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Market Structure Essay

Words: 1068, Paragraphs: 11, Pages: 4

Paper type: Essay

We can classify firms by the roles they play in the target market: leader, challenger, follower, or nicher. Suppose a market is occupied by the firms shown in Figure 1. 1. Forty percent of the market is in the hands of a market leader; another 30 percent is in the hands of a market challenger; another 20 percent is in the hands of a market follower, a firm that is willing to maintain its market share and not rock the boat. The remaining 10 percent is in the hands of market nichers, firms that serve small market segments not being served by larger firms. . 1. Market Leader Many industries contain one firm that is the acknowledged market leader. This firm has the largest market share in the relevant product market, and usually leads the other firms in price changes, new-product introductions, distribution coverage, and promotional intensity.

Some well-known market leaders are Microsoft (computer software), Intel (microprocessors), Gatorade (sports drinks), Best Buy (retail electronics), McDonald’s (fast food), Gillette (razor blades), UnitedHealth (health insurance), and Visa (credit cards). . 1. 1Market Leader’s Objectives Remaining number one calls for action on three fronts. First, the firm must find ways to expand total market demand. Second, the firm must protect its current market share through good defensive and offensive actions. Third, the firm can try to increase its market share, even if market size remains constant. 1. 1. 1. 1 Expanding The Total Market The dominant firm normally gains the most when the total market expands.

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If Americans, for instance, increase their consumption of ketchup, Heinz stands to gain the most because it sells almost two-thirds of the country’s ketchup. If Heinz can convince more Americans to use ketchup, or to use ketchup with more meals, or to use more ketchup on each occasion, Heinz will benefit considerably. In general, the market leader should look for new customers or more usage from existing customers. NEW CUSTOMERS Every product class has the potential of attracting buyers who are unaware of the product or who are resisting it because of price or lack of certain features.

A company can search for new users among three groups: those who might use it but do not (market-penetration strategy), those who have never used it (new-market segment strategy), or those who live elsewhere (geographical-expansion strategy). Starbucks Coffee is one of the best-known brands in the world. Starbucks is able to sell a cup of coffee for $3 while the store next door can only get $1. And if you want the popular cafe latte, it’s $4.

Starbucks has more than 7,200 locations throughout North America, the Pacific Rim, Europe, and the Middle East, and its annual revenue for 2002 topped $3. 3 billion. Its corporate Web site gives a peek into its multipronged approach to growth. Starbucks purchases and roasts high-quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee-related accessories and equipment—primarily through its company-operated retail stores.

In addition, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally, Starbucks produces and sells bottled Frappuccino® coffee drinks and a line of premium ice creams through its joint venture partnerships and offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea Company. The company’s objective is to establish Starbucks as the most recognized and respected brand in the world.

To achieve this goal, the company plans to continue to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels. MORE USAGE Usage can be increased by increasing the level or quantity of consumption or increasing the frequency of consumption. The amount of consumption can sometimes be increased through packaging or product design.

Larger package sizes have been shown to increase the amount of product that consumers use at one time. The usage of “impulse” consumption products such as soft drinks and snacks increases when the product is made more available. Increasing frequency of use, on the other hand, involves identifying additional opportunities to use the brand in the same basic way or identifying completely new and different ways to use the brand. In some cases, the product may be seen as useful only in certain places and at certain times, especially if it has strong brand associations to particular usage situations or user types.

To generate additional usage opportunities, a marketing program can communicate the appropriateness and advantages of using the brand more frequently in new or existing situations and/or remind consumers to actually use the brand as close as possible to those situations. The wine industry launched a number of initiatives in the late 1990s to attract Gen-Xers and convince them wine was a “casual, every day libation to be drunk like bottled water, beer or soda. Another potential opportunity to increase frequency of use is when consumers’ perceptions of their usage differs from the reality of their usage. For many products with relatively short life spans, consumers may fail to replace the product when they should because of a tendency to overestimate the length of productive usage. One strategy to speed up product replacement is to tie the act of replacing the product to a certain holiday, event, or time of year.

Another strategy might be to provide consumers with better information as to either: (1) when the product was first used or would need to be replaced or (2) the current level of product performance. Each Gillette Mach3 cartridge features a blue stripe that slowly fades with repeated use. After about a dozen shaves, it fades away, signaling the user to move on to the next cartridge. The second approach is to identify completely new and different applications. For example, food product companies have long advertised new recipes that use their branded products in entirely different ways.

Given that the average American eats dry breakfast cereal three mornings a week, cereal manufacturers would gain if they could promote cereal eating on other occasions—perhaps as a snack. Product development can spur new uses. Chewing gum manufacturers are exploring ways to make “nutraceutical” products as a cheap, effective delivery mechanism for medicine. The majority of Adam’s chewing gums (number two in the world) claim health benefits. Aquafresh and Arm & Hammer are two dental gums that both achieved some success.

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