Oligopoly: Marks & Spencer
There are a lot of types of market structure that can be used by private firms in order to use for their own advantage. There is the monopoly which is widely known for its price maximization scheme and more likely to become a burden on the part of the consumers due to high prices that it charges from its goods (Econ. yale. edu 2007: 1). Another good thing about being a monopolist is that one could easily prevent the entry o possible competitors in the market.
With this, monopolists have the power to set the price on what ever level based upon the situation of the market as well as competition. Aside from monopoly, another market structure that is commonly being used by most of the ...
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...firms would be the oligopoly. Oligopoly exists when there are only few sellers and more buyers in the market. Moreover, in oligopoly, there still exist competitions which make the prices of goods justifiable and are based on current price levels of their competitors or the market system (Pietersz 2006: 1).
In other words, consumers and the government would most likely prefer oligopoly than with monopoly since societal welfare are still higher in the former than with the latter. The only fall back in oligopoly would be when those “few sellers” would collude in order to increase their prices, prevent the entry of other businesses and competition and this collusion of “few sellers” is known as cartel (Levenstein 2003: 1). Cartel behaves like a monopolist as what have already identified from the previous statements.
This is the reason why governments of numerous countries around the globe are prohibiting the establishments of cartel while there are some who allows it but with certain restrictions on the cartels actions as well as constant monitoring (Hotdin. gurningsoft. org 2007: 1). Now after identifying the two of most common market structure, it is now the time in order to discuss the characteristics of each market structure. But for now, this paper would only consider the case of Oligopoly and Marks & Spencer being the example of the latter.
This paper would determine the kind of measure that Marks & Spencer will take in order to protect their market share from the negative effects of new entrants in the market. This paper would also answer the question why is there private firms that successfully penetrates their new market considering that they are open for competing with established producers just Like Marks & Spencer. This is very crucial in order to understand what kind of strategies Marks & Spencer must take in order to exclude itself from the adverse effects of the said new entry of players in the market.
First, this paper would check the performance of Marks & Spencer and eventually connecting this performance to the kinds of strategies that they could only perform to secure their market share. After identifying the possible ways to protect their welfare and interest, it would be the time to give an example of a company which would serve as the basis of evaluating the possible strategies of Marks & Spencer. At the end of this paper would be the advisable alternative that Marks & Spencer could used in order to become fully successful in securing its interest and welfare.
Marks & Spencer as an Oligopoly Marks & Spencer is a well known British retailer of clothing, food, household items, coffee shop etc. and has around 800 stores to 30 countries around the globe. In United Kingdom alone, Marks & Spencer has more than 500 chain stores aside from the fact that it is the largest clothing retailers in this country and it has a multi-billion pound worth of investment in the food retailing industry. In terms of revenue and income, Marks & Spencer is currently enjoying increasing growth on its income and revenue as of 2006.
With this successful operation of Marks & Spencer in the market, it would be justifiable to say that it currently leads the industry where it operates. But the question now would be on how it will respond to the very common threats to every business entity in the market- competition specifically the entry of new players in the industry. Based from the scope of the influence of Marks & Spencer, as what can be conclude from the previous statements, it is enough to say that it would be hard for new players to enter in into the industry where Marks & Spencer belong.
Aside from the fact that Marks & Spencer is among those numerous established oligopolists, it would be much harder on the part of the new entrants to the industry to penetrate the market due to the brand loyalty that has been developed between Marks & Spencer and its customers (Perner: 2007: 1). Brand loyalty serves to be one of the bases of consumption of the consumer group (Extension. iastate. edu 2002: 1). Moreover, there are a lot of ways in order for Marks & Spencer to prevent the entry of new firms into the market and one of which would be what they called “cut throat competition”.
Cut throat competition would be the scenario wherein a well established firm would lower down their prices in order to attract more customers and leaving the new entrants to the industry to less available possible customers thus resulting to losses which could eventually leads to the shutting down of their operation (Seagal 1994: 1). With the market share and revenue status of Marks & Spencer they could perform this strategy. Although Marks & Spencer must commence this strategy unseen to the eyes of the government and other market players since this is illegal and unethical when it comes to the ethics of “fair competition”.
Another strategy which Marks & Spencer could use would be to use their experiences and knowledge about the market and make innovations on their products which would out-perform the products of the new players on their industries. With the decades in the business, Marks & Spencer for sure has more advanced research and development facilities which give them an advantage over the new entrants (GreenBiz. com 2007: 1). Their designers and employees, with their many years in the industry, would give Marks and Spencer creative juices and expertise in innovating and developing their products.
Not only this, the said company could pioneer some product line which is not being offered by their competitors and the new entrants in the industry. With this, Marks & Spencer has the guarantee of being the sole firm to provide those unique clothing designs and products which are not present to their competitors and new entrants and this eventually secures Marks & Spencer good sales for the coming periods or even years despite of the competition that exists in the market. This kind of strategy belongs to one of the characteristics of being an oligopolist-“product differentiation”.
Oligopolists have the same kind of product to produce in a certain market, and through innovation and having a different design on their product it creates an “identity” for a certain company which serves as the avenue for customers to become loyal to their brand (Itsma. com 2005: 1). Because of the said innovation and development on the products, it makes the products of the producers to appear different from one another though they are still providing the same product- clothing.
Furthermore, Marks & Spencer has already the knowledge regarding the trend of the behavior of their target customers and this can be used by them in order to determine which are the right time and the right market to launch their products. It has been found out that consumer behavior comes on a fact paced and this is sometimes become one of the primary reason why there are some companies who lost billions of dollars because they were not able to keep track the tastes and preferences of their target customers.
New entrants have only barely enough data on their hand in order to fully understand or keep track the behavior of their target customers. With this, it would take them a lot of time before their profit to become sustainable or to penetrate their target market. With the ability of Marks & Spencer to predict the behavior of their target customers, there is a guarantee that every product that they will launch would become successful and every product would bring them more profit since it caters for the tastes and preferences of their customers.
It would be logical on the part of the consumers to buy for the goods that are within the current mainstream of the market not to mention the fact that Marks & Spencer has already established its name. Aside from the lowering of their prices, expert employees and knowledge of consumer behavior, another way by which Marks & Spencer could prevent new entrants to ruin their harmonious operation in the market would be to redesign their stores according to the style of living of their immediate market.
This would make customers fell more comfortable every time they enter the store and would make the atmosphere light on the part of the consumers. Moreover, it would be necessary to design the store based in the living style of their immediate customers since there are times wherein customers feel alienated especially those coming form the rural area when retail companies design their stores in a “urban inspired” set up. This strategy would attract more customers and somehow establish a good relationship between the two concerned parties.
This kind of strategy was already implemented by Wal-Mart during the times where they experienced depleting sales especially in the rural areas and what their management did was to redesign their rural stores in order to attract more customers and reinvigorate their sales as well as their profitability. After the said implementation, Wal-Mart’s sales and profit increased more than to what have expected as well as they received good feedbacks coming from their customers (Iscs. org 2005: 1).
But there are those cases wherein new entrants out-perform those established firms in the market. One great example for this scenario would be the entry of Tesco to the U. S. market. Tesco is one of those well known international retailers just like Wal-Mart and Target and just like Marks & Spencer, Tesco is a London based company and establishing international branches in order to expand their market and improve their profitability (Corporatewatch. org 2004:
1). Surprisingly, Tesco was able to make the sales and profitability of Marks & Spencer as well as J. Sainsbury and other established firms in the American market to flop (Palmeri 2007: 1). This only means that there is something in the strategy of Tesco to impart the said effects to those established firms. Actually, Tesco is a very efficient company in terms of their operational operation like for instance, the former provides training for their employees in order to increase their productivity and become more efficient on their tasks as well as using energy efficient equipments that would lower down their operational costs (Gordon 2006: 1).
Moreover, Tesco has connections of reliable suppliers which enable them to have an easy access of supplies to be needed for their stores. Aside from that, the management of Tesco sees to it that they sell big volumes of selected goods in order to give chances of offering lower prices to their customers. With the low operational costs, the lowering of prices in Tesco is pretty much easier as compared to the other existing retailers in the market.
With this, even if the existing retailers would collude and manipulate market prices, for sure, Tesco could manage to handle the said situation given the connections as well as the effective and efficient employees. Tesco also has lower distribution costs that contribute to further lower down the operational costs of the said company. In order to do this, the management decided to cluster their urban stores in order to supply them quickly of the goods that they need through their major distribution center located at the Riverside California with only an hour of travel east of Los Angeles.
Aside from the efficient and strategically located distribution center, another factor that helped Tesco to successfully enter into the U. S. market would be their reputation on operating multiple store formats in numerous markets. Due to this, it was a breeze for them to catch up with what established retail firms that already exists in the market. With the above characteristic and traits Tesco has, the former was able to put other retailers on alert and already establishing strategies that prevent Tesco from ruining their harmonious operation in the market.
Like for instance, Safeway and Kroger, two of the giant retailers in the market, remodeled their supermarkets in order to attract more customers to visit their stores and providing other services like coffee shop and organic food offering to revitalize their nature of their stores. The fact that Tesco was able to flopped the operational status of some well established retailers such as Marks & Spencer, and get the attention of other giant retailers in the market signifies that they have the market influence and enough resources to impose such distraction to the group of established retailers.
Maybe, the reason behind Tesco nullify the idea that new entrants would find it hard to penetrate their target market due to the existence of established firms would be the fact that Tesco was already been used to such kind of strategy- establishing and entering new markets. This is the reason why the said company was able to adjust it self from the nature of their new market as know what steps they should take in order to fully grasp the behavior of their target customers.
In this regard, it would be necessary for Marks & Spencer to be more vigilant with the capabilities of the new entrants of the retail industry. Even if they have all the data, expert employees and market connections as well as funds to finance the restructuring of their stores, all of these would only be useless if they would not determine the strengths and weaknesses of not only the new entrants but also to their competitors. This is just a matter of determining the extent of capabilities of their competitors and new entrants in order to secure their market dominance and influence.
Like in the case of Tesco, it already has the experienced in dealing with the hardships of entering into a new market and it has a knowledge on how to handle suck kind of situation and this what should Marks & Spencer must learned from the said encounter with Tesco. Conclusion It is for sure that market shares of established oligopolist, such as Marks & Spencer, when other firms enter into their industry and the surest way in order to protect their market share not to deplete would be to expand their market coverage.
Marks & Spencer could do this through developing new products into the market making them the sole producer for the coming periods, establish new store branches to places that have not been explored yet by the management and make necessary improvements on their facilities in order to attract more customers to come to their stores (Beau 2007: 1). Moreover, it is not enough to expand the market in order to secure the market share of any well established oligopolist; they also must have to evaluate the strengths and weaknesses of the new entrants as well as their competitors in order for them to determine the right strategy at the right time.
In this regard, it is clear that having a new entrants in an industry would surely disturb the harmonious operation of the market and what established oligopolists, as well as other private firms, is to expand their horizon and make necessary measure to compensate the possible losses that they might incur from the said market phenomenon to ensure that at the end of the day, they would still stand up and continue their operation and accept the fact that they will have new competitors to guard with.
Beau, Derek (2007) 17 Ways to Expand Your Affiliate Campaigns & Increase Your Profits [online]. Available: http://www. derekbeau. com/17-ways-to-expand-your-affiliate-campaigns-increase-your-profits/ [Accessed 13 January 2008]. Corporatewatch. org (2004) Tesco [online]. Available: http://www.corporatewatch.org/?lid=252