Advertising & Product Differentiation - Essay Example

One obvious effect is that it increases firms’ costs. Average cost increases at all levels of output. A successful advertising campaign will also affect demand. There will be a shift to the right, meaning the more will be demanded at all prices. Also, a successful advertising campaign makes the consumers believe that the product is special, that is different from its competitors. This means that, the product has fewer competitors, so demand curve becomes more inelastic.

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Advertising can be beneficial if it leads to greater consumer information, but it can be argued that it distorts consumer preferences – they spend more on highly advertised goods which are not necessarily the best, and they pay higher prices. Heavy advertising may also make it difficult for new firms to enter the industry. In perfect competition there is no product differentiation – all firms have identical products. In pure monopoly, the firm has a product that is different to any other.

In oligopoly and monopolistic competition, firms try to make their product different from those of any competitors. The advantage of a firm is that its demand curve becomes downward sloping, making it a price maker, and, in the short-run at least, enabling it to make monopoly profits. Several strategies that firms can differentiate their products: 1- Horizontal differentiation: This refers to the choice of where to locate the business.

It is particularly important in retail and service industries. If the two supermarkets in a particular town are more expensive than those in the next town, it may not pay consumers to travel because of the costs involved. Other than monopolistic competition and oligopoly, there are some markets where a firm has considerable market power. In such cases, this may lead to price discrimination. It occurs when the same product is sold at more than one price.

For a firm to be able and willing to engage in price discrimination, the buyers of the firm’s product must fall into classes with considerable differences among classes in the price elasticity of demand for the product, and it must be possible to identify and segregate these classes at moderate cost. Also, buyers must be unable to transfer the product easily from one class to another, since otherwise persons could make money by buying the product from the low-price classes and selling it to the high-price classes.

The differences among classes of buyers in the price elasticity of demand may be due to differences among classes in income levels, tastes, or availability of substitutes. For instances: Theatres vary their seat prices according to certain locations. Airlines often charge a lower fare for the same ticket if it is bought well in advance. Business strategy as an academic discipline is relatively new, although economists have been aware of and are discussing the main issues for many years.

The recognition of the need for strategic business awareness on a popular basis dates back only to 1950s. First started as emphasizing on financial analysis and management of organizations, it now focuses on different ways of achieving dominance and longevity in the competitive marketplace. Strategy has been defined by Johnson and Scholes (1999) as follows: Strategy is the direction and scope of an organization over the long-term: ideally which matches its resources to its changing environment and in particular its markets, customers or clients so as to meet stakeholders’ expectations.

There are debates about whether strategy should be strictly prescribed by the organization’s chief executive, or whether there should be interaction between top-level executives and workforce. Regardless of which one to follow, it is indisputable that the organization and all employees should be aware of the mission, vision and objectives of the organization. The idea of any mission statement is to motivate the workforce in line with the organization’s vision, or overall goal.

Traditionally, the vision of an organization shows where or what a charismatic leader(s) sees the organization achieving in the log-run. The mission statement should be simple, easy to understand, and memorable. It should also provide a balance between what management, owners, and workforce perceive to be important. Objectives are the end results of planned activity. They state what is to be accomplished by when and should be quantified if possible. Strategy is a continuous process. There is no start and finish for the process of strategy.

Instead, once up and running, organizations should be continually analyzing and reviewing their strategies and implementing these, along with any changes. Organizations are aware that, as the environment and their market(s) change, strategies become outdated and require alteration. In the period since mid-1970s, the process of strategy and strategic management has become more emergent. There are three stages of the strategy process: Strategic analysis, strategic choice, strategy implementation.