How a monopoly would likely change its pricing strategy when a new competitor arrive in the marketplace?
When it comes to a monopoly, the managers should offer a pricing strategy based on establishing the highest possible price that a company can propose with no engagement in price gouging. Second, the monopoly’s price policies may also depend on governmental approval.
How the monopolist could be more efficient in the long-run considering new competition has entered the marketplace?
Because establishing the highest price possible is among the only options that a monopoly can afford, it has few chances to stand a competition due to the lack of products variety. However, the competitiveness of monopolies can be increased through deregulation of the policies allowing them to enter new markets. Second, improving labor dynamics can also contribute to enhancing a competitive environment.
Tiffany & Co is a world-renowned brand that specializes in luxury jewelry and other specialty items, which means that it has an extensive range of products such as watches, chinaware, jewelry, leather goods, and so on. Due to the high price of its products, the company targets its products to wealthy clients that value exclusivity in what they buy. Despite high prices that Tiffany & Co set on luxurious jewelry, the company has been able to diversify the product range to include fragrance perfumes, eyewear, textiles, items for pets, and more. For expanding revenue, the brand also focused on expanding low price products to create a reputation of an inclusive luxury brand.
Product Lines and Competition
If to consider the most important product lines that Tiffany & Co offers to customers, luxury jewelry and gifts are the key items that should be discussed. Both product categories are targeted at gift givers and gift receivers during special occasions such as birthdays, Christmas holidays, engagements, and so on. Also, affluent customers may buy products for themselves as a way of pampering. Jewelry and gift items (silverware, china, leather goods, crystal stationery, etc.) are sold worldwide.
Tiffany stores are located in Europe, the Middle East, the Americas, the Asia-Pacific Region, Russia, and the UAE (Key). Since 2014, the company experienced a tremendous increase in revenue and ended fiscal 2015 with $4.2 billion (Key). In addition, through selling jewelry and gifts, the brand managed to achieve compounded annual growth rate of 9.4% in sales (Key). This points to the massive popularity of Tiffany products despite their high price.
The main competition for Tiffany comes from other jewelry brands that have also differentiated their product line to appeal to a wider audience. Blue Nile and Pandora are identified as competitors because of similar products and price range as well as the target segment of consumers. Blue Nile is considered the most popular retailer that sells diamond items online in the United States and has recently broadened its operations to sell internationally (“Brand Positioning – Competitor Analysis”).
Through the use of the business-to-customer model without establishing any physical stores, the company can offer lower prices than competitors, which is an extreme threat for Tiffany that has invested into hundreds of physical stores. In addition, Blue Nile has a unique selling proposition through offering personalized items to customers and ensuring good communication with clients through live-chats, emails, and toll-free call assistance for reducing the risks that come with shopping online.
Pandora is a unique competitor for Tiffany & Co because it has established fairly recently but is already extremely popular worldwide. The selling proposition of the brand is offering customers a wide range of affordable genuine jewelry that will express their individuality. Compared to Tiffany, Pandora has a unique selling proposition that cannot be replaced (“Brand Positioning – Competitor Analysis”). Overall, both Pandora and Blue Nile present threats to Tiffany & Co due to the extensive product range that they offer as well as lower prices. However, it is important to remember that clients stay with Tiffany because of the long history of the brand as well as customer-orientedness of its business strategy that has helped the brand remain successful for decades.
Marketing Analysis
For becoming a marketing superpower, Tiffany continuously changed its direction by reading the market and tuning to customer demands. The unique marketing methodology inherent to the brand relates back to the 1830s when Tiffany decided to establish set prices and limit any negotiating and bargaining (Agrawal). In addition, the company empowered itself and evaluated its products as valuable, which significantly influenced customers’ purchasing decisions.
Today, the marketing strategy that Tiffany implements consider both traditional and modern ways of product promotion. Billboards, television advertisements, campaigns with the participation of big celebrities have all been key components of the brand’s marketing strategy. It should be mentioned that identifying the number of potential clients that see Tiffany’s traditional ads is hard compared to finding out the number of followers on social media. However, Tiffany’s “Will You?” television ad as twenty-four thousand views on Youtube while its “A New York Minute” ad for watches has more than nine hundred and twenty-four thousand views, which points to the wide coverage of ads not only offline but online.
The brand has also seriously invested in social media marketing and became the highest ranked brand in terms of responsiveness and engagement within the sphere of social media (Koh). This sets the brand apart from competitors that usually focus on promoting products while ignoring customers’ requests. The comparison of Tiffany’s and identified competitors’ social media following is presented below:
Tiffany & Co.
Blue Nile
Pandora
Facebook (likes)
9.9 million
1.9 million
13 million
Instagram
8.4 million
136 thousand
4.2 million
Twitter
1.7 million
18.6 thousand
104 thousand
These numbers show that Tiffany & Co is extremely successful in its online marketing efforts and has much more dedicated following compared to its main competitors. Apart from promoting the latest campaigns on social media, Tiffany has broadened its strategy to design a mobile application for customers to choose their ring styles and carat weights (Koh). The innovative app also allows users to take photos of their hands as if they are wearing Tiffany rings in real life. Thus, compared to traditional marketing efforts, Tiffany’s online strategy has shown to be more successful because it enhanced engagement with customers.
In a pure competitive market structure, the buyer does not have any effect on the price level of goods in the market. This is contributed by the fact that number of buyers and sellers in the market place is large enough and acting on an independent scale (Pindyck, 2001). If this characteristic is compared with monopolistic competition, it is noticeable that there exist many firms selling the same product in the market.
Furthermore, some firms are ready to enter the market in order to participate in selling the same products. In consideration of the fact that there are many firms in the market, it is possible to set individual price levels. One of determining factor to the number of firms in a monopolistic completion is the extent to which product has been differentiated and also the amount of fixed cost associated with running the industry (Gans, 2003).
Types of products
Products in a purely competitive firm assume a standard nature (Gans, 2003). These products are fundamentally identical in nature. An example is a combination of potatoes and wheat in agricultural sector. On the other hand, products in a monopolistic firm are highly differentiated. This means that the firms sell products that have less difference in their characteristics.
This statement does not denote that the goods can act as substitutes but it brings to surface the fact that their cross price elasticity is positive when it is calculated. Consequently, the change in price of one good have a subsequent effect on the quantity demanded of another good. To further describe the nature of monopolistic goods, it can be highlighted that such goods executes the same roles but the difference is in the specifics of the products such as quality and location.
Control over prices
The price levels in a purely competitive industry are determined by the point of intersection between the supply and demand curves. Individual firms are under obligation to sell their products as determined by the industry.
If a firm sells its products above the price in the market, then no one will buy from the firm in consideration of the fact that there exist cheap and similar products in the industry. Conclusion can therefore be made that prices are determined by the industry. In a monopolistic competition, firm determines its own price level in a market segment.
This factor is supported by the fact that products are highly differentiated thus the buyer cannot draw much difference between products. A decision made by one firm cannot have much effect on other companies in the same segment. To sum up the price statement in a monopolistic competition, each firm is at liberty to choose on the price level a decision which may not affect other firms. This is against earlier mentioned price determination structure of pure competition.
Conditions of enter the industry
There is ease of entry into a monopolistic industry. The long run aspect is that firms can enter and leave the industry at any time. A condition describing this monopolistic competition is that several firms are exclusive in nature and wants to display their products in the market at their own prices with an aim of making profits.
There is high probability that the cost level will increase due to intense advertisement done. If these sunk costs are not managed well by a firm then it will be forced to quit the industry. On the contrary, purely competitive market structures have easy entry and exit conditions. There is no related cost such as sunk cost.
Non price competition
Monopolistic competition emphasizes differentiating its products in order to gain competitive advantage over other firms. The use of intensive advertisement is meant to attract more buyers consequently making profits. A purely competitive firm does not have any non price competition strategy simply because firms are price takers. The industry decides for the firm the price level it will have to sell its products and services.
Examples
A good example of purely competitive industry is the agricultural sector where potatoes and wheat are the specific product groups. Motor vehicle industry makes up a monopolistic competition. They can perform nearly the same functions but has specific attributes or qualities recognizable by potential buyers. These goods are not close substitutes but their cross price elasticity is positive in description.
Pure competition vs. oligopoly
Number of participants firms
In an oligopoly market segment, the number of firms is few simply because of the existence of some barriers to entry (Depken, 2005). The firms depend on each other and this forms a reason for the inclusion of market barriers. Their aim is to perpetually control the market segment. This contrasts with a purely competitive market where the number of buyers and sellers in the market is large. There are no barriers to entry into a competitive market structure.
Types of products
The products in an oligopoly market are uniform or differentiated. Examples of such products include the petroleum industry (BP and other firms) and the industry dealing with soft drinks (coca cola). With a purely competitive structure the products are in standard form (Depken, 2005). An example given is the agricultural sector selling a combination of potatoes and wheat.
Control over prices
Oligopoly market structure participates in setting their prices divergent from a purely competitive structure where the firms take the prices from the industry. Oligopoly market structure produce where their marginal costs is equated to marginal revenue consequently maximizing profits.
Conditions of enter the industry
There are high level of barriers to entry and exit in an oligopoly market structure. Some of the available instruments used by the industry to prevent entry are: patent rights, economies of scale, and other deliberate actions done by firms to discourage prospective firms. On the other hand, a purely competitive market has free entry and exit phenomenon.
Non price competition
Differentiation of products is evident within an oligopoly structure. A great extent of these products is from industries. They can also take up the description of being homogeneous. Within a purely competitive market structure, non price competition is less.
Examples
As mention in the text, examples of oligopoly structure are a combination of firms dealing with industrial products such as the steel industry. In the same vein, firms selling with durable consumer goods fall under the category of oligopoly (Davies, 2005). An example of a purely competitive industry is the agricultural sector selling wheat and potatoes.
Pure competition vs. pure monopoly
Number of participants firms
Pure monopoly market structure is characterized by existence of a single producer or seller in a market segment while a purely competitive structure has many buyers and sellers. The firm is usually owned by a government so as to exclusively control production and guard the public interest from exploitation.
Types of products
The products available in a pure monopoly are distinctive in character because of the fact that the firm is the only producer or seller in a market. There are no close substitutes for such product consequently justifying the fact that the product supplied by a firm is exceptional.
Control over prices
Monopolies have mastered the art of taking control over prices. They can easily point out the amount to charge their customers at any one point in time. In this case therefore, the monopolists are termed as price makers (Depken, 2005). So as to come up with a price level, comparison with the output quantity is made. The objective of such action is to limit exploiting potential customers.
Conditions of enter the industry
Pure monopoly operates under barriers to entry. Such barriers include patent rights, advancement in technology appreciated by the firm and possession of good status. Furthermore, access to critical resources for production is among the entry barriers. With a pure competitive market structure, there are no barriers to entry or exit.
Non price competition
In recognition of the fact that monopolist conduct solely the activities of the industry, non price actions are not necessary (Davies, 2005). Advertisements are only employed by the firm in a bid to establish real contact with the customers through public relations. Pure competitive market structure does not have any non price competition.
Examples
Example of pure monopoly is the power generation company operated by a stated government. This is a sensitive area which requires large magnitude of resources. It can also be observed that power generation is a sensitive area of an economy. Other example of pure monopolies comprises the locally used utilities.
References
Davies, A., & Cline, T. (2005). “A Consumer Behavior Approach to Modeling Monopolistic Competition”. Journal of Economic Psychology 26: 797–826.
Depken, C. (2005). “10”. Microeconomics Demystified. New Jersey: McGraw Hill.
Gans, J., King, S., Stonecash, R., & Mankiw, G. (2003). Principles of Economics. Melbourne: Thomson Learning.
Pindyck, R., & Rubinfeld, D. (2001). Microeconomics . Upper Saddle River, New Jersey: Prentice-Hall.
As Geroski (p.1) argues, with the current situation of the corporate world and ever-changing trends in people’s lifestyles, the ability of a business or individuals to thrive well within a certain environment, depends on their ability to compete positively and effectively. That is, because competition is inevitable in all spheres of life, survival in the current competitive world depends on individuals’ survival strategies of defeating their opponents. For example, in any working scenario, managements judge employees’ work using their level of work proficiency and output. Employees’ performance levels depend primarily on their ability to maximize their potentials in order to have a competitive advantage over their fellow workers.
The same thing happens in business, competition being the primary determinant of a business’s ability to thrive and survive in a market full of producers or services providers with the same products. Further, even in learning institutions, the ability of a student to outshine others depends on one’s ability to compete effectively through maximization of their potentials and utilization of the available resources. Although this is the case, in uncontrolled scenarios, competition can be very detrimental to the performance level of individuals, because individuals are always ready to do anything and use whatever is at their disposal to achieve desired outcomes. Therefore, although competition has many advantages, which include increased productivity, improved quality of work output, meeting of deadlines, and increased profit margins, it has also many associated disadvantages, for example, it increases job stress, creates unhealthy competition, and it may kill teamwork spirit (Lewis, 1997, p.1).
Pros of Competition
Competition primarily involves peoples struggle to outshine their opponents in whatever they are doing be it in business, school, or work. In a healthy competing environment, individuals or organizations; whether they are tangible goods producers, for example, producers of pain killers, or service offering, for example, dental services, competition takes many forms. The most prevalent ways that organizations use to have a competent advantage over their opponents include, improving the quality of their products, varying prices, and adding innovative ideas to their products of services. One primary advantage of competition is increase production and general work output, which acts as a primary mechanism of controlling prices of essential goods. Achieving of success in any activity that one engages in is one of the primary goals of any individual.
Therefore, because the level of success depends on the amount of effort individuals put in whatever they are doing, in an endeavor to defeat opponents in the same industry, most individuals will use whatever is at their disposal to achieve their desired level of success. Through such efforts, people are able to stretch their potentials to higher levels of success, leading to increased production whereby, if such products or services meet the market demand, then likelihoods of increased profits are high. In life, nobody wants to be a failure or be associated with failure. Hence, to fit in the present competitive world, individuals have to put more effort in their daily endeavors, to meet and overcome any obstacles that they face everyday, making competition a primary motivational factor in any life endeavor (Lewis, 1997, p.1).
Going hand in hand with increased profits is increased product qualities, because of increased competition. Every producer of a good or provider of a service always aims to win buyers’ hearts and trust. To achieve this, producers and service providers have to improve their production process to meet the market standards or their buyer’s needs. Therefore, to meet such needs individuals have to formulate innovative ideas of improving the qualities of whatever they are offering, for this will define their level of success in the market. Production or offering of goods and services that do not meet consumer’s needs and, which are detrimental to consumers’ health may make an individual or organization tom loose its customers trust and loyalty; hence, leading to looses. On the other hand, in a learning or working scenario, because managements judge workers’ performance levels using their work output quality and level, through competition, workers are likely to enhance their working methodologies, in an endeavor to receive recognition and achieve success (Shukla, 2009, p.1).
In addition to increasing work output and quality of produced products, competition greatly boosts the formulation of new or innovative ideologies, depending on the prevailing conditions. Through vigorous and health competition, individuals will always struggle to formulate new production and marketing ideologies in an endeavor win a bigger segment of the market. Stiff and health competitions bring forth many working, learning, and production challenges, which in most cases, demand innovative ideologies necessary to counter such challenges. For innovational ideals to meet the challenges of competition, individuals must set boundaries, meet time deadlines, formulate new working strategies, and methods of ensuring they beat their competitors in the same fields. Hence, competition plays another crucial role of ensuring individuals do things in the desired manner and within set limits, as this defines the standards of judging their level of achievement (Singh, 2003, pp. 1-2).
Cons of Competition
Although competition has such advantages, sometimes in an endeavor to beat their opponents, most individuals or organizations may involve themselves in unhealthy practices hence, making the significance of competition questionable. One primary disadvantage of competition is creation of an unhealthy business, study, or working environment. The level competition in learning or working environments never takes into consideration the differences in people’s potentials. In addition to not considering personal abilities, the level of competition always favors well developed or resource endowed individuals or business in certain aspects of competition. For example, in any production process or service offering process, well developed or experienced practitioners of a certain field are more advantaged than new entrants into the field or production process; hence, making it hard for such new entrants to succeed. In addition, well-developed and experienced individuals have the expertise in their areas of specialization; hence, customers will always prefer them to new entrants, although the new entrants may be offering better goods and services (Philipose, Kamat, & Ananthanarayan, 2009, p.1).
Sometimes beating competitors can be one of the most stressing factors, as it requires formulation of new ideologies, pumping of more resources into any activity one engages in, and finding new methodologies of having control over an activity that one is doing or being the most successful. For example, in a learning scenario, for students to excel in their endeavors, although it is to their advantage, students have to spend extra time reading, consulting, and formulating appropriate strategies of defeating their opponents. The same is the case in business, as individuals have to find new methodologies, increase their work ratios, speed and proficiency, or formulate new working methodologies, necessary to enable them beat deadlines. In stressing working or learning environments likelihoods of individuals suffering work burnout and other health complications, associate with work stress, for example, ulcers are high (Ganster & Ivancevich, 1986, pp. 7-27).
In addition to making wok very stressful, unhealthy competitions negatively affects teamwork spirit or cooperation among individuals doing the same task. That is, because of human selfishness and egocentrism, most individuals working in a competing work scenario will rarely assist their co-workers or friends, although they may have the potential to do so. For example, because every individual may be struggling for managements to recognize and award them, rarely will such individuals cooperate in doing an act, or offering some requested help, as most individuals will never want their friends to excel than them (Lewis, 1997, p.1).
In conclusion, to curb the negative effects that may result due to unhealthy competition, and to ensure competition is beneficial to all participating individuals, it is of great significance for all competitors to create health competing environments. A health competing environment will guarantee formulation and implementation of innovative ideas, which are beneficial and not detrimental to all participating parties.
P&G is a multinational firm that offers a wide variety of products globally. The firm products can be categorized into three major categories, which include: health and wellbeing products, beauty and grooming products, and household items. The products are sold in different merchandises across the world. The firm had previously produced Crisco Shortening, peanut butter, Folgers coffee, and orange drink products, however, the firm stopped producing them due to low stock turnover. The firm was founded in 1837 in Ohio by James Gamble and William Procter to produce quality products in the market (Badal 546).
P&G Company is rated as one of the best performing firms due to its high profit and a high growth rate. Also, its products such as soaps have been rated highly due to their quality. The firm success has been attributed to its innovation strategy, which ensures that the firm produces new brands in the market to address the need of the consumers (Badal 546).
The firm has twenty-four main products that contribute to high returns due to its huge sales in the market. Besides, the company has a 17% market share in the U.S., which shows that the company if performing well in the market. The main product that has the highest sales in the market is pampers, which has an annual sale of over $9 billion in the market (Badal 546).
Vision statement
P&G does not have any set vision statement, however, the firm has a mission statement, which states,
We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the community in which we live and work to prosper (Badal 546).
The mission statement provides information about the company, its products, the goals to be achieved, and ways of achieving the goals set. The firm objective is to ensure that the consumers are satisfied with the products they offer. Also, the objective states what the stakeholders in the firm will achieve after the realization of the goals.
Proposed Vision Statement
The firm can adapt the following vision statement; we intend to be the leading provider of: Always, Wella, Tide, Pampers, Olay, Crest, Charmin, Bounty, Whisper, Braun, Downy, Gillette, Pantene, Lenor, Iams, Fusion, Febreze, water filters, Glade, Air Wick, soap opera, Glade, Aerial, and baby care products on the market, by providing products that match our values and the consumers’ needs in the market. The reward created will be shared among the company stakeholders.
The new vision statement shows the products that the company provides in the market. Besides, it shows ways the customers will benefit from the goods and services provided in the market. The vision statement also shows ways the company stakeholders will benefit from the business involvement in the industry.
Mission statement analysis
P&G has yet to develop a vision statement, however, the mission statement is effective since it shows the intentions of the company and acts as a public relation tool since the public understand the purpose of the firm.
The firm can improve its mission statement by adopting the following mission statement, quality and precision are in our heart as we ensure that we provide products that create value for the consumers all over the world. We strive to produce quality products using current technology that meets our set historical values. Also, we intend to achieve our objective by taking care of the firm employees since they are the foundation of the firm.
Current Mission Statement
Proposed Mission Statement
P&G has customers around the world since it is a global company. The current mission statement targets the consumers of different products produced by the company
The proposed mission statement targets consumers who are concerned about products’ quality.
The firm has over twenty-four major products based on its sales level.
The proposed mission purpose is to increase the market share of the twenty-four products in the market
The firm main market is the U.S.A., however, it has diversified its market to other geographical positions in the world.
The proposed mission aims at improving the firm’s product penetration and diversification in the market.
The current mission of the firm does not specify its technology
P&G will use modern technology to produce, market, and distributes its products in the market
The firm is committed to growth since it has invested in its innovation strategy.
The proposed mission indicates the firm commitment to growth by providing new products using modern technology.
The firm values are to ensure quality and customer satisfaction through the provision of products that create utility for the consumers
The proposed mission affirms the company’s commitment to its values.
The main competitive advantage of the company is its brand name and its quality products.
P&G proposed mission ensures that the firm develops a positive public image through the provision of quality products
The current mission statement states the firm’s concern to its stakeholders by ensuring that the revenue collected will enable them prospers.
The mission statement ensures that the employees and other stakeholders are taken care of by the organization through an appropriate reward system.
The current mission statement fails to address employee welfare in the firm.
P&G’s proposed statement ensures that the employees are valued the firm.
Opportunities
The firm has various opportunities, which if utilized can lead to increased profit level and growth. The opportunities include improved international trade laws, improved consumer purchasing power, technological development, a relatively stable political environment across the world, the competitive position of the firm, and cultural factors (David 127). Trade laws have improved due to the formation of the trading bloc that enhances business. Besides, the company can invest in Japan and China, which are open to international businesses. The firm can also invest more in Africa and other Asian countries due to political stability.
Threats
The firm faces the following external threats, changing internal laws, changing consumer behavior, political instability in some countries, rapid technological changes, cultural barriers, and competition. The threats affect the firm’s ability to reach its objectives (David 122). For instance, the firm faces high competition from Unilever. Technological change has affected the company brand products since they have to manufactured using new technology. This means that the management has to keep on changing its technology.
Competition profile matrix
Critical success factors are issues that are important to the firm for it to be successful. The factors include technology adaptability, competition strategy, financial management, legal requirements, marketing strategy, and the firm’s brand name. The firm needs to adopt innovative competitive strategies to reduce the level of competition from other businesses. The level of competition is high in the market, hence the firm has to ensure that its marketing strategy wins more market share than its competitors do in the industry. P&G also has to ensure that it can adapt to the changing technology to ensure that they use it to their advantage (David 182).
The technological change is essential to the firm since failure to adapt to the change can lead to failure. The firm has to ensure that it complies with the legal requirements in each country to avoid legal suits. This is crucial in ensuring that the firm’s brand name is protected. P&G has to ensure that its available capital is effectively managed to fund its project, hence ensuring the growth of the firm. The firm is rated highly by consumers due to its quality products and its ability to provide products that create utility for the consumers (David 95).
The firm main competitors include Unilever, Colgate-Palmolive, Johnson & Johnson, Clorox, and Kimberly. P&G is one of the market leaders in the industry due to its high market share in the global business. Also, the firm has a positive brand name due to its quality products, which creates customer loyalty. The firm innovation strategy has ensured that it remains one of the market leaders since it produces new products for the market. From the above case analysis, it is possible to conclude that the firm is a market leader in the industry since it has a high market share (David 113).
External Factor Evaluation matrix enables a firm to determine the risks faced by the firm and develop measures to deal with the threats. Besides, it allows the management to determine the organization’s opportunities in the market and determine, which opportunity to fund (David 78). P&G has various opportunities in the market, however, the main challenge is to determine which to fund first. The firm needs to weigh the opportunities and risks based on a weight of 0-1. The next step is to rate the threats and opportunities based on current strategies. The final approach is calculating the sum of the scores. The following table is an evaluation of the firm threats and opportunities based on the EFE matrix.
Weight
Rating
Weighted score
Changing Internal Laws
0.05
2
0.10
Political Instability In Some Countries
0.05
2
0.10
Cultural Factors
0.03
1
0.03
Competitive Position Of The Firm
0.9
3
0.27
Total
1.03
1
2.3
Works Cited
Badal, Alen. “Procter & Gamble Company”. The Union Institute (2011): 546-555. Print.
With increasing health awareness, in respect to increasing education levels, consumers are paying more attention to the ingredients of the drinks they consume.
The consumption of healthier drinks is increasing in a considerable rate. Consumers are now demanding more healthy and natural products.
Fruit/vegetable juice suffered as a result of the economic downturn, with this product area seeing marginal total volume sales decline.
However, sales proved more resilient than many product areas due to the health and wellness trend, with many switching from carbonates to fruit/vegetable juice as a result of its healthier and more natural image reconstituted 100% juice saw a better performance than more expensive not from concentrate 100% juice or nectars.
Market Growth rate of fruits & Vegetable juice industry
With economic disturbance all over the world, the disposable income of per person has decreased. The price has become one of the deciding factors in many countries. Due to which the buying capacity is adversely affected. Many companies are striving for the survival and the big companies are going for competitive strategies to maintain their sales level.
Consumers are preferring fruit and vegetable juice market over aerated drinks on the basis of health and price. This makes increased market growth rate for fruits & vegetable juice.
Competition in fruits & Vegetable juice industry
There is a cut throat competition going on in all over the world among all the major market leaders and the local companies. To survive it has become essential for them to come out with new competitive strategies.
With consideration of the Government policies of that particular country companies are taking different strategic decisions such as new product development, innovation in new flavors, new packaging, distribution etc.
Companies fighting for the market share in the juice market are:
Orangina Schweppes, Maspex Czech, Linea Nivnice, General Bottlers CR (PepsiCo), Kofola, Rauch, Coca cola co., Albi, JW childs, García Carrío, Eckes AJ, Dana dd,
Country wise market growth rate analysis & competition
Spain
In Spain, Unemployment level is high and there is an impact on disposable income level due to Government measures. As a result, price is the deciding factor. With health and price in consideration fruit and vegetable juice market share is been increasing.
The retail share has been increased to 35%. The market growth rate in juice industry has gone up to 68% with very high competition amongst the companies.
(Country Report. Fruits/Vegetable Juice in Spain 2011)
France
In France, to increase the volume share the companies are heavily investing in new product innovation and communication campaign. With intense innovation it is very difficult for the company to launch new product development and at the same time maintaining the interest of consumers while pushing the sales.
The with all the marketing strategies the companies managed to increase the market growth rate up to 62% giving rise to a very high competition.
(Country Report. Fruits/Vegetable Juice in France 2011)
Belgium
In Belgium, Fruit and Vegetable industry is very fragmented. Many companies compete with each other. In 2010, Coca Cola was the market leader but with the innovation in new flavors and new packaging, the Minute Maid Brand had shaken the root of Coca Cola. Following same strategy Friesland Foods België has introduced new brands.
In fruit juice market private label companies accounted for 44% market share in Belgium. The market have reached to maturity level yet the market growth rate is 42% with high competition.
(Country Report. Fruits/Vegetable Juice in Belgium 2011)
Turkey
With increasing awareness of health and wellness, the fruit and vegetable market share is definitely increasing but still the market growth rate is at moderate level of 37%. The competition level is also moderate.
(Country Report. Fruits/Vegetable Juice in Turkey 2011)
Czech Republic
In Czech Republic, due to the unstable economic conditions consumer have reducing expenditure on non – essential products. When buying fruit juices, consumers prefer to buy juices with higher content of fruits. They constitute 68% of retail volume share in Czech Republic.
The fruit juice market may decline in coming years since the financial crisis have negative impact on the Czech Republic which in turn, will make the consumers more price sensitive. As a result, fruit juice will lose out to aerated drinks.
All the above factors lead to slow down the market growth rate to 32% with moderate competitiveness.
The table below summarizes the market research on market growth rate and competition among 5 countries.
Works Cited
Euromonitor International (2011) Country Report. Fruits/Vegetable Juice in Spain. Web.
Euromonitor International (2011) Country Report. Fruits/Vegetable Juice in France. Web.
Euromonitor International (2011) Country Report. Fruits/Vegetable Juice in Belgium. Web.
Euromonitor International (2011) Country Report. Fruits/Vegetable Juice in Turkey. Web.
In a pure competitive market structure, the buyer does not have any effect on the price level of goods in the market. This is contributed by the fact that number of buyers and sellers in the market place is large enough and acting on an independent scale (Pindyck, 2001). If this characteristic is compared with monopolistic competition, it is noticeable that there exist many firms selling the same product in the market.
Furthermore, some firms are ready to enter the market in order to participate in selling the same products. In consideration of the fact that there are many firms in the market, it is possible to set individual price levels. One of determining factor to the number of firms in a monopolistic completion is the extent to which product has been differentiated and also the amount of fixed cost associated with running the industry (Gans, 2003).
Types of products
Products in a purely competitive firm assume a standard nature (Gans, 2003). These products are fundamentally identical in nature. An example is a combination of potatoes and wheat in agricultural sector. On the other hand, products in a monopolistic firm are highly differentiated. This means that the firms sell products that have less difference in their characteristics.
This statement does not denote that the goods can act as substitutes but it brings to surface the fact that their cross price elasticity is positive when it is calculated. Consequently, the change in price of one good have a subsequent effect on the quantity demanded of another good. To further describe the nature of monopolistic goods, it can be highlighted that such goods executes the same roles but the difference is in the specifics of the products such as quality and location.
Control over prices
The price levels in a purely competitive industry are determined by the point of intersection between the supply and demand curves. Individual firms are under obligation to sell their products as determined by the industry.
If a firm sells its products above the price in the market, then no one will buy from the firm in consideration of the fact that there exist cheap and similar products in the industry. Conclusion can therefore be made that prices are determined by the industry. In a monopolistic competition, firm determines its own price level in a market segment.
This factor is supported by the fact that products are highly differentiated thus the buyer cannot draw much difference between products. A decision made by one firm cannot have much effect on other companies in the same segment. To sum up the price statement in a monopolistic competition, each firm is at liberty to choose on the price level a decision which may not affect other firms. This is against earlier mentioned price determination structure of pure competition.
Conditions of enter the industry
There is ease of entry into a monopolistic industry. The long run aspect is that firms can enter and leave the industry at any time. A condition describing this monopolistic competition is that several firms are exclusive in nature and wants to display their products in the market at their own prices with an aim of making profits.
There is high probability that the cost level will increase due to intense advertisement done. If these sunk costs are not managed well by a firm then it will be forced to quit the industry. On the contrary, purely competitive market structures have easy entry and exit conditions. There is no related cost such as sunk cost.
Non price competition
Monopolistic competition emphasizes differentiating its products in order to gain competitive advantage over other firms. The use of intensive advertisement is meant to attract more buyers consequently making profits. A purely competitive firm does not have any non price competition strategy simply because firms are price takers. The industry decides for the firm the price level it will have to sell its products and services.
Examples
A good example of purely competitive industry is the agricultural sector where potatoes and wheat are the specific product groups. Motor vehicle industry makes up a monopolistic competition. They can perform nearly the same functions but has specific attributes or qualities recognizable by potential buyers. These goods are not close substitutes but their cross price elasticity is positive in description.
Pure competition vs. oligopoly
Number of participants firms
In an oligopoly market segment, the number of firms is few simply because of the existence of some barriers to entry (Depken, 2005). The firms depend on each other and this forms a reason for the inclusion of market barriers. Their aim is to perpetually control the market segment. This contrasts with a purely competitive market where the number of buyers and sellers in the market is large. There are no barriers to entry into a competitive market structure.
Types of products
The products in an oligopoly market are uniform or differentiated. Examples of such products include the petroleum industry (BP and other firms) and the industry dealing with soft drinks (coca cola). With a purely competitive structure the products are in standard form (Depken, 2005). An example given is the agricultural sector selling a combination of potatoes and wheat.
Control over prices
Oligopoly market structure participates in setting their prices divergent from a purely competitive structure where the firms take the prices from the industry. Oligopoly market structure produce where their marginal costs is equated to marginal revenue consequently maximizing profits.
Conditions of enter the industry
There are high level of barriers to entry and exit in an oligopoly market structure. Some of the available instruments used by the industry to prevent entry are: patent rights, economies of scale, and other deliberate actions done by firms to discourage prospective firms. On the other hand, a purely competitive market has free entry and exit phenomenon.
Non price competition
Differentiation of products is evident within an oligopoly structure. A great extent of these products is from industries. They can also take up the description of being homogeneous. Within a purely competitive market structure, non price competition is less.
Examples
As mention in the text, examples of oligopoly structure are a combination of firms dealing with industrial products such as the steel industry. In the same vein, firms selling with durable consumer goods fall under the category of oligopoly (Davies, 2005). An example of a purely competitive industry is the agricultural sector selling wheat and potatoes.
Pure competition vs. pure monopoly
Number of participants firms
Pure monopoly market structure is characterized by existence of a single producer or seller in a market segment while a purely competitive structure has many buyers and sellers. The firm is usually owned by a government so as to exclusively control production and guard the public interest from exploitation.
Types of products
The products available in a pure monopoly are distinctive in character because of the fact that the firm is the only producer or seller in a market. There are no close substitutes for such product consequently justifying the fact that the product supplied by a firm is exceptional.
Control over prices
Monopolies have mastered the art of taking control over prices. They can easily point out the amount to charge their customers at any one point in time. In this case therefore, the monopolists are termed as price makers (Depken, 2005). So as to come up with a price level, comparison with the output quantity is made. The objective of such action is to limit exploiting potential customers.
Conditions of enter the industry
Pure monopoly operates under barriers to entry. Such barriers include patent rights, advancement in technology appreciated by the firm and possession of good status. Furthermore, access to critical resources for production is among the entry barriers. With a pure competitive market structure, there are no barriers to entry or exit.
Non price competition
In recognition of the fact that monopolist conduct solely the activities of the industry, non price actions are not necessary (Davies, 2005). Advertisements are only employed by the firm in a bid to establish real contact with the customers through public relations. Pure competitive market structure does not have any non price competition.
Examples
Example of pure monopoly is the power generation company operated by a stated government. This is a sensitive area which requires large magnitude of resources. It can also be observed that power generation is a sensitive area of an economy. Other example of pure monopolies comprises the locally used utilities.
References
Davies, A., & Cline, T. (2005). “A Consumer Behavior Approach to Modeling Monopolistic Competition”. Journal of Economic Psychology 26: 797–826.
Depken, C. (2005). “10”. Microeconomics Demystified. New Jersey: McGraw Hill.
Gans, J., King, S., Stonecash, R., & Mankiw, G. (2003). Principles of Economics. Melbourne: Thomson Learning.
Pindyck, R., & Rubinfeld, D. (2001). Microeconomics . Upper Saddle River, New Jersey: Prentice-Hall.
Caterpillar, Inc. is an American manufacturer of construction and mining machinery. The company is highly ranked in industries that include, but are not limited to, transportation, mining, energy, electrical power generation, and finance (CNN Money, 2017). As of 2016, its market capitalization was $69.5B (CNN Money, 2017). This paper aims to analyze the company’s segmentation strategies and target markets. It will also assess Caterpillar, Inc.’s main competitors, and discuss the manufacturer’s future.
Discussion
Segmentation and Target Markets
Segmentation and targeting are of paramount importance for businesses that are willing to increase the effectiveness of their marketing efforts. In addition, marketing strategies based on particular characteristics of target markets always attract more customers (Kotler & Keller, 2016). The company operates in the following industry segments: residential and commercial constructions, power systems, financial products, and energy. It is clear that due to its broad reach, Caterpillar Inc. cannot effectively target a wide range of niches associated with it.
The organization’s marketing specialists have to rely on psychographic segmentation in order to better understand priority initiatives and decision criteria of the company’s customers. By utilizing 5 Rings of Buying Insight framework the manufacturer’s marketing specialists, have identified two primary market segments that stretch across all industry segments: high-information customers and result-oriented customers (Buyer Persona Institute, n.d.).
It has helped the organization to obtain better control of its brand management strategies. Caterpillar Inc.’s website reveals that the company “owns a complex portfolio of brands” (Caterpillar, 2017a, para. 1) that support its growth.
Taking into consideration the fact that Caterpillar Inc. is a corporation that was first introduced as a tractor manufacturer that has managed to extend its brand to products such as shoes, financial instruments, engines, and bags, its two-pronged approach to segmentation is extremely effective. This approach allows the company to “use the leverage of a well-known brand name in one category, to launch a new product in a different category” (Soomro, Issani, & Nasim, 2016, p. 348). In terms of targeting, its advertisements and marketing efforts are tweaked to different groups of buyers for each brand. However, despite their demographic, behavioral, geographic, and other differences all target markets can be subsumed under two categories: high-information customers and result-oriented customers.
Competition
Caterpillar Inc. is the world’s largest manufacturer of construction equipment and machinery. The company’s direct sales in this particular market surpassed $21 billion in 2016, which is a substantial portion of its total sales (Statista, 2017). The company’s key competitors in the industry are Komatsu, Hitachi, and Liebherr. Figure 1 shows equipment sales of Caterpillar Inc.’s top rivals.
Figure 1. Construction machinery manufacturers’ equipment sales (Statista, 2017).
It is clear from the picture that Caterpillar Inc. outperforms all competitors by a wide margin. The company’s retail statistics are a testament to the efficiency of its product strategies and show that global sales increased from 4 to 12 percent in the last quarter of 2017 (Caterpillar, 2017b). In addition, it is expected that the manufacturer’s sales will reach $32 billion by 2020 (Statista, 2017). Caterpillar Inc. is effective in pooling customers from different industries that its rivals. It also has a stronger portfolio of well-established products.
Despite its numerous advantages, Caterpillar Inc.’s position as the undisputed leader in sales of heavy equipment might be undermined by China’s economic slowdown (Lee, Sun, & Varshney, 2016). This slowdown is associated with a lack of meaningful post-coal growth of the country’s economy, which also poses a threat to Caterpillar Inc. that produces mining equipment (Qi, Stern, Wu, Lu, & Green, 2016).
On the other hand, mining and construction equipment businesses of Komatsu, Hitachi, and Liebherr are less reliant on the Chinese market. For example, in the third quarter of 2016, Komatsu’s sales in China amounted to ¥18, 733M, which is only a fraction of its sales in Japan and Americas—¥59, 657, and ¥124, 668, respectively (Komatsu, 2016). Overreliance on the Chinese market is a substantial disadvantage that has to be eliminated by Caterpillar.
Successful Strategy
Caterpillar Inc. has come a long way from being an obscure tractor manufacturer to becoming the industry leader. The company’s breakthrough products are distinguished from those of its competitors by a large set of local features that are tailored to the specific needs of foreign markets (Hill & Jones, 2012). In order to execute its international strategy, the company decentralized its decision-making function in 1988 (Neilson, Martin, & Powers, 2008).
By doing so, the manufacturer improved its performance management and scaled up its capacities. A series of mergers and acquisitions were also key to Caterpillar Inc.’s success. Ken Gray, the company’s director of innovation, reveals that in order to successfully develop a solution for Caterpillar Inc., its engineering team socializes all projects (as cited in Baskin, 2015). In addition, all innovative processes are paralleled, which helps to solve shared problems.
Future Direction
The most promising prospect for the future growth of the company is the construction equipment sales in Europe and Africa. Sjodin, Granskog, and Guttman (2016) argue that these region’s markets and aftermarkets will continue to grow in the following years. Therefore, Caterpillar Inc. will remain the industry leader in the foreseeable future. The company is recommended to focus more on pollution prevention with its product line, thereby minimizing its impact on the environment and attracting new customers and investors.
Conclusion
The paper has analyzed segmentation and targeting strategies of the world’s leader in construction machinery—Caterpillar Inc. It has been argued that the company will retain and strengthen its position on the market in the foreseeable future if it explores new growth strategies.
Hill, C., & Jones, G. (2012). Strategic management: An integrated approach. New York, NY: Cengage Learning.
Komatsu. (2016). Consolidated business results for three months of the fiscal year ending March 31, 2017 (U.S. GAAP). Web.
Kotler, P., & Keller, K. L. (2016). Marketing management (15th ed.). Upper Saddle River, NJ: Pearson.
Lee, J., Sun, Y., & Varshney, S. (2016). A weakening chain? Impact of China’s economic slowdown on global supply chain management of US multinational enterprises: A capital market’s perspective. Journal of Supply Chain and Operations Management, 14(1), 68-74.
Sjodin, E., Granskog, A., & Guttman, B. (2016). Reengineering construction equipment: From operations focused to customer centric. Web.
Soomro, Y., Issani, M., & Nasim, S. (2016). Consumer perceived brand concept & close brand extension: A multi-mediation model analysis. Journal of Business Studies, 12(1), 347-359.
