Lecture 4: The Competition

30 m/c, 5 sa, no calculator- midterm

- Market is defined by how much we sell and how much our competitors sell
- The market can be structured as pure competition, monopolistic competition, oligopoly,
and monopoly
- With a pure competition, convenience is important; how easy is the consumer to get the
product?
- With monopolistic competition, firms have to stress the difference between them and
the competitor
- Oligopoly has small amount of firms, and they have a price agreed (similar prices to
avoid loss of profit)
- Monopoly is the only producer of a good/service is not able to be substituted, marketing
is not as important

SWOT (Strengths, Weaknesses, Opportunities, Threats)

- If its internal and favourable (Strength), internal and unfavourable (Weakness), external
and favourable (Opportunities), and external and unfavourable (threats)
- If it is internal (controllable), if its external (not controllable)
- Usually things that are unfavourable and external involve competitors
- Porter’s Five Forces:
o Bargaining power of suppliers: if there are many suppliers, there is less
bargaining power; however, with more buyers and only one supplier, buyers can
pressure supplier
o Threat of new entrants: how likely is new competitors getting in?
o Threat of substitutes: are there any products on the market that can replace
yours?
o Bargaining power of buyers: how many buyers to how many sellers
o Internal rivalry: competition within the market

- BCG: Growth-share matrix, measures different markets and market share of different
companies:
o Star: High market growth, high market share
o Cash cow: low market growth, high market share
o Question mark: high market growth, low market share
o Dog: Low market growth, low market share
- Relative market share = your market share/biggest (next biggest) market share (10
percent is a benchmark for market share)
- Harvest is to scale back operations, while divest is to sell off the business

PEST (Political, Economic, Social, Technological trends)

 - Political and legal trends: how does political factors impact businesses (e.g. policy
changes, trade agreements)
- Economic trends: how much money does our customers have (inflation, interest rates,
etc.), marketers care about gross income (income that consumers take home),
disposable income (after taxes), discretionary income (after saving/investment)- care
about discretionary income the most
- Social and cultural trends: who is in our market? (demographics, population,
generations, family structure, attitudes and values etc.)
- Technological trends: technology is changing society and meeting our needs

Red Oceans strategy

- Red ocean refers to lots of competition (lots of sharks in the ocean and they fight each
other, ocean becomes red)
- This strategy needs to focus on a firms’ competitors and figure out a strategy to survive
in a competitor filled market
- Figure out whether to be selective (to go after a few competitors), or become a tiger
(focus on only one competitor)
- Or the firm can only focus on itself or focus on points that are better than the
competitor

Blue Oceans strategy

- What happens if there is no competition?
- Firm can try to increase the amount of profit by making new products as they are the
only firm
- Firms that try to go to blue ocean strategy, need to think of opportunities to create
something new or ways to satisfy needs (perhaps by blending several needs)
- Firms must be creative

Midterm Sample Qs

1. A
2. E
3. C
4.B
5.C
6. D