Monopolistic Competition in the Long‐run

The difference between the short-run and the long-run in a monopolistically competitive market is that in the long-run new firms can enter the market, which is especially likely if firms are earning positive economic profits in the short-run. New firms will be attracted to these profit opportunities and will choose to enter the market in the long-run. In contrast to a monopolistic market, no barriers to entry exist in a monopolistically competitive market; hence, it is quite easy for new firms to enter the market in the long-run.  

Figure  -  1

The monopolistically competitive firm's long-run equilibrium situation is illustrated in Figure 1

The entry of new firms leads to an increase in the supply of differentiated products, which causes the firm's market demand curve to shift to the left. As entry into the market increases, the firm's demand curve will continue shifting to the left until it is just tangent to the average total cost curve at the profit maximizing level of output, as shown in Figure 1 . At this point, the firm's economic profits are zero, and there is no longer any incentive for new firms to enter the market. Thus, in the long-run, the competition brought about by the entry of new firms will cause each firm in a monopolistically competitive market to earn normal profits, just like a perfectly competitive firm.

Excess capacity. Unlike a perfectly competitive firm, a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale, labeled as point b in Figure 1 . When the firm produces below its minimum efficient scale, it is under-utilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

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Characteristics of Monopolistic Competition

Monopolistic Competition is characterised by :

1.             Relatively large number of sellers
2. Differentiated products
3. Easy entry and exit from the industry

Relatively Large Number of Sellers:

Small Market Shares: Each firm has a small percentage of the total monopolistic market and thus has only limited control over market price.

No Collusion: A relatively large number of firms will not combine to restrict outputs and set prices. With so many firms, collusion is almost impossible because it is too easy for one firm to cheat and charge the lower price.

Independent Action: Each firm is independent and can determine its pricing policy without considering its rivals. eg. A firm could moderately increase its sales by cutting its prices, but that would have no significant effect on its competitors sales.

Differentiated Products:

Product Attributes: product differentiation may entail physical or qualitative differences in the products themselves. Real differences in functional features, materials, design, and workmanship are the vital aspects of product differentiation.

Service: Service and the conditions surrounding the sale of a product are forms of non-price product differentiation too.

Location: Accessibility of stores that sell certain products or placement of products in stores eg. products at eye level would have an advantage over those that are not.

Brand Names and Packaging: Brand loyalty and packaging can affect demand.

ie. Apple's iPhone. It's pretty much the same as any other phone. It has touch screen capability, can surf the web, can listen to music, but the apple brand as well as advertising makes it a big hit on the market of cell phones.

Some Control over Price: Producers can charge extra for extra features, etc.

Generally, firms are "price makers" since each firm owns such a small percentage of the total market; if a firm changed the pirce of their product, there would not be much of an effect on the market.

The firms in monopolistic competition will DIFFERENTIATE their products and make them more appealing to the customers in order to maximize their profits.

 Easy Entry and Exit:

In the SHORT RUN, a firm may obtain economic profits or losses.

However, since there are little barriers from preventing companies to enter or leave the industry, in the long run, the firms will only obtain normal profits

Remember: entry eliminates profits; exit eliminates losses!

Advertising:

A unique feature of a monopolistic competitive market is that there are product differentiations.

Therefore, companies rely on advertising to flaunt their products and try to get consumers to buy their product over another.

Goal of product differentiation and advertising (non price competition) is to make price less of a factor in consumer purchases and make product differences a greater factor.

A successful advertisement would shift the firm's demand curve to the right and make demand more inelastic.

Some examples of non-price competition : 

• Store loyalty cards
• Banking and other financial services
• Home delivery systems
• Child services
• Extension of opening hours
• Internet shopping for customers
• Warranties

Monopolistic Competitive Industries:

Shoes - Nike, Addidas, Reebok

Jewelry  :  Asphalt Paving Signs

Bottled water ,

Ice cream  -  Breyers, Tom & Jerry

Mobile Phone- Nokia, Samsung, Sony Ericcson

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Macro Environment of Business

 Macro environment of a company refers to all those economic and non-economic factors which exercise their influence on the business activity in general and thus determine opportunities that a company may have to promote its business.

The role of macro environment from the point of view of the business may be both positive and negative. This implies that the larger forces in the company’s environment do not always provide wider space for business operations. They often put restraints on the business activities of the firm.

Macro environment of business can be broadly classified into

1. Economic Environment and
2. Non-Economic environment.

Since business is basically an economic activity, economic environment of business both domestic (national) and global is of strategic importance. In the national economic environment of the country, country’s economic system, macroeconomic scenario, phase of business cycle through which the economy is passing, organization of the financial system and economic policies of the government are the most important elements.

Economic system of the country determines the parameters of the business activity. Macroeconomic scenario refers to price situation, levels of saving and investment, fiscal, monetary and balance of payments situations and overall growth activity. These factors broadly determine the prospects of business activity.

Economic policies of the government, particularly the industrial, trade, fiscal and monetary policies shape the opportunities for business. However, at times, these policies are used by the governments to regulate the operations of business firms.

Now because of liberalization, from the point of view of the company’s business, global economic environment has become as much important as the national economic environment.

Business, despite the fact that it is an economic activity, is also influenced by its non economic environment. Political system, ideology of the government, legal framework, social system, cultural values, demographic factors, level of technological development and natural and physical environment of the country broadly constitute non-economic environment of business. In fact, all these non-economic elements are of great relevance to present day business. These factors not only determine for business but also, at times, have serious constraining effects

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Godrej Growth Strategy in Asia, Africa & S America

The article discusses the growth strategy of Godrej group  and the Marketing challenges for FMCG companies in different markets of Asia, Africa and South America.

***                    ***                             ****                 ***

Godrej has taken the route of inorganic growth outside India. In last few years it has made in roads in UK, Nigeria, Indonesia, South Africa. The journey began as a joint venture with Sara Lee. Godrej was a minority partner with 49 % stake. The Household Product Company Sara Lee was present in Indonesia and some other emerging markets. Relavant Terms :
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Godrej Group : The Godrej Group is an Indian conglomerate headquartered in Mumbai, India. It was founded by Ardeshir Godrej and Pirojsha Godrej in 1897. The group has interests in real estate, FMCG, industrial engineering, appliances, furniture, security and agri care. Turnover is more than 2.6 billion dollars (Rs 3,000 Crore). Present Chairman : Mr Adi Godrej.

Growth Strategy : Inorganic through a host of acquisitions as well as alliances.


New Markets : East Asia, Africa and South America

3x3 Strategy : The Operation Strategy Adopted by Godrej which is focussed on India like Markets, Core Products of the Company and Freedom to local SBUs to adapt the marketing strategy.

EVA : Economic Value Added or EVA is an estimate of a firm's economic profit. EVA is Net Operating Profit After Taxes (or NOPAT) less the money cost of capital

Caucasian : in American English, the term is sometimes restricted to Europeans and other lighter-skinned populations



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Godrej is number one player in hair care and insecticide and number two in soaps. When MNCs entered Indian FMCG market Godrej acquired Keyline to learn modern trade.

It has concentrated in the markets that have similar characteristics to India – in terms of demographics, consumer behaviour, population growth, size of the middle class and the bottom of pyramid. The target of Godrej is the middle and bottom of pyramid. It is a mass positioned company.

Private labelling began in the US after fifty years of modern trade. In India, on day one itself, Reliance was talking about how to stock the entire store with its own brands. Kishore Biyani of Future Group has been talking about it for the last five years. This strategy helps in increasing the market share rapidly as the brand becomes more stronger than the product attributes. Godrej for future has similar plans.

There are critical cultural differences in global modern trade. SA follows the European and America model. Shop space is very crucial for success in this market. Because if you don't get the dominant space that you deserve then the consumer doesn't see you as a leading brand. In Indonesia and Argentina the emphasis is on innovation. In these markets, competition is strong across the board.

Godrej Products in Argentina

Brazil and Argentina are very similar. But there are two different markets in Brazil – the Caucasian market and the ethnic market. For the Caucasian market Godrej has products and knowledge. But for the Ethnic population they are working in line South Africa.

The products which Godrej has successfully marketed are : Hair Colour (via Rapidol in South Africa), 'Issue' (Number one brand for hair colour in Argentina), Hit ( Leader in insecticides), Cinthol and No 1 in soap category.

Godrej In South Africa

The next phase is to establish Godrej as a brand internationally. Today its products dominate the brand. Right now it's Hit in Indonesia, Issue in Argentina and Inecto in South Africa. Godrej wants to position itself as an attractive employer. In Argentina when you walk into the office there's a big banner that says 'Welcome to Godrej Argentina'. It's largely a vehicle as an employer brand.

To build the brand communication media is dominated by TV in all the countries. In sports loving Nigeria Music, Dance and Sports events are important place to attract attention of youth. The average Nigerian is a 24/7 sports lover. In rural Nigeria radio scores over the TV. In Nigeria & Argentina the preferred screen is a desktop or a computer. Mobile marketing is growing in Indonesia and South Africa. In India and Indonesia mobile are looked at like a laptop with a sim card.

Marketing on Social sites is yet not proven, but it can not be ignored. Godrej brand has pages on facebook. Godrej launched hair style brand “Roby” on Facebook. Christian Dior has a 400,000 followers and a small brand like Roby has 100,000, that is significant number.

Whether, Godrej Corporate branding is essential, is a question that management has to decide. In India, Goodknight is not known for Godrej. We have not put the Godrej brand in Goodknight. It is a 25 - 30 year old brand everybody knows it as Goodknight, but if you get into consumer perception how many will know it's Godrej Goodknight? Because the brand equity of Goodknight is tremendous. It's the same with the brands in the other countries.

Today all the overseas companies Godrej has acquired have their own strong brands. People in Indonesia don't know Godrej, very few perhaps, but its products are known.

The company is making three tier effort to establish a corporate identity.

• The first level - it's a Godrej group company. That is to assist recruitment talent attraction,

• The next level is to communicate the value of the Godrej brand,

• The third level is consumer branding. It's a journey and not about here and now.

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L’Oreal Collaboration Through MS SharePoint Case Study

History & Challanges :

The L’Oreal group, founded in 1907 is world’s largest cosmetic and beauty company selling globally more than 500 brands. The company’s head quarter is in Paris, France and five R&D centers are spread worldwide. Two of its R&D centers are in France, One in US, One in Japan and one in China.

Its 150 subsidiaries, Head Quarter and R&Ds centre have to share information and collaborate to make a common strategy across the group. L’Oreal has operations in over 130 countries, employing more than 68,000 people in the year 2007. It operates 42 manufacturing plants throughout the world, which employ 14,000 people. To link everyone of them on the same platform of information is a difficult task.

The intranet for this division must support 3,000 researchers working in France, the United States, Japan and China. The intranet is required to host over 50 websites and support professional applications as well as databases on subjects including biology, patents, hair color and laboratory security.

In such a vast network its difficult for teams to communicate. Team members lose interest in commercial activity when they consume more energy in communication. To overcome these hurdles and to manage its Largest Internet Initiative L’Oréa choose SharePoint Portal Server.

Functionalities of M@sternet 

Microsoft SharePoint products and technologies include browser based collaboration and a document management platform.

• These can be used to host web sites that access shared work spaces and documents, as well as specialized applications like wikis and blogs from a browser.

• Users are allowed to manipulate proprietary controls or pieces of content called web parts to creat or modify sites.

• The MS SharePoint is a premier collaboration server and a powerful platform that allows to work several persons on same set of documents together.

• It lets convert information from MS Office application quickly and efficiently.

• It is targeted as a colaberated work space and a tool for management and automation of business processes.In short this is a collabration of processes and people

 L’Oreal  moved with  SharePoint Platform

ANS. L’Oreal sought on intranet solution to manage the numerous documents generated by the internet and e-business group and to enable its various world wide branches to easily communicate and collaborate in the development of 200 corporate and business web sites.

L’Oreal decided to use Microsoft share point server to create a global knowledge, collaboration and coordination of effort worldwide, enabling a single community ease of integration with desktop MS Office.

The implementation was easy out of box. The simplicity to adopt and integration with other MS office application were the reasons of choosing the SharePoint. Within one week L’Oreal was able to test on the internet.

Benefits of  MS SharePoint to  L’Oreal

In particular L’Oreal wished to achieve the following:

1. To have one global view of all the projects that were developing new products for launch.

2. To be able to form a view on prioritization and be able to make the right resource allocation decisions

3. To improve quality

4. To track engagements with commercial subsidiary companies

Keeping these objectives ultimate benefits of M@sternet for L’Oreal are as follows:

• Microsoft SharePoint products and technologies include browser based collaboration and a document management platform which are user friendly and easy to use.

• These can be used to host websites that access shared workspaces and document across all the offices of the group spread in three continents Europe, Asia and US, means no need to exchange multiple mails with attachments.

• Document library – a place to store relevant documents, files, pictures etc. The advantage is that every related group member can access the latest version of document efficiently.

• Team discussion board allows free discussion amongst the group members.

• Calendar helps everybody to know all scheduled meetings and appointments without losing the track.

• Announcements are available just a click away.

• SharePoint is not intended to replace a full file server. Instead it is targeted as a collaborative workspace and a platform for social networking.

Limitations of SharePoint :

SharePoint is often criticized for its lack of well integrated tools for developers and its complex customized software architecture that differs significantly from those of other ASP.NET-based web applications.

Microsoft has announced significantly better support in the upcoming version of Microsoft’s primary development environment Visual Studio to enhance the developer experience.

This has all the limitations what out of box – template solutions have. It is good for general program management, but may lack certain functionalities of specific needs of Project managers.

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How do brands make use of Innovation Labs to get Market Share?

The once loyal consumers who used to swear by brands earlier are now open to switching, dating and even flirting with other brands - all thanks to modern trade. In such a dynamic market situation companies have to formulate newer strategies like the holistic marketing etc.

More and more companies are adopting the concept of Ignitor's raison d'etre. The executives from different parts of the globe and varied functionality join and work together to innovate the strategy which can keep the company ahead in competition.

In this wave of innovation labs scientists, engineers and marketers work on the same planet together keeping aside hierarchy and toy with ideas and answers in areas ranging from product creation to market strategy. The life cycle has shortened, an innovation today grows old tomorrow. But these labs provide common rethinking and work to redefine the rules of invention, innovation and engagement at a predatory pace.

In Bengaluru a city in southern part of India, Lenovo has a humongous centre - a marketing hub that takes care of the Chinese company's global marketing activities.

Thousands of miles away Google created the Creative Lab - a dedicated in-house ad agency for Google products and the brand.

The owner of brands like Pizza Hut, Kentucky Fried Chicken or KFC and Taco Bell, Yum! Restaurants has set up an innovation centre in Gurgaon near Indian capital Delhi where red circles on calendars read "Innovation Day" .

And in a Mumbai suburb, French automobile major Renault has a design satellite or in layman terms, a centre dedicated to intuitive car design, a concept that's in force across emerging markets including Brazil, Russia and South Korea.

Google :

'The Google Creative Lab has helped the Google, a company led by engineers and scientists to reshape its strategy from pure technology driven company to become one of the biggest marketing platform. The company originally was averse to marketing itself.

'The Google Creative Lab is a small team of creative programmers , writers, storytellers, filmmakers, art directors and digital designers. This lab has surprised with the work like the web video "Parisian Love" and Arcade Fire Meets HTML 5.

The philosophy of Creative lab is to simplify the complex ideas. The lab's role is to connect product ideas with the consumer. With changed approach in 2010 Google advertised heavily its browser “chrome” in all forms of media. The Google is most preferred search engine and does not need glitzy big-budget commercials.

 Mahindra - Renault :

Mahindra-Renault joint venture has nothing to speak other than Logan so far. According to Jean Phillipe Salar, the chief designer at Renault design India it takes three years to create a car - from blue print to manufacturing. Salar has designed the Renault Clio 2, the hatchback.

The studio in India started in 2008. To make up the lost time modellers and designers at the studio are engrossed in designing and creating mock car models to be launched from Renault stable in next few years. The team under Mr Salar knows that they have to compete with the brands which are present in India for far more years.

The Renault has six design studio across the world. The others are in Russia, Brazil, Paris, Bucharest and South Korea. Jean Phillipe Salar has worked across Paris, South Korea and Brazil before taking up the mantle in India.

The studio in India comprises a team of 12 people, designers from NID and International Academy of Design and Technology (IADT), Chicago and modellers , who are essentially engineers, graphic designers and colour and material specialists.

All the design studios across the globe get the same brief. These studios compete with each other to create the best car design. "The design that is the best - the one closest to the brief - is chosen and that is used globally."

Though they all get the same brief, but while designing local needs are given more priority. For instance, in Russia, consumers need something more functional and boxy. In India, customers want something that is well-balanced between design, cost, mileage and space.

Renault India is targeting the growing luxury car market in India. It plans to launch two cars this year - the 838, a sedan and the H45, a 4X4, to establish the brand in India.

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Customers today perceive fewer real product differences and show less brand loyalty, and they are becoming more price and quality sensitive in their search for value.

The once loyal consumers who used to swear by brands earlier are now open to switching, dating and even flirting with other brands - all thanks to modern trade and this is posing a serious problem with conventional marketing.

Marketeers have to adopt to new strategies considering following capabilities which consumer did not have earlier :

• A substantial increase in buying power.

• A greater variety of available goods and services.

• A great amount of information about practically anything.

• Greater ease in interacting and placing and receiving orders.

• An ability to compare notes on products and services.

• An amplified voice to influence peer and public opinion.

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