-efficiency in their respective operations.
It is important to understand a monopoly so that prospective entrepreneurs are informed if they can enter a particular market. In the case of the computer software industry it is of grave importance to find out if the barriers of entry are low enough to enter or high enough to discourage investors.
In a monopoly there is only one firm that has the capability to manufacture and supply a particular commodity. This set-up is disadvantageous for all parties because competitors cannot benefit in the same market while consumers are forced to absorb high prices and in most occasions poor service.
It is therefore welcome news to find out that a monopoly is difficult to achieve. As long as there is a demand for a particular product, businessmen work hard to provide that particular commodity. A scenario that is more common is monopolistic competition. It is the existence of many firms competing in a particular market.
It contains elements of both monopoly and competition (McEachern 226). A monopolistic competition is achieved when there are similar firms that differentiate their products even if actual difference does not exist. Each firm struggles to create a mini-monopoly of its product as described below:
As the product is differentiated, the firms in the market have slightly more freedom in setting prices. They can decide to charge slightly higher price and sell a slightly lower volume of goods, and vice versa. To a small extent they are price makers.
They can build up customer loyalty, and loyal customers will be prepared to pa a higher price for what they perceive as higher quality, or a closer match with their precise requirements, either in the product itself, or in the services which surround its deliver (Kew & Stredwick 14).
Another way of understanding this type of competition is the existence of many producers that “offer products that are substitutes but are not viewed as identical by consumers (McEachern 226). Thus, the suppliers in a monopolistic competition have the power to lower or increase the price of the goods sold.
The moment businessmen are able to understand the intricacies of a particular market, then, they are able to figure out how to develop substitutes in order for them to capitalize on the strong demand for a particular type of product or service needed by consumers. If there is a strong demand for a refreshing drink in the midst of a sports activity then companies scramble to develop a product that can satisfy a particular need. But they cannot offer the same type of drink.
The consequence would be disastrous for the investor because competitors would be forced to lower their price to attract the attention of consumers. The trend will continue until they achieve zero profits and inevitably bankruptcy. It is important to differentiate their products from others.
There are four ways to differentiate the products and these are: a) physical differences; b) location; c) services; and d) product image (McEachern 227). When it comes to physical differences, firms invest in packaging. It is important that the product stands out. Firms that are involved in a monopolistic competition try to differentiate the availability of the product. The availability is determined by the location of the product and how it can be accessed by the consumers.
Another way to differentiate is through the terms of accompanying services (McEachern 227). A good example is the way some pizza parlors offer home delivery of their products. For some firms their products can be delivered through the Internet. There are also firms that provide nothing in terms of after-sales support.
Finally, the fourth way to differentiate a product is through the image that the company tries to impact to customers. Most firms hire the best advertising firms that money can buy in order to create a message that resonates with customers. Thus, similar products can have different means of appealing to a target market.
For example, there are cigarettes for women and there are cigarettes for men. Sportswear may use the same materials and relatively the same type of technology to produce them but this is differentiated through the different product endorsers such as star athletes or celebrities.
Software Industry
One of the most profitable industries is the computer software industry. The most important firm in the market is Microsoft. The graphical-user-interface was reversed engineer by Microsoft and in 1997 it went on to capture 92 percent of the market share when it comes to the operating system (McGuigan, Moyer, & Harris 334). Although Microsoft has cornered the market for operating systems, the computer software industry is not only about operating systems but also other product that cater to different types of needs.
It is an attractive market because of the profitability of the industry. Consider for instance the sustainability of growth in a business that requires fewer resources each succeeding year.
In other words the moment that the business is established it takes little to manufacture the same product. However, the barrier to entry is prohibitively high. It will require years of research and testing before a successful product launch can be achieved. With regards to the idea of monopoly it is difficult to dominate this industry.
According to one commentary, “Virtually the only organization with anything approaching a world-wide monopoly is Microsoft, whose operating systems have about 90 percent of the PC market” (Kew & Stredwick 14). There are inherent strengths and weaknesses of the computer software industry that makes it difficult to have total domination of the market.
Even the suggestion that Microsoft has total domination of the operating system market must be reconsidered. A close examination of a true monopoly would reveal that the market must be defined in its broadest terms. If one considers users of pirated Microsoft software, then, it must be pointed out that a significant number of consumers use illegal copies. Therefore, the company is in effect unable to penetrate this segment of the population and hence no monopoly was achieved.
When it comes to computer software, one can argue that this industry embody both competition and monopoly. It is not even accurate to say that it is characterized by monopolistic competition. There are certain products that dominated the market and can therefore be considered as having a monopoly of that market.
A good example is of course Microsoft’s operating system. On the other hand there are computer software products that have numerous substitutes and these are differentiated in accordance to the design, purpose, and after sales support (Mankiw 336). The reason why monopolistic competition is evident in the computer industry can be explained through the following commentary:
Consumers often continue to prefer Campbell’s Soup, Nike, Oil of Olay, Rubbermaid, Tide, and other favorite brands long after comparable products have been introduced by rivals. Given the lack of perfect substitutes, monopolistically competitive firms exercise some discretion in setting prices – they are not price takers. However, given vigorous competition from imitators offering close but not identical substitutes, such firms enjoy only a normal risk-adjusted rate of return on investment in long-run equilibrium (Hirschey 500).
Computer software is in high demand that businessmen have high incentive to develop substitutes. It is a multi-billion dollar industry worldwide. In the United States alone it is a lucrative market. Interestingly the ability to offer substitutes can be accomplished through two different processes. The first one is through research and development while the second one is through piracy.
Thus, it can be argued that monopolistic competition includes both the availability of differentiated substitutes as a process of legitimate product development and also through the creation of illegal copies.
In the case of the former the barriers to entry is prohibitively high thus the number of competitors for a particular type of product remains low. For instance, there are only a few companies that can offer operating systems. Microsoft of course dominates the market while Apple computers and other open source systems supply the remainder of the market.
In a monopolistic competition, the barriers to entry are low and therefore it is easy to enter the market. At the same time, it is also relatively easy to leave the market. But in the case of the computer software industry it is both difficult and easy to enter the market. Businessmen that produce illegal copies find it easy to enter the market but they are confronted with the treat of substitutes. In the sale of pirated copies they are faced with tough competition that drives their profitability to zero.
Conclusion
It is difficult to achieve perfect domination of the computer software industry because there are two types of competitors. The first group is comprised of those that can invest in research and development to develop a substitute. The second group is comprised of those that create illegal copies of the software.
But even if the analysis is focused on legitimate businessmen the computer software industry is characterized as a monopolistic competition because various competitors can offer substitutes differentiated by after sales support and perceived value to the consumers.
Works Cited
Hirschey, Mark. Fundamentals of Managerial Economics. OH: Cengage Learning, 2009.
Kew, John and John Stredwick. Business Environment: Managing in a Strategic Context. UK: Chartered Institute of Personnel and Development, 2005. Print.
Mankiw, Gregory. Principles of Economics. OH:Cengage Learning, 2009. Print.
Groupon is a website company that offers daily business deals in products and services e.g. restaurants. The company was founded by Andrew Manson in 2008. It was a new idea and Groupon was the sole player. This website company features coupon deals in order to provide con summers with better access. It operates by sending emails, website links, and mobile applications. It uses these platforms to reach their subscribers. This paper seeks to discuss how Information Technology helps Groupon to compete in its target market. It also discusses whether or not the company has a sustainable competitive advantage.
How does Information Technology help Groupon to Compete?
Information Technology is the use of computers and other related devices in businesses. Groupon uses mobile applications, websites, and emails to reach its subscribers. This shows that the company has embraced Information Technology in its business operations. Information Technology is associated with convenience, fastness, and efficiency. These three components fascinate many consumers in any given business. A big population today has access to Smartphones or any other portable mobile device that can be used to access the internet. Groupon on its part has ensured that it has a mobile application that is compatible with many operating systems of mobile phones.
According to Wolny (2013), the increased usage of Information Technology among consumers has led to the growth of a strong subscriber base for Groupon (Wolny, 2013). This has helped the company to be competitive in its target markets. According to Pearlson (2012), Groupon added a mobile capability to its services. This has increased its access to international markets. It has also enabled the company to fight the increasing competition back in its home country. Information Technology is integrated into businesses all over the world as a core competency. For instance, Groupon prioritizes it in its operations, in order to increase its subscriber base. This enables the company to compete with other industry players, which have emerged lately. In other words, the Groupon Company gains a competitive advantage by integrating information in its operations.
Do you agree or disagree with the statement? Does Groupon have no sustainable competitive advantage?
Groupon has a sustainable competitive advantage. As discussed above, the use of Information Technology gives Groupon a competitive advantage. According to Wolny (2013), Groupon has acquired untouched markets that put it on the growth path. The untouched market is largely international, apart from its domestic American market (Wolny, 2013). Technology is dynamic. This means that it evolves day and night. In this regard, Groupon cannot lack a sustainable competitive advantage. The competition may be stiff, but the company’s growth focus gives it a sustainable growth advantage. According to Pearlson (2012), some people may argue that Groupon does not add any value to retailers. However, this is not true. Many retailers benefit from the buzz created by businesses on websites. This gives other companies a lease of life. It also adds value to its business by increasing consumers. The argument of Groupon having no competitive growth advantage is invalid in this context. A close symbiotic relationship between retailers and Groupon also gives it a competitive advantage. Therefore, the company does not have a sustainable competitive advantage.
Conclusion
The Groupon Company operates a website business that sells Internet coupons to its service users. It utilizes the power of Information Technology to reach its large subscriber base both in domestic and international markets. This is fundamentally what gives Groupon a substantial growth advantage despite the growing competition. Information technology also increases its sustainability.
References
Pearlson, K., & Saunders, C. S. (2013). Managing and using information systems: A strategic approach. Hoboken, NJ: John Wiley & Sons.
Wolny, P. (2013). Andrew Mason and Groupon. New York: Rosen Pub.
This term refers to the act of majoring more in the area of a competitor’s business that serves as the main source of revenue (Stalk and Lachenauer 6). Each business has a profit haven that accounts for the largest percentage of its revenue. If a business enters a certain market segment dominated by its competitor and introduces a product or service similar to the competitor’s that is cheaper and of higher quality, then the business is said to devastate the rival’s profit sanctuary (Stalk and Lachenauer 6).
The key to doing it successfully is conducting due diligence on the competitor’s performance in the targeted market segment. The most effective way of devastating a competitor’s profit sanctuary is by offering a product that sells at a lower price than that of the competitor (Stalk and Lachenauer 6). This strategy has several legal limitations and a business should operate within the limits of pricing laws.
Plagiarize with pride
Plagiarizing with pride means stealing or copying an idea, improving it, and making it the property of one’s business (Stalk and Lachenauer 7). It involves more than copying an idea because certain ideas are patented and therefore duplicating them is against the law. The idea is improved by incorporating additional concepts in order to make it a different version of the plagiarized idea (Stalk and Lachenauer 7).
Many companies have used this strategy to dominate specific market segments. This strategy is successful because any idea can be implemented in a better way through improvement. Hardball players find ways of improving ideas after copying from other businesses. Another concept of plagiarizing with pride is stealing ideas from unrelated sectors and incorporating them into a business (Stalk and Lachenauer 7). This is an effective strategy for dealing with competitors.
Unleash overwhelming force
This is a hardball strategy that refers to the act of consolidating a company’s resources and directing them towards a single product or idea that the company intends to promote in the market (Stalk and Lachenauer 8). In many instances, overwhelming force is unleashed against a competitor’s profit sanctuary. The strategy works successfully if the company planning to use it has a cost advantage (Stalk and Lachenauer 8).
A disadvantage of poor market research is that it may lead to the total destruction of the company because competitors might lower the prices of their product to resist being overtaken. The strategy must also be implemented with the law to avoid legal fights with competitors. Unleashing overwhelming force requires great strategic thinking and careful implementation that should be based on thorough market research regarding a competitor’s operations and profitability (Stalk and Lachenauer 9).
Focus relentlessly on competitive advantage
Focusing relentlessly on competitive advantage refers to a hardball strategy that involves taking advantage of a company’s strengths by using them to compensate for its weaknesses. An important aspect of using this strategy is knowledge of a business’s competitive advantage. Many hardball players take the aspect of competitive advantage to extremes by implementing strategies that cater to the present and future competitiveness of their businesses (Stalk and Lachenauer 3).
The extreme competitive advantage although legal is sometimes a source of complaints from other businesses because they cannot compete effectively with a business that uses hardball strategies to gain it (Stalk and Lachenauer 4). Extreme competitive advantage involves business aspects such as superior production methods, unique marketing strategies, and highly-developed research methods that generate customer information that is unavailable to other businesses (Stalk and Lachenauer 6). Such strategies cannot be duplicated by other businesses because they are kept secret by the business. Focusing on competitive advantage makes a company invincible because the largest percentage of its resources is channeled towards its business aspect or division that provides a competitive advantage.
Application of hardball strategies in business
Netflix vs. blockbuster
The video and DVD rental business was for a long time dominated by two main players namely Netflix and Blockbuster (Satell par4). However, market players have changed significantly. Netflix used the hardball strategy of devastating rival’s profit sanctuary to dominate the market. The main source of revenue for Blockbuster was video and DVD rental. In order to meet high customer demand, the company built more than 9,000 retail stores in different states across America (Stelter par3).
Customers would drive to the stores to rent videos while others would order DVDs through mail service. A change in service delivery through the embracement of technology changed the market dynamics significantly. Netflix provided a better and more convenient way for customers to acquire DVDs and videos. The company started streaming online TV and videos using advanced technology (Satell par6). Netflix offered customers the convenience of watching videos online without driving to retails stores to acquire DVDs (Satell par7).
In addition, it started streaming TV shows. Within a short period, Blockbuster experienced a decrease in customers because many of them migrated to watching videos and movies online. In 2013, the company announced that it was shutting down after unsuccessfully trying to copy Netflix’s model of online video streaming (Stelter par6). Currently, Netflix has a market capitalization of more than $28 billion and it dominated the market by lowering costs and providing convenient services to customers (Stelter par9).
Apple vs. Xerox
The creation and subsequent exploitation of graphical user interface (GUI) is an example of plagiarizing with pride in the business. Originally, the concept was developed by Xerox. However, after several visits to the company, Steve Jobs stole the idea, improved it, and made it Apple’s (Dernbach par5). The GUI was an important aspect in the growth of the personal computer industry of which Jobs became a key player after stealing the idea.
In addition, he poached engineers from Xerox who customized the idea of the Apple Macintosh (Dernbach par7). Xerox sued Apple for stealing and using their idea. However, the case was dismissed. Xerox could not compete in the personal computer industry because Jobs implemented the idea in ways that endeared the company’s products to consumers. Apple proceeded to use the concept in its personal computing endeavors that generated a lot of revenue. Eventually, the idea propelled the company to the top of the technology industry and made it the most valuable technology corporation (Dernbach par12).
Kmart vs. Wal-Mart
Kmart and Wal-Mart were founded in the same year but currently, the latter dominates the discount retail market. Wal-Mart applied the hardball strategy of focusing relentlessly on competitive advantage to squash competition. The retailer’s competitive advantage is its complex and well-developed supply chain management system (Sanford par3). Wal-Mart competed successfully against Kmart by controlling operating costs. It mastered its supply chain by incorporating innovative strategies such as developing new uses of certain products, tracking the performance of different products in the market, and studying trends in consumer purchases using technology (Sanford par5).
On the other hand, Kmart’s supply chain was devoid of innovation and creativity. Wal-Mart focused on improving its supply chain using technology, which led to breathtaking strategies that gave it an extreme competitive advantage. Today, Kmart specializes inexpensive goods that attract mainly high-income earners. In contrast, Wal-Mart stocks cheap and quality goods that are in high demand among low and middle-income earners (Sanford par9). This has resulted in high growth and profitability as well as dominance in the retail market.
Competition is the concept of business people or institutions working towards gaining the greatest market share for their products, both goods and services. Competition is very instrumental in the growth of any industry. This is because as the market environment becomes crowded, companies and other business establishments have to come up with new products or services that would help them cut a niche.
This essay seeks to look at the advantages of competition among producers of goods and services to the consumers of given products. To this end, two of the greater benefits of competition will be analyzed before a counter-argument to the advantages is provided.
Three articles on the topic of competition will be used to define the boundaries discussion and they all have been chosen because of their relevance to the argument that competition brings about great benefits to the customers.
The first article Fear of losing: Using competitive instincts to your advantage generally suggests that manufacturers and product makers tend to win customers by proving that the customers cannot do without their given product. Moreover, the author says that competition is a big part of the life and it manifests in both social and economic aspects.
The second article titled Sports: When winning is the only thing, can violence be far away? by Robert Stewart mainly illustrates the fact that competition particularly among product makers and manufacturers tends to come with negative effects especially if proper regulatory measures are not taken.
The third article titled Dr. Spock says today’s parents should teach less competition by Clayton Finchley tries to illustrate that constantly encouraging the spirit of competition to children ends up bringing about the negative sides of individuals once they grow up.
The greatest beneficiary of competition, however, is the customer who ends up having the advantage of choice aside from getting the same product at a much reduced cost. These two primary benefits arise from the fact that as more and more manufacturers and providers of a similar product enter the field, they tend to try and add new changes to the items they produce with the aim of winning more clients.
As illustrated by Stewart in his article, sometimes winning is the only thing on the minds of individuals and this tends to manifest in the form of intense competition. These ‘upgrades’ come at the same price as the original product and therefore allow the customer the advantage of choosing what to go for from the variety that is placed before them.
As far as the prices and costs of products and services are concerned, competition among product and service providers translates into a reduction in the source price of commodities. This is because as more and more of the same good/service infiltrate the market, the producers have no option but to revise downwards the prices at which these items are given to the consumer.
This competitive strategy for winning more clients has been supported in the article titled Fear of Losing, and even with its negative effects, has been found to be one of the more effective ways of dealing with competition. This has been the status in the mobile telephony providers in most countries where one company enters the market as a dominant party and when other entrants come, they are forced to come with ridiculously low offers on service prices.
Under normal circumstances, a price war ensues with all providers reducing the costs of calling and messaging, leaving the customer to benefit.
In countering these benefits, it can be argued that as much as competition results in more choices for the customer, the quality of the commodities tends to go down. This is because in a bid to make products that will cost less in the market, the manufacturers and producers will have to be flexible enough to cut down on the costs of production by using materials of lower grade/quality.
This challenge in turn translates to a low-quality final product. When it comes to price reduction as a gain made out of competition among manufacturers and producers of goods and services, the argument can be countered by citing examples where competing companies collude to maintain the prices at a given high.
This therefore means that competition does not immediately translate into financial benefits for the customer. As a matter of fact, it can result in a raise in the prices of commodities as competing entities form associations to help them benefit at the expense of the customer who is left with no other choice but to go for the products being offered.
This factor of competition not being beneficial to any of the involved parties has been well illustrated by Clayton Finchley’s article.
In conclusion, it can be said that competition amongst product manufacturers and service providers to a great extent ends up benefiting the customer. An analysis of two of the major benefits of competition to the consumer has been provided alongside counter-arguments for the two listed benefits. The focus of this essay has been guided by three articles on the benefits of competition.
A perfect competitive market is hardly found in so many industries. Most scholars argue that this kind of market model does not exist in real world. This might be due to information gap among consumers, some suppliers coalescing to have some control over the market price or inability to find companies offering identical products in the market.
As far as that is concerned, one might recognize that a competitive market structure do exist in Florida (Competition, n.d). In this part of USA, we do find about 70 companies marketing and distributing oil products to the consumers of oil.
Among these companies are: 76 Lubricants, A Plus Auto Oil Change Etc, Bahamas Miracle Crude Oil, Bulk Cooking Oil Solutions, LLC, Capital Oil & Gas, Genpass Technologies, Longrun Oil Corp, Mr Oil and Oil Lube Express of W Melbourne. Most of these companies do have their own filling stations though they also make distributions of oil to other filling stations they do not own. They all deal in petroleum products (Manta, 2011).
Discussion
The high number of the marketers and distributors of this product indicate that no single company can have control over oil prices. The market forces of demand and supply do set the price. An owner of a filling station or any consumer of the oil product would run away from the distributor who sets high price and buy from the one selling at a lower price.
This means that this industry would at most be earning supernormal profit in the short run but as prices adjust in accordance with the stiff competition in the global market, particularly concerning the price, most probably the price would get to the lowest where firms would be earning normal profit. For example, the price of one gallon of regular unleaded gasoline goes at approximately $3.84. Generally, it is assumed that all firms are price takers.
As movements in prices up and down takes place, some firms do exit from the industry after they fail to keep up with the price and high operating cost. The high number of oil distributers shows that the market is free for any firm to enter while at the same time, is free to exit (Florida, 2011).
This is one industry where products are not different across the firms. For instance, the regular unleaded gasoline is similar to all companies. When it comes to information flow to/from oil distributors, all customers are perceived to have full and equal information about the market although this is not a fact as per this market.
Some companies were seen selling petroleum products at high prices and still customers do buy from them although the information asymmetries does not hold for long. These factors make the market not to be perfectly competitive.
The government seems to have little influence on this market. Apart from taxation of oil firms and control of suppliers in the country, the government does not seem to give much attention to oil prices even after oil prices increased recently. Additionally, the government is not keen on finding other sources of energy and therefore no close substitute to influence the market price of oil (Competition, n.d).
Conclusion
In short, this market does have many features of a perfectly competitive market such as free entry and exit of firms in the industry, sale of homogeneous products, firms taking price set by the market, and consumers having full knowledge of the products and prices charged by all firms. Nevertheless, information gap on oil prices for all the firms that do exist in the industry affirms that this kind market model hardly exist in real world.
Entering new markets is commonly associated with various challenges: economic, political, cultural, etc. One of the most critical obstacles that a company should consider in the frame of extension is the competitive environment. As such, a new entrant needs to offer some substantial benefits to gain its competitive advantage (Zimmerman and Blythe 124). Lululemon specializes in athletic apparel and other sports-related products. According to the expert opinion, this industry is highly competitive due to the growing interest inactive lifestyle and sports (Kell par. 1). Therefore, it is proposed to examine both direct and indirect competition factors that Lululemon should consider while entering the Italian market.
Competition Challenges
First and foremost, it is essential to target the main competitors that can challenge Lululemon’s performance in the Italian market. To do it, it is necessary to differentiate between direct and indirect forms of competition. As such, direct competition takes place between those companies that sell similar products and target the same audience (Greene 111). From this perspective, Lululemon’s direct competitors are companies that specialize in athletic apparel such as Nike, and Adidas. Both companies are powerful market players with a recognizable reputation within this industry.
Indirect competitors, in their turn, are those who sell similar products even though it is not their major specialization (Greene 111). From this perspective, Lululemon’s main indirect competitors are Gucci, Calvin Klein, and Zegna. These are native Italian brands the main specialization of which is luxury designer clothes. Meanwhile, they likewise offer some sportswear collections that turn them into Lululemon’s competitors.
Direct Competition
Direct competition is highly severe since Nike and Adidas have already established effective operation patterns in Italy. Thus, for instance, Nike uses a multi-channel approach to supply its goods to the Italian market. Its major distribution channels are traditional supply chains and websites. The latter proves to be particularly effective showing 50% growth annually. It is likewise a skillful user of modern technologies. As such, its ID service ensures productive marketing and client targeting (De Marco et al. 263). Therefore, it might be recommended that Lululemon examines Nike’s practices to adopt the best experience of operating in the Italian market.
The competition between Nike and its main rival Adidas is very severe. Recent research has revealed that the former has a significant competitive advantage. As such, one of the most consistent revenue sources that Nike benefits from is contracts with football teams. From this perspective, Adidas shows a less productive performance (Thomasson par. 7).
In the frame of analyzing direct competition, it is essential to take into account such factors as brand awareness. As such, it is evident that Lululemon’s brand awareness is lower than that its rivals enjoy. On the face of it, it might appear to be a disadvantage. In the meantime, practice shows that less recognizable brands have substantial chances to surpass their popular competitors. Thus, for instance, Under Armour is a relatively new player in the sportswear market. Nevertheless, it has already managed to surpass the leaders showing exclusively high sales both in apparel and footwear sectors (Hendriksz par. 1). This example has two implications for Lululemon that is planning an entry into the Italian market. First, it might be interpreted as a positive trend showing that a company can take advantage of the fact that its brand is not as recognizable as those of its rivals. As such, customers are likely to show an increased interest in a new entrant. From a different perspective, this example shows that the scope of Lululemon’s competitors in the Italian market does not limit to industry leaders such as Nike and Adidas but likewise includes less visible brands as Under Armour. Therefore, it might be recommended that the company pays due regard to Under Armour’s practices since they appear to operate under equal conditions.
Indirect Competition
Indirect competition in the Italian sportswear market is less severe than direct. As such, Lululemon will have to compete with both national luxury brands such as Gucci, Calvin Klein and Zegma and with mass-market brands such as Benetton and H&M. The former group represents a few threats since it occupies a separate market niche and pursues a different pricing strategy.
The latter group should be considered more critically. Thus, the Italian market is domestic for Benetton so that the company’s experience of operating there is highly substantial. Additionally, sportswear is a new line it has launched this year. Before the release of this collection, Benetton never produced any sport-related products. As such, the customer’s interest in the new product line is naturally high. Moreover, the company exhibits a pro-active attitude towards social life in Italy. Thus, it participates in the national running race organization every year which serves as substantial support to its public image. Therefore, it might be recommended that Lululemon focuses on mass-market companies while evaluating the indirect competition environment in the Italian market and, meanwhile, examines their successful practices to adopt the experience.
Works Cited
De Marco, Marco, Dov Te’eni, Valentina Albano, and Stefano Za. Information Systems: Crossroads for Organization, Management, Accounting and Engineering, London: Springer Science & Business Media, 2012. Print.
Strategic analysis is important in business. It allows companies to analyze their competitive environment, define their position in the market, create competitive advantages over their opponents, and determine threats, weaknesses, and setbacks that may reduce their effectiveness in the face of new corporate and competitive challenges. This paper is dedicated to analyzing Boeing’s corporate governance, competition, value chain, and general strategy, and offering recommendations to ensure the company’s competitive sustainability.
The Basics
Strategic management is a set of actions and decisions that determines a company’s long-term performance. Strategic management is the highest stage of management evolution for companies that managed to advance through the first three phases of strategic management. These stages are short-term financial planning, long-term forecast-based planning, and externally-oriented planning (Casadesus-Massanel & Ricart, 2011). Strategic management suggests the integration of managerial staff at all levels in order to strive for the company’s primary objectives. It emphasizes long-term performance and adaptation not only to the existing realities of the market, but also prediction and preemptive adaptation to any foreseeable challenges and problems in the future. The strategic management model is the end destination and a requirement for all large companies and corporations that wish to be able to perform in the dynamic market and sustain their positions in the long run.
Boeing implements strategic management in its business practices. One of the best examples of strategic management is that Boeing’s global business has been one for a very long time. The company managed to integrate itself into many international markets and has been maintaining a powerful presence ever since. Strategic management is required for keeping track of international developments and local market rules and regulations, in order to sustain a competitive advantage (Saeed, 2017).
Another example of Boeing implementing strategic management is in its brand promotion strategy. Although the company has strong competitors in Europe like the Airbus, its name is used as a common noun for the word “plane.” The company’s branding strategy has ensured a loyal and large user audience. Boeing training is integrated into many flight schools around the world, which will ensure its strong competitive positioning in the long run (Saeed, 2017).
Lastly, the company has shown attention to innovation in order to provide a better user experience. Boeing’s innovation teams are constantly working to improve the existing airplane models and create better ones. The company focuses on innovation to improve safety, resource consumption rates, upkeep costs, and ecological impact of their manufacturing processes and products. These three points prove that Boeing implements strategic management and pursues long-term development goals (Saeed, 2017).
Boeing’s long-term goals include becoming the number one aerospace company in the world and among the premier industrial concerns in terms of quality, profitability, and growth. In 2017, the company means to focus on the execution today and into the future. Other goals include market leadership, top-quartile performance and returns, productivity and growth, focus on corporate citizenship, accelerated innovation, and promotion of talent and leadership (“A foundation of innovation,” 2017).
Corporate Governance
The role of the director board is tri-fold. The board is expected to oversee management processes in the company, look out for the interests of shareholders in order to ensure they are not being trotted upon and to ensure the overall health of the company by eliminating unhealthy practices and promoting positive management and leadership. In practice, however, that is rarely the case. Boeing has many problems with its corporate governance strategy. According to the Seattle Times, Boeing directorial board remains too close to management and share the same worldviews, which does not promote diversity and encourages malevolent business practices (Talton, 2013). The board repeatedly approves executive compensation plans that reward inactivity and do not impose any financial or administrative penalties for failure to perform. James McNerney, for example, never suffered any penalties for his failure in properly outsourcing a revolutionary new jet plane. These repetitive failures of the directorial board have cost the company millions of dollars (Talton, 2013).
However, Boeing shows to have made some steps towards making its directorial board truly independent, in order to rectify the issues. James McNerney left his post in 2016, replaced by Dennis Muilenburg, who worked for Boeing since 1985 and has plenty of experience in the field of engineering and operations. The company also set up an independent board in order to evaluate its products and avoid the fiasco of the Boeing 787 model.
Despite the problems with the development of its newest Boeing jet, the company puts significant efforts into major philanthropic initiatives, which correlates with its goals of corporate citizenship. For example, the company significantly improved fuel consumption. Boeing Jets now use 70% less fuel when compared to 25 years ago (Saeed, 2017). This is a significant improvement in many ways. Low fuel consumption makes their products more attractive to potential buyers while at the same time greatly reduces carbon emissions.
On Competition
Boeing has several core advantages that help it remain in business. We will use the VRIO framework in order to analyze Boeing’s core competencies (Casadesus-Massanel & Ricart, 2011):
Value. Boeing has competitive value as it is one of the very few major aircraft companies that provide large commercial and cargo jets worldwide.
Rareness. While several direct competitors that provide similar products exist, neither of them has the production power to quickly occupy Boeing’s market share, which helped the company remain in business even after the famous 787 model fiasco (Saeed, 2017).
Imitability. The jet aircraft industry is notorious for being a very expensive market to enter. China has been attempting to promote its own brand of jet aircraft for about a decade, to no success. Thus, the imitability level of Boeing’s product is low.
Organization. Boeing has a vast and elaborate network of suppliers, inventors, and producers put together in a cohesive production chain. In terms of organizational strength Boeing is powerful (Saeed, 2017).
In order to further evaluate Boeing and its competitive standing, we can employ Porter’s Five Forces Model planning, including the relative power of other stakeholders, proposed by Wheelen and Hunger (Casadesus-Massanel & Ricart, 2011):
The threat of new entrants – low. As it was mentioned, jet aircraft production is a very costly business. Chinese companies cannot penetrate it for decades, even with government support.
Bargaining power of buyers – medium to low. Depending on the region, Boeing has near-monopoly on jet aircraft production. Protectionist policies in the USA ensure that Boeing will always have a market where it can dictate buying and selling conditions (Saeed, 2017).
The threat of substitute products/services – medium. Boeing has one main competitor, which is Airbus. So far, two companies remain in balance, and it is unlikely for one of them to quickly lose the majority of its buyers to another.
Bargaining power of suppliers – Medium to low. Large companies such as Boeing tend to differentiate their suppliers to ensure neither of them has too much weight in the overall production cycle (Saeed, 2017).
Rivalry among existing competitors – nonexistent. Boeing and Airbus are the only major commercial jet manufacturers in the world. Other competitors such as Bombardier and Tupolev are currently in no condition to pose any significant threat to Boeing (Saeed, 2017).
The relative power of other stakeholders – low. Due to an inefficient corporate strategy for the last 6 years, Boeing changed from emphasis on all stakeholders to a model where there are one super-stakeholder and an array of sub-stakeholders. The dominant stakeholder exerts its power over other stakeholders, which is not healthy for business (Sorscher, 2014).
According to the Blue Ocean strategy, one of the ways of sustaining a competitive advantage is to make competition irrelevant (Kim & Maubourgne, 2014). Right now, Boeing is rivaling Airbus in its sphere of influence, meaning that the current market of jet aircraft is a red ocean, rather than blue. In order to adhere to the Blue Ocean strategy, Boeing has to invent something new and innovative. Considering recent developments in aerospace programs, such a product could be a commercial spacecraft.
Value Chain
Boeing’s business model for many years had been the “Low-cost carrier business model.” It focuses on providing customers with relatively inexpensive yet high-quality commercial jets, parts, and accessories. Thus, the company focused on generating revenue through a high number of sales rather than high prices for their products and equipment.
Analysis of Boeing corporate value chain planning (Casadesus-Massanel & Ricart, 2011):
Inbound Logistics. Boeing has a vast chain of transports, warehouses, and storage facilities in order to move and store its products, parts, instruments, and technology.
Operations. The company offers its customers complete commercial jets, parts, and maintenance expertise.
Outbound Logistics. Boeing manages its outbound logistics either on its own or in partnership with major transportation companies.
Marketing and Sales. Boeing relies on low-cost aircraft and its brand name in order to maintain its hold on the market and remain attractive to customers.
Services. Boeing’s services are creation, modification, and maintenance of commercial jet aircraft.
Human Resources. Boeing’s greatest and most distinctive strength has always been its human resources policy. It cultivated talent and promoted innovation. With the stakeholder policy changing towards Super-stakeholder vs. Sub-stakeholders, the company risks losing its valuable HR advantage.
As it stands, Boeing Company is in a state of decline due to poor decisions made in its corporate and business strategies. The corruption of the directorial board ended up in several failed projects and large financial losses (Talton, 2013). It tries to compensate for this by employing the Super-stakeholder strategy, which involves milking the sub-stakeholders such as worker unions, suppliers, and other powerless elements out of any advantage they can get out of this relationship. While this generates revenue, it also negatively affects the quality of work and has the potential to be Boeing’s downfall. Marketing and Sales strategy is solid, as low-cost carriers will always be popular, especially considering that many commercial jets currently in employ are 20-30 years old and will need to be replaced soon. In order for Boeing to maintain a sustainable competitive advantage, it must resolve its troubles with the directorial board and adopt the problem-solving strategy, which focused on stakeholders being equals rather than subordinates – something that Boeing used to be well-known for in the past (Sorscher,2014).
