Marketing of Financial Services: Industry Concept of Competition

BANKING DIPLOMA EXAMINATION

Banking Diploma Courses in Bangladesh under The Institute of Bankers, Bangladesh (IBB)

Marketing of Financial Services-JAIBB 

Industry Concept of Competition

A.  Definition of Industry.

An industry is a group of firms that offer a product or class of products that are close substitute of each other.               (To Get Download Option Click Read More)

B.  Classification of Industry.

Industries can be classified according to competition among themselves are given bellow. 

1.  Number of sellers and degree of differentiation :

            An industry can be specify by the number of sellers and whether the product is homogeneous or highly differentiated in nature. These characteristics give rise to four industry structure types.

(a) Pure monopoly :

            Only one firm provides a certain product and service in a certain country or area. An unregulated monopolist might charge high price, do little or no advertising and offer nominal service. If partial substitutes are available and there is some danger of competition, the monopolist might invest more service and technology.

(b) Oligopoly :

            A small number of large firms produce products that range from highly differentiated to standardized. Pure oligopoly consists of a few companies producing essentially that the same commodity ( oil, steel and mobile phone in Bangladesh ). Such companies would find it hard to charge anything more than the going price. If competitors match on services, the only way to gain competitive advantages is through lower cost. Differentiated oligopoly consists of a few companies products ( autos, cameras ) partially differentiated along lines of quality, features, styling, or services.

(c) Monopolistic competition :

            Many companies are able to differentiate their offers in whole or part (restaurant, beauty shops). Competitors focus on market segmentations, where they can meet consumers needs in a superior way and charge a price premium.

(d) Pure competition :

            Many competitors offer same product and service ( stock market, daily essential food commodity ) to the consumer. Because there is on basis or way for differentiation, competitors’ prices will be the same. No competitor are not interested to advertise there products or services unless advertising can able to create psychological differentiation ( cigarettes, beer ).

2.  Entry, Mobility, Exit Barriers :

            Industries differ greatly in case of entry. It is easy to open a new restaurant but difficult to enter in the aircraft industry. Major entry barrier includes high capital requirements, economy of scale, patents and licensing requirement, scare locations, raw materials, distributors and reputation requirements.

            Even after a firm enters in an industry, it might face mobility barriers when it tries to enter more attractive market segments.

            Firms often face exit barriers, such as legal or moral obligations to customers, creators, and employees, government restrictions, low assets salvage value due to over specialization or obsolescence, lack of alternative opportunities, high vertical integration and emotional barriers. Many firm stay in the industry as long as they can able to cover their variable costs and some or all of their fixed costs.                 

3.  Cost structure :

            Each industry has a certain cost burden that shapes much of its strategic conduct. For example, steel industry has heavy manufacturing and raw material costs, but toy industry has heavy distribution and marketing costs. So, marketers can easily classify the industries on the basis on the cost structure.

 4.  Degree of vertical integration :

            Companies can get advantages through backward and forward integration. Major oil producers carry on oil exploration, oil drilling, oil refining, chemical manufacture, and service station operations. Vertical integration often lowers costs and the company gains a larger share of value added stream. It has some disadvantages, such as high costs in certain parts of the value chain and a certain lack of flexibility.    

5.  Degree of globalization :        

            Some industries are highly local ( restaurant, beauty shop, small size manufacturing organization ), others are global ( oil, aircraft, camera, computer ). Companies in global industries need to compete on a global basis if they are to achieve economies of scale and keep up with the largest advances in technology.

Marketing of Financial Services Competition -