MKTG101 TOPIC 3: UNDERSTANDING
MARKETS: THE COMPETITIVE ENVIRONMENT
(WEEK 5)
The Competitive Environment
Economists’ definition of ‘markets’ in marketing = ‘the management process responsible for
anticipating, identifying and satisfying customer requirements profitably.’
Not mention the market itself and overlooks the marketer’s job to create the market
Assumes that marketers should satisfy pre-existing customer needs rather than creating the
need for the product.
ignores other stakeholders other than the customer (e.g., NHS, government, media, EU)
Reasons for understanding marketing:
Understanding regulation is crucial
Failure to understand markets can be costly (changes in consumer demand, technology, and socio-
economic environment)
Saturation = need to know how to enter/exit/grow a market and evaluate potential
The ‘art’ of defining a market requires understanding competition
Industry view of competition = competitors offer a similar product of service e.g., different
razors from different brands
Market view of competition = competitors satisfy the same customer need with a technically
dissimilar solution e.g., wax strips vs. laser tech
Customer lock-in customer loyalty developed through an emotional bond
The brand through locking them into the ‘eco-system’ e.g., Apple have done this so that it becomes
more difficult to leave.
Make apps and software exclusive to Apple to lock them in to manage customer loyalty, rivalry, and
threat of substitutes
Four simplifying assumptions that underpin the perfectly competitive model
These are that all firms and consumers are price-takers, that buyers and sellers are fully informed,
that products are homogeneous, and that there is free entry into and exit from the market -
unrealistic
Competitive industry all firms are small relative to the size of the market - no monopoly
Unable to influence market price - even with high turnover
Monopolists reduce price to sell more, perfectly competitive firm sell much as it likes at
market price
Increased price lose sales to a cheaper competition - price taker
Only choose how much output to sell, rather than price
Small independent retailers selling eggs, revenues determined by market - anyone the price will
be the same
Buyers are informed
Buyers uninformed about price ranges and can’t compare - no way to judge is price is reasonable
Seller can exploit lack of knowledge by raising price - degree of monopoly power
Local fruit and veg markets highly competitive - easy price comparisons
Technology and internet increased amount of info available
Products are homogenous
Products are simaialir with little differentiae from one another
Suppliers of product have little room to move - consumers just go for the cheapest product
To be a price takers, products must be homogenous
Free range eggs not homogenous - more expensive but people will pay
There is freedom of market entry and exit
Barriers to entry crucial to establish and maintain monopoly or market power
, Potential errants are free to enter the market - minimum efficient scale is small, set up costs low
and economies of scale will not pose entry barrier.
Threat of new entry is high - no opportunity for existing firms to restrict supply to raise prices and
profits above competitive level
Firms can exit at zero cost if production no longer profitable - incentive to leave
Number of firms fall - total industry output is reduced
Firms face greater pressure to use efficient production process and produce kind and quality
products consumers want to buy
Perfect competition
Large number of sellers and buyers
Firms and customers are price takers
Homogenous products
Perfect mobility of factors of production
Free entry and exit of firms
Perfect information
Absence of collusion or artificial restraints
No government intervention
Marketing has been preoccupied with other aspects such as the exchange itself or buyer
behaviour, overlooked the market itself
Markets are everywhere
Online markets
B2B vs B2C markets
Invisible/ illegal markets
Misconceptions about markets:
markets are a stable, ‘passive’ background
companies are detached from markets
markets are a place or an exchange
companies rule the market
companies must identify a need and cater to it
Companies can influence the macro-environment e.g., Tobacco companies were able to
market with no restrictions, were involved in shaping regulations that were in its favour
Marketers do not perceive the market as a perfect competition
Markets as networks of exchange relationships
Michael Porter: 5 Forces Model
Porter’s Five Forces aims to analyse an industry’s attractiveness and likely profitability.
Five forces that make up the competitive environment were identified:
Threat of intense segment rivalry (competitors) = Segment is unattractive, are already numerous
strong competitors with high stakes in staying in the segment.
MARKETS: THE COMPETITIVE ENVIRONMENT
(WEEK 5)
The Competitive Environment
Economists’ definition of ‘markets’ in marketing = ‘the management process responsible for
anticipating, identifying and satisfying customer requirements profitably.’
Not mention the market itself and overlooks the marketer’s job to create the market
Assumes that marketers should satisfy pre-existing customer needs rather than creating the
need for the product.
ignores other stakeholders other than the customer (e.g., NHS, government, media, EU)
Reasons for understanding marketing:
Understanding regulation is crucial
Failure to understand markets can be costly (changes in consumer demand, technology, and socio-
economic environment)
Saturation = need to know how to enter/exit/grow a market and evaluate potential
The ‘art’ of defining a market requires understanding competition
Industry view of competition = competitors offer a similar product of service e.g., different
razors from different brands
Market view of competition = competitors satisfy the same customer need with a technically
dissimilar solution e.g., wax strips vs. laser tech
Customer lock-in customer loyalty developed through an emotional bond
The brand through locking them into the ‘eco-system’ e.g., Apple have done this so that it becomes
more difficult to leave.
Make apps and software exclusive to Apple to lock them in to manage customer loyalty, rivalry, and
threat of substitutes
Four simplifying assumptions that underpin the perfectly competitive model
These are that all firms and consumers are price-takers, that buyers and sellers are fully informed,
that products are homogeneous, and that there is free entry into and exit from the market -
unrealistic
Competitive industry all firms are small relative to the size of the market - no monopoly
Unable to influence market price - even with high turnover
Monopolists reduce price to sell more, perfectly competitive firm sell much as it likes at
market price
Increased price lose sales to a cheaper competition - price taker
Only choose how much output to sell, rather than price
Small independent retailers selling eggs, revenues determined by market - anyone the price will
be the same
Buyers are informed
Buyers uninformed about price ranges and can’t compare - no way to judge is price is reasonable
Seller can exploit lack of knowledge by raising price - degree of monopoly power
Local fruit and veg markets highly competitive - easy price comparisons
Technology and internet increased amount of info available
Products are homogenous
Products are simaialir with little differentiae from one another
Suppliers of product have little room to move - consumers just go for the cheapest product
To be a price takers, products must be homogenous
Free range eggs not homogenous - more expensive but people will pay
There is freedom of market entry and exit
Barriers to entry crucial to establish and maintain monopoly or market power
, Potential errants are free to enter the market - minimum efficient scale is small, set up costs low
and economies of scale will not pose entry barrier.
Threat of new entry is high - no opportunity for existing firms to restrict supply to raise prices and
profits above competitive level
Firms can exit at zero cost if production no longer profitable - incentive to leave
Number of firms fall - total industry output is reduced
Firms face greater pressure to use efficient production process and produce kind and quality
products consumers want to buy
Perfect competition
Large number of sellers and buyers
Firms and customers are price takers
Homogenous products
Perfect mobility of factors of production
Free entry and exit of firms
Perfect information
Absence of collusion or artificial restraints
No government intervention
Marketing has been preoccupied with other aspects such as the exchange itself or buyer
behaviour, overlooked the market itself
Markets are everywhere
Online markets
B2B vs B2C markets
Invisible/ illegal markets
Misconceptions about markets:
markets are a stable, ‘passive’ background
companies are detached from markets
markets are a place or an exchange
companies rule the market
companies must identify a need and cater to it
Companies can influence the macro-environment e.g., Tobacco companies were able to
market with no restrictions, were involved in shaping regulations that were in its favour
Marketers do not perceive the market as a perfect competition
Markets as networks of exchange relationships
Michael Porter: 5 Forces Model
Porter’s Five Forces aims to analyse an industry’s attractiveness and likely profitability.
Five forces that make up the competitive environment were identified:
Threat of intense segment rivalry (competitors) = Segment is unattractive, are already numerous
strong competitors with high stakes in staying in the segment.
