If there is abnormal profit in an industry then newcomers will enter the market, take their share of the excess profit and exit the... ... middle of paper ... ...ity of service. In a less contestable market firms are under less pressure to produce a service of the highest quality. Recent mergers involving Easyjet and Ryanair have meant that the industry is being dominated by two big firms. This is an example of a Contestable market, because there is less competition and these larger firms will benefit from economies of scale such as brand loyalty and these firms will have more slots for taking off or landing, which reduces the amount of competitors that can enter. The reason why it may be contestable is that in the industry there are lots of profits to be made.
Existing companies are safe from new companies entering the market because barriers to entry to the market are high. For example, if products are heavily promoted and producers have a number of existing successful brands, it will be very costly and difficult for new firms to establish their own new brand in an oligopoly market. Because there are few firms in an oligopoly industry, each firms output is a large share of the market. As a result, each firm's pricing and output decisions have a substantial effect on the profitability of other firms. In addition, when making decisions relating to price or output, each firm has to take into consideration the likely reaction of rival firms.
PORTER’S FIVE FORCES MODEL 1. Rivalry Among Existing Competitors - (High) • Numerous and equally balanced competitors – As there are already large numbers of competitors in this industry, rivalry for better quality at a cheaper price is quite high. • Shorter Product Life-Cycle – As the technology is growing at a rapid pace, the life cycle of products has become relatively shorter. • High R&D costs – To come up with a better or a substitute product with better added features it requires great deal of investment in research and development which can be very risky because if the product fails then the costs incurred are sunk costs and cannot be recovered. • Imitation of technology – As the concept of reverse engineering has enabled everyone to imitate the technology that the rival company uses, it becomes a difficult task to maintain exclusivity and uniqueness.
Such good job at impressing its brand into consumer's mind may also gain advantages in competing with other brands/products. Even for businesses that have superior products at superior prices, but w... ... middle of paper ... ...cost. Even for a well-established brand name, it can be easily forgotten in consumers' mind, therefore, it would be costly for businesses to pay for 'continuous' promotion of the brand. Nevertheless, 'branding' is a very powerful tool in promotion and also very important tool for developing businesses. Although it is an expensive tool, which some businesses may not be able to afford the amount of money for 'branding.'
The business owner must take nit that the penetration price result in an expensive operation and the owner must be readily prepared for the cost. With a low consumer demand, the business might suffer from an accumulated stockpile of product without market and hence they become unwanted. Price skimming is a strategy that mainly focuses on profit increase and maximization through charging high prices to the early customers of the new product. The prices is the reduced with time to attract the thriftier consumers. The reduction is mostly done after a significant amount of sale has been done.
If there are doubts about the shape of the demand curve for a given product and the initial price is found to be too high, price may be slashed. However, it is very difficult to start low and then raise the price. Raising a low price may annoy potential customers, and anticipated drops in price may retard demand at a particular price. For a financially weak company, a skimming strategy may provide immediate relief. This model depends on selling enough units at the higher price to cover promotion and development costs.
That segment is more attractive which has high entry barriers and low exit barriers. Some new firms enter into industry and low performing companies leave the market easily. When both entry and exit barriers are high then profit margin is also high but companies face more risk because poor performance companies stay in and fight it out. When these barriers are low then firms easily enter and exit the industry, profit is low. The worst condition is when entry barriers are low and exit barriers are high then in good times firms enter and it become very difficult to exit in bad times.
• A lot of capital is needed to enter this industry because there are large capital costs needed for manufacturing. Bottling, distribution, and storage could be contracted out, but it would likely increase costs in the long run and weaken the supply chain. • A new comer to the industry would face difficulty in assessing distribution channels. The major brands already control the main distribution channels, such as big supermarkets, gas stations, and restaurants. They have low costs, competitive pricing, and strong business relationships.
Marketing is the key to every organisational success.it involves different strategies to win market place. One of them is product strategy. Product strategy one of powerful tools for organisational success but there may there may be arise many issues according to product strategy. The major problem is not fulfilling the customer’s requirement according to customer needs. The change in the demand of a product affects the decision of product strategy because of change in habit, fashion of customers on the other hand production cost and quantity also effect the marketing because higher cost and quantity leads to higher price as well which cannot be affordable for all customers.
The new firm may be able to use its monopoly power to pay suppliers less and therefore make more profits. A merger may lead to job losses. If the job losses lead to greater efficiency then the economy will benefit in the long run, and if firms get to big, they may suffer from diseconomies of scale. Diseconomies of scale come about when a business or organization becomes so big, or so inefficient, that the cost-per-unit of its products and services starts to rise. A business can only grow so much before the benefits of growth begin to create additional costs and resources, because any additional output becomes more expensive.