Differentiating Between Market Structure
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Institution
Introduction
The analysis applies important microeconomic concepts capable of increasing the competitiveness of Kudler Fine Foods. Different organizations operate in different marketing structures depending on the type of business, size, and goods and products sold. According to Colander (2010), the four basic types of marketing structures that businesses currently operate on are oligopoly, monopolistic, perfect, and monopoly. Understanding competitive strategies adopted by Kudler Fine Foods assists in establishing the type of market structure where the company operates. Additionally, the analysis will discuss the effect of the chosen market structure on the organization and the relationship between the market structure and other structures. Finally, the paper recommends best competitive strategies that would make Kudler win the local and global competition.
Competitive strategies of Kudler Fine Food
Kathy Kudler established Kudler Fine Foods in 1998 as a retail store aimed at providing a selection of gourmet foods that met the needs of locals in San Diego. The organization operates under the catering sector that offers a stiff competition because of its high number of businesses. The retail store has now grown into an internationally established business with stores across the Metropolitan area of San Diego. Currently, all stores sell different varieties of imported and domestic foods operating under different departments in order to meet consumer’s demands. The main secrets to success for Kudler Fine Foods are convenience and affordability. The organization offers different food varieties at customer friendly prices and promotes convenience through effective catering services.
Kudler Fine Foods understands competitive strategies and tactics that will ensure they meet all customer demands and improve their competitive strength. Understanding the competitive strategy of helps the organization come up with ideas and plans capable of establishing a profitable and growing market. Kudler Fine Foods uses the cost leadership competitive strategy. Cost leadership strategy aims at producing goods and offering the cheapest prices compared to other firms in the industry (Hashem, Hamid and Samira, 2012). The organization gained enough experience, invested in food production, and conducted a thorough research on the business environment in food and catering industry before implementing the cost-effective strategy. Kudler uses this strategy in order to attract more customers because of the competitive nature of the business in the industry. Additionally, the store produces tasty foods and offers best catering services.
Kudler Fine Foods also used the competitive intelligence strategy. The strategy allows firms come up with software that helps in understanding growing market demands through gathering more information about competitors, customers, and modern technologies that promote business operations. The strategy aims at increasing the organization’s competitiveness and strategic planning efforts (Dishman & Calof, 2008). These two competitive strategies help Kudler Fine Foods compete with other organizations in the industry.
Differences between market structures
As shown in the introduction, there exist four main market structures; oligopoly, monopolistic, perfect, and monopoly.
Oligopoly
Oligopoly market structure is where several firms dominate production in the industry. The industry may be operated by only four top organizations that take control of all other firms in the industry.
Monopoly
The monopoly market structure consists of business where one firm forms the sole producer of goods and services. The monopoly structure offers high barriers to entry restricting organization’s entry and exists into the market (Colander, 2010).
Perfect competition
The perfect competition market structure is characterized by many firms operating independently, but producing identical products and services. In this type of market, organizations enjoy free entry and exit because of limited barriers to entry (Colander, 2010).
Monopolistic competition
The monopolistic competition market structure consists of many organizations producing differentiated products and services, similar though not identical. Firms in this type of market structure easily enter and exeunt the market because of few barriers to entry (Colander, 2010).
A thorough evaluation of four basic market structures and looking at the competitive nature of Kudler Fine Food shows that the organization operates under the monopolistic competition market structure. Colander (2010) claims that firms under the monopolistic competition structure have strong economic rivalry and compete stiffly to win consumer needs. In addition, the pricing strategies adopted by a firm depend on the prices of competing firms. Most organizations in the fast-food industry operate under the monopolistically competitive market structure. Kudler Fine Food falls under the fast-food restaurant industry; therefore, it operates under the monopolistic competition market structure.
Effect of monopolistic competition marketing structure on Kudler Fine Foods
The fast-food restaurant industry forms one the most competitive industries in the business world. Firms under this sector must use unique strategies in order to convince customers buy their food products. The monopolistic competition market structure has both positive and negative impacts on Kudler Fine Foods.
Positive effects
Firstly, operating under the monopolistic competition market structure makes Kudler Fine Foods enjoy free entry and exit to the market. The following aspect promotes competition in the sense that the organization can easily implement any strategy that would see it improve its sales and competitive advantage. Kudler has the power to utilize many other competitive strategies under this market structure unlike organizations in the monopoly and oligopoly structures where only top firms determine market prices. Secondly, the monopolistic competition market structure promotes differentiation that makes firms enjoy greater consumer choices. Kudler Fine Food can easily differentiate itself from competitors and develop strategies that attract customers to the business. In addition, lack of government control over the market allows businesses to thrive in different environments, making greater choices and varieties for customers. Moreover, the firm has the right to produce differentiated products provided they fall under the food category (Colander, 2010).
Negative effects
The main negative effect of monopolistic competition market structure is on the issue of price. Every firm in the market wants to offer customer-friendly prices in order to win their trust. In the end, the organization ends up offering products and services at very low prices that generate low income. The following issue makes the company make lower marginal revenues compared to marginal costs that affect the business in the long-run (Colander, 2010). In addition, lack of government regulations on prices prompts some big and established organizations in the industry take control of the market through various actions like advertising, promoting, and service delivery. Small firms like Kudler suffer a big blow because they have no power to control the market leading to closure of some firms when they lack frequent customers.
Efficacy of monopolistic structure to Kudler’s competitive strategies
Characteristics of the monopolistic competition market structure play a critical role in influencing competitive strategies for Kudler Fine Food. Firstly, the market structure allows organizations to determine prices for their own products and services. One of Kudler’s competitive strategies is cost-leadership plan. Under the monopolistic competition structure, the firm can efficiently manage its choices of prices that favor the prevailing market without seeking approval from leading firms or the government. Additionally, Kudler Fine Foods could easily implement the competitive intelligence strategy because the market structure promotes product and service quality development. Unlike the perfect competition and monopolistic structures where firms must implement similar strategies, the monopolistic competition strategy gives individual firms the authority to carry out their market survey and implement any strategy that competes most in the market.
Relationship of monopolistic competition market structure with other market structures
The monopolistic competition market structure relates to other three in many ways. Oligopoly, perfect, and monopolistic competition market structures allow free entry and exit of firms to the market. These three, however, have major differences. Firstly, the perfect competition takes the price. The market forces determine the market price and an individual firm has no control unlike in the monopolistic competition or the monopoly. Additionally, the perfect competition and the oligopoly markets have firms producing similar products while in the monopolistic competition firms produce similar but differentiated products. The monopolistic competition and the monopoly market structures share similar characteristics when it comes to price control. Firms in these market structures take control of their products, competitors or the government has no role to play in determining market prices.
Organizations always find themselves working with other firms in the same industry but operating under different marketing structures. In this case, Kudler Fine Foods could work with other restaurants operating under the perfect competition, monopoly, or oligopoly market structures. The organization needs to adapt to different market situations in order to win the competitive advantage. Industries under perfect competition have the market control prices of their products, but allow free entry and exit of firms in and out of the market. Kudler Fine Foods falls under the fast-food restaurant industry and would easily fit in a perfect competition. The industry is made up of many businesses producing similar products and allows free entry and exit. Secondly, Kudler would easily work with industries under the oligopoly market structure because both market structures allow firms to take control over the market for others selling offering products. In oligopoly, top firms dominate the market while in monopolistic competition, the form that offers the best price dominates the market.
Kudler Fast Food could also work with industries under the monopoly market structure, but face many challenges. In monopoly market structure, one firm takes control over the market by becoming the sole producer. Kudler Fine Food might experience challenges doing business under this market structure because there cannot be one fast-food restaurant dominating the whole market. However, the firm can dominate the market if it establishes effective competitive strategies that ensure they open stores in every country and all customers globally only demand their products.
Recommended competitive strategies for Kudler Fine Foods
Marketing strategies adopted by the firm must aim at achieving the business goals of the organizations regardless of competition, market structure, or business environment (Colander, 2010). The three most appropriate competitive strategies that would make Kudler Fine Foods win the fast-food market competition are differentiation, low-cost focus, and differentiation focus.
Differentiation strategy
The differentiation competitive strategy fits companies that sell differentiated products and services. Kudler Fine Foods operates under the monopolistic marketing structure characterized by firms offering differentiated products. Implementing this strategy offers Kudler Fine Foods an advantage over its competitors in the fast-food restaurant industry. The firm can major in producing unique food products that favor people from all cultures, financial status, religion, and ethnicity. Customers like testing different food varieties and the only way to win such customers is by implementing differentiation strategy.
Low-cost focus strategy
The low-cost focus competitive strategy focuses on niche markets. Kudler Fine Foods is more established in San Diego. Culture and Cocktail event is highly celebrated in San Diego. Kudler Fine Food could establish one culture at each store and focus on making meals for that particular group. With the low-cost competitive strategy, the firm will manage to attract attention of specific cultures or groups in different towns where they set up their stores. Additionally, the strategy is more efficient in the monopolistic competition because the firm will offer its meals at its price of choice.
Differentiation focus strategy
Differentiation focus forms another competitive strategy that helps businesses compete in the monopolistic competition market structure. Kudler Fine Food could focus on a particular market, for example, a specific institution within the town. Using the differentiation focus strategy, the firm can manage to attract people in a certain college by focusing more on specific market needs like cost, taste, and season of the year. Stores located near institutions like colleges and universities could focus of food products that fit the population. The strategy allows Kulder manage its own prices and win the competitive advantage.
Conclusion
The type of business operations dictate the type of market structure that a business operates. Market structures have their specific advantages and disadvantages. The monopolistic competition market structure seems to be the best of the other three structures discussed in this paper. Kluder Fine Foods can manage to win the competitive advantage despite the high competition in the fast-food restaurant industry if they implement these recommended strategies; low-cost, differentiation, and differentiation focus. Understanding the business environment and customer needs helps a firm win the competitive advantage irrespective of the type of market structure.
References
Colander, D. C. (2010). Economics (8th ed.) New York, NY: McGraw-Hill
Demand, M. (2014, January 1). What Are the Four Major Types of Competitive Strategies?
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Dishman, P. L. & Calof, J. L. (2008). Competitive intelligence: A multiphasic precedent to
Marketing strategy. European Journal of Marketing, 42(7). 766-785.
Hashem, V., Hamid, B. and Samira, H. (2012). The Effects of Cost Leadership Strategy and
Product Differentiation Strategy on the Performance of Firms. Journal of Asian Business Strategy, 2(1), 14-23.