MARKETING MODELS OF COMPETITIVE MARKETS DESCRIPTION.

Potolokova M.O., Bakirova N.V.

Sure, each individual market has its own characteristics in terms of competition, but, nevertheless, there are many common points, how competition in the various markets occurs. Thus we can speak about the existence of some common concept of identifying the characteristics and intensity of competition.

The most well-known model of describing the competition in the market, used in the national and international literature, is the model of the “five forces of competition” by M. Porter. The state of competition in the market he characterizes by five competitive forces:

1. Rivalry among competing sellers.
2. Competition from substitute products in terms of price.
3. The threat of new competitors.
4. Economic opportunities and trade abilities of suppliers
5. Economic opportunities and trade abilities of customers.

Let us examine these forces in more detail.

Rivalry among competing sellers M. Porter also calls “the forces of competition of the central ring”. This is the most active point of the model. Strength, power, with which the goods sellers are fighting for a stronger market position in the industry is the best indicator of the pulse of competition. As a result of this struggle for the position of competitive interactions between firms occur.

The forces of competition caused by the threat from the substitute products. These forces confront the sellers as follows:

1. Prices and availability of substitute products create the price ceiling for the producer and limit the potential amount of profit.

1 The producer of goods or service can maintain his product in terms of quality, price reduction (by reducing costs), or in some other way differentiate his product.

2 Competition from substitute products depends on how easily the customer may choose the substitute product.

The forces of competition, caused by the threat of occurring new competitors. This threat depends on two factors:

1) Barriers to entry.

2) The expected response of firms to newcomers, entering the industry.

The first factor is connected with the scale of production, the product lifecycle, dedication of customer to specific brands, capital needs, obstacles in the form of additional costs, access to distribution channels, government actions and policies.

The second factor is connected with the fact that the response of firms to new members will be aggressive, if existing firms used to be aggressive, hold the most important financial tools, have strong relationships with distribution channels, willing and able to use the policy of reducing the price, if leaving the market is much more expensive, than a fight to the end.

The economic potential of suppliers. The effect of suppliers is stronger if there are the following factors:

– Costs of production play an important role for the customer.

– Suppliers are not constrained by competition.

– Products of the suppliers so differentiated that it is difficult and expensive for the customer to move from one supplier to another.

– Customers are not important clients for suppliers.

– From the part of the suppliers there is a real threat of integration to the business the customer’s branch.

– Firms-customers do not have a tendency to integration to markets the suppliers.

The economic potential of customers. The influence of customers is stronger when:

– Consumers are significant and they are few.

– The volume of consumption is a significant part of the total sales in the branch.

– Industry consists of a large number of relatively medium-sized merchants.

– Products are not an important part of the customer’s components.

– Buyer purchases components from multiple vendors, without being attached to the only one.

Summing up on this paragraph, devoted to the description model of competitive markets, it should be noted that the competitive situation in the market is constantly evolving. Therefore there is a need to track competitive changes regularly. It is the only way for the firm to properly evaluate the possibility of competitors and its own capabilities, having developed an optimal marketing strategy.

Investigation of competition conditions is made usually within the industry, either separately by the market’s segments.

First, the existing and potential customers are determined. This identification is based on two approaches: 1) assessment of needs, satisfied in the market by the main competing firms, 2)-group of competitors in accordance with their applicable types of marketing strategies.

To identify the most important competitors the methods of associative consumer survey are commonly used, identifying with what useful qualities and conditions of consuming customer associates a particular product known in the market competitor.

Secondly, the conditions of competition in the industry are analyzed. This analysis provides an assessment based on factors, determining the intensity of competition. Such factors may include:

1. The number and relative strength of competing companies. The bigger it is, the greater the intensity of competition is.
2. Changing the volume of demand, its dynamics. Its expansion may weaken competition and narrowing – expand.
3. The degree of product differentiation, available on the market. The higher it is, the lower the level of competition is.
4. Barriers to entry into the market.
5. Barriers when leaving the market. The competition becomes more intense when the withdrawal from the market is more expensive, than a fight to the end.
6. The situation in the related commodity markets. Here there is a direct correlation.
7. Implemented strategies of competitors. If there are differences in them, the level of competition is reduced.

Thirdly, the indicators of competitors’ performance are analyzed. The analysis should be carried out on the basis of the “characteristics of the firm”, or “competitive dossier” for each competitor, who is a necessary element of a data bank of marketing information. Of course, not all data can be analyzed, but may be received by the following relational data:

• The number of employees.
• The structure of direct and overhead costs.
• Comparative cost of raw materials.
• Investments in fixed assets and inventories.
• The volume of sales.

Fourthly, competitive market strategy is analyzed. Marketing competitive strategy is determined on the basis of external and internal factors. The choice of strategy is dictated by certain rules. It depends on whether a market niche standard or specialized. In the standard niche is a scale is important: from global to local. If it is specialized niche it is important to adhere either to the marketing strategy to adapt to the specific needs of the market, or stick to the opposite strategy – change the requirements of the market.

Fifthly, strengths and weaknesses in the activities of competitors are identified. This is the end result of marketing research competition in the market. The identified advantages and disadvantages are used in developing their own strategies.

As a result, having these data on the characteristics of competition in this market, assessing the degree of competitiveness and analysis of competitive conditions in the market, you can proceed to the choice of your own competitive strategy.