The two types of competition at market
Market is a place where buyers and sellers interact to trade goods, services, contracts and instruments for money or barter system. Consumer oriented companies should understand the value consumers give for a product the marketers use this for pricing a product. In the market we can see two types of competitions:
PRICE COMPETITION: Price competition can be defined as an intense competition in which competitors cut their retail price to gain business. In this type of competition if firm want to compete effectively firm need to be the lowest cost producer and firm should be able to change the price of a product frequently and firm need to respond quickly and aggressively. According to our initiatives the competitors will respond quickly. In this type of competition the sellers also raise or lower the price of a product according to demand curve. It can be evidently seen in short run of a firm in Monopolistic competition.
MONOPOLISTIC COMPETITION: In this type of market the firm can enter freely and each producing its own brands or differentiated product. It have two key characteristics:
In this cross-price elasticity of demand is large but not infinite.
There is free entry and exit.
In monopolistic competition the profit can be maximized when,
MC = MR
MC = Marginal Cost.
MR = Marginal Revenue.
Monopolistic competition equilibrium in short run and long run.
Fig a: Short-run equilibrium of the firm Fig b: Long-run equilibrium of the firm
under monopolistic competition under monopolistic competition
Figure (a) shows the short run equilibrium in which the firm can maximize its profits and produce a quantity where,
MR = MC
In this firm can collect price based on Average Revenue curve. Thus the firm gets profits if the difference between average revenue and average cost is positive.
Figure (b) shows the long run equilibrium in which the firm produce its products if,
MR = MC
In this Average Revenue (AR) is shifted as other firms enter the market and there is increase in competition. In this the firm will not sell the goods above the average cost(AC) and it even no longer claim an economic profits.
In Monopolistic competition:
Elasticity of demand is high elastic in long rum.
Product differentiation is high.
There will be no efficiency.
In this profit maximization condition is MR = MC.
In this market power is low.
2. NON-PRICE COMPETITION: It is one type of marketing strategy in which one firm tries to distinguish its products or services compare to competing products on basis of attributes. The firm can distinguish its product offerings through extensive distribution, quality of service, customer focus or any other sustainable competitive advantage other than price. In this type of market the firm will also reduce the cost of product compare to competing products. It typically involves promotional expenditures like advertising, selling staff, sales promotions, marketing research, brand management costs and new product development. The Non-price competition can be evidently seen in oligopoly competition.
OLIGOPOLY COMPETITION: It is a market form in which a market or industry is dominated by small number of oligopolistic(sellers). In this the decision of one firm is influenced by the decision of other firm. It gave rise to a wide range of different outcomes. The firms employ restrictive trade practices to raise prices and restrict production. Where there will be a formal agreement for such trade practices this is known as cartel.
CHARACTERISTICS OF OLOIGOPOLY COMPETITION:
Entry and exit :Barriers to enter are high. The barriers are economies of scale, complex technology, patents and access to expensive.
Condition for profit maximization is MR = MC.
Oligopolies are price setters rather than price takers.
Oligopolies can retain long run abnormal profits.
In this there are few firms in which one firms action influence other.
Fig c: oligopoly competition.
The figure c shows that the demand curve above kink is relatively elastic because all other firms prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce price cut, which leads to price war. Thus oligopolistic is to produce at point E which is called equilibrium point and the kink point.
Thus in oligopoly competition one firms action influence the other.
ELASTICITY: It can be defined as the responsiveness of the quantity demand of good to change in one variable on which demand depends. It can also be defined as the percentage change in one variable relative to a percentage change in another variable is called elasticity. That is the percentage change in price then how much is percentage change in demand. Thus elasticity is nothing but responsiveness.
Coefficient of Elasticity = % change in A ÷ % change in B
FACTORS EFFECTING ELASTICITY DEMAND:
Availability of substitutes.
Proportion of expenditure (needless: inelastic; TV; elastic).
Postponement of consumption.
Change in income (necessaries: inelastic).
Nature of the commodity (necessity vs. luxury).
Distribution of income.
Price level (very costly and very cheap goods: inelastic).
Different uses of the commodity (paper vs. ink).
Elasticity of demand:
Price Elasticity of demand
Cross Elasticity of demand
Income Elasticity of demand.
Price Elasticity of demand: It can be defined as a percentage change in quantity due to 1% change in price.
Ep = % ΔQuantity ÷ % ΔPrice
Ep = Elasticity of price
Δ = Difference
Price Elasticity of demand is used to measure the extent of movement along the demand curve. This type of elasticity is always negative and expressed in absolute value (positive numbers). In this type of elasticity,
If the elasticity > 1 demand is said to be elastic;
If the elasticity between zero and one then it is inelastic;
If the elasticity = 1 then it is unit-elastic.
Perfect inelastic or 0 elastic demand.
Perfect elastic or infinite elastic demand.
Formula of price elasticity:
PED = % change in quantity demanded ÷ % change in price.
PED = Price Elasticity of Demand.
ELASTICITY AND REVENUE:
The price gets decreased and total revenue will also get reduced when the demand is price inelastic.
The price gets decreased and total revenue get increased when the demand is price elastic.
In unit elastic demand a price decrease leads to no change in the total revenue.
Cross Elasticity of demand: Cross elasticity of demand can be defined as a change in demand for one good in response to change in price of another good. It can also defined as percentage change in quantity consumed of one product as a result of a 1% change in the price of related products. Change in price of related goods cause the demand curve to shift a change in demand for the original good.
Ec = % ΔQuantityA ÷ % ΔPriceB.
Ec = cross elasticity of demand.
In cross elasticity of demand,
The sign of cross elasticity for substitutes is positive;
The sign of cross elasticity for complements is negative;
This two products are considered good substitutes or complements when the coefficient is larger than 0.5 (in absolute value).
Income Elasticity of Demand: Income elasticity of demand is the degree of responsiveness of quantity demand of a good even if there is a small change in the income of the consumer. In this,
Income elasticity for the good is equal to one if the proportion of income spent on good remains same.
Income elasticity for the good is greater than one if the proportion of income spent on good increases.
Income elasticity for the good is less than one if the proportion of income spent on good decreases.
METHODS USED TO MEASURE THE ELASTICITY OF DEMAND:
Percentage Method = % change in demand ÷ % change in price.
Proportionate Method = Proportionate change in demand ÷ Proportionate change in price.
Total Outlay Method or Expenditure Method:
TO = TQ * P;
TO = Total Outlay;
TQ = Total Quantity;
P = Price of the commodity.
Point Method or Geometric method:
At any given point on the curve = Lower segment of demand curve ÷ Upper segment of demand curve.
The hair care industry one of FMCG (Fast Moving Consumer Goods) company which is growing at high rapid pace when compared to other FMCG companies. The hair care industry includes different shampoo industries which are segmented into three different categories they are:
Cosmetic which includes shine, healthy, long and silk.
Under these three categories the fast moving segment is Anti Dandruff shampoo.
The shampoo industry players made a research on usage of shampoo in urban and rural areas. Industry players estimate that the urban market penetration of shampoos is 36 per cent. Shampoo usage in the rural markets is even more infrequent, with a penetration level of 12 per cent. By using this research there is a scope for increasing the volume of customers to use particular brand of leading players by maintaining the quality. Indian shampoo market have 10 major players.
The Hindustan unilever is the oldest player in the shampoo market which has highest market share of about 65 percent volume share (68 percent share by value) when compared to other players. Next to HUL the P&G also entered into the shampoo market with one of the world’s largest selling brand for antidandruff which is named as Head and Shoulders. The other major players in this market are Cavinkare, Dabur, Himalayas and ITC etc.
Cavinkare limited, is a company from Chennai which have brands such as chik and nyle which have a market share of 19.8 percent volume share. It focused on scaled-down versions of is brands and herbal shampoos. Cavinkare shampoo business grown faster than overall market, in 1998 it grown to 20%, in1999 it is 4% and over past four quarters it grown to 34%.
These companies identified some obstacles they are:
Shampoo contains harsh chemicals which could damage hair.
Price is higher.
These products became glamour product rather than being a hygienic towards health.
Thus in order to overcome these situation the Cavinkare is first company to reduce the price of the shampoo as 50 paisa per sachet while other companies are selling the product for 2rs per sachet. Thus by decreasing the price of the product the sales are more in the form of small sachets than bottles.
HUL clinic plus is the market leader among shampoos. In the shampoo sector HUL leads the race with market share of 47.5% followed by P&G, Dabur India and Cavinkare. All the shampoo players are targeting the volume growth by reducing the price of their product. They even introduced some special offers to increase the supply of the production.
Sunsilk is one brand of HUL which contains various versos. Head and Shoulders is one brand of P&G which is the one of the powerful largest selling shampoo in the world which is at 1st position. And Rejoice is the Asia’s Number 1 shampoo. Today 99% people has dandruff issue so the players thought of introducing antidandruff shampoo, HUL introduced All Clear while P&G introduced Head and Shoulders which had proved as number 1 effective product for the removal of dandruff.
Now a day’s most of the customers think that concentrate level of chemical usage is more in the shampoos so in order to catch up the attention of customers once again companies came out with an option of herbal products. Cavinkare 1st introduced the herbal shampoo which includes all the natural ingredients such as shikai, amla and the nuts. Again the higher price came into picture as the herbal shampoos are very expensive. Slowly the price of this herbal product also got decreased but there is a profit in only urban market when compared to rural market.
PRICE: All the shampoos available in market has packaging available in various price brands. All clear has been priced at Rs.55 for 100ml and Rs.105 for 200ml despite of Head and Shoulder priced at Rs.62 for 100ml and for 200ml Rs.120. To increase the sale HUL occupied various price values for sunsilk:
8ml sachet for Rs.2.50.
50ml bottle for Rs.35.
100ml bottle for Rs.55.
PROMOTIONAL ACTIVITES: All the shampoo marketers have mainly targeted the young youthful audience by making celebrities as the brand ambassadors whom the youth like. The campaigns have been filled with full of energy and are purely youthful.
SPACE ALLOCATION: Two major principles in the success of retail market are sales and profits. The sales volume and the profitability can be measured in the amount of space consumed for the particular product. Depending upon the product category the products are allocated. The amount of space is allocated based on the previous performance of the particular product.
If the demand for a particular product is growing then more space is allocated product or else the space allocated is decreased. Allocating the space according to the number of sales done. Allocation of the space for the particular product differs from store to store. The characteristics of the product determine the space allocation in both quality and quantity of space.
I selected my company as HUL and I studied different shampoo brands under it. Basically HUL has shampoo products almost across all price ranges. I conducted my study at normal departmental store in an up town place. When I went to the store I first came across the HUL products this clearly shows the demand for HUL products. I came across many different brands under the shampoo segment of them 4 brands were of HUL’s. When I enquired people on their purchase of the products then I came to a surprising fact that most of people bought HUL shampoo product, no wonder HUL is the market leader.
The first brand that came to my eye in the shampoo segment was Sunsilk. The demand for the Sunsilk is more compared to all other 3 brands in HUL because people believed that Sunsilk was the hair expert. Next to sunsilk I observed Clinic All Clear is placed which is mainly targeting market suffering with dandruff. The third product in the order was Clinic Plus which is a low cost and brings a huge amount of revenues for the company. After this the forth product is Dove which is targeted for niche market. In my interaction with customers I found people rejecting the product the surprising reason was consumers perception about Dove was it contains a lot of chemicals.
CONCLUSION: According to my study it shows that I understood that Sunsilk have an inelastic demand and Clinic Plus was in the heart of many customers and it enjoys loyal customers keeping in mind the market is an Oligopolic market.
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