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Competitive Analysis (Essay Sample)

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This is a sample paper on Competitive analysis of the beauty and cosmetic products industry. References- 6

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BUSINESSS AND COMPETITIVE MARKETS
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Introduction
Businesses are operating in environments that promise attractive returns. The perception derived from this premise will encourage many other individuals and businesses to enter such markets and maximize their returns. Increased investment into a singular market leads to increased competition. What, then, is the meaning of competition? And what is competitive analysis? This research essay provides answers to these questions. Therefore, this essay explains the meaning of ‘competition’ and describes competitive markets. Using examples, the essay will also conduct a competitive analysis of the beauty and cosmetic products industry.
What is Competition?
Competition in economics may be defined as the rivalry among business personnel trying to achieve such goals as increasing market share, profits and sales volume by varying some of the elements such as price regulation, product distributions and promotions therefore a competitive market is one that a large number of producers compete against each other to satisfy the needs and wants of a large number of consumers (Raith, 2003). In a competitive market, market operations, prices and exchange of goods and services are not dictated by single or groups of producers and consumers. It usually forms under certain conditions.
Various producers employ different competition tools so as to compete favourably against their economic rivals. Among the tools used by suppliers is engagement in non-price competition. This is seen when producers improve their products with a sole aim of developing and sustaining a competitive advantage against their industry rivals (Raith, 2003). By so doing they incur the cost and risks of product innovation which has driven unprecedented material progress since industrial innovation. Another tool of competition is the process of costs lowering. This makes it possible for producers to undercut their competitors on price. Advertising is another approach used by producers to bring their products to buyers’ attention. They can also do so by offering warranties and after-sales services so that they reduce buyers’ transaction costs and thus strengthen supplier’s competitive position. This is usually common to durable products likes of cars.
Most economic scholars and analysts believe that competition in the product market leads to increased efficiency and quality of products. Such arguments are advanced by scholars such as Raith (2003), and Baggs and De Bettignes (2005), who focused on efficiency gains that result from the mitigating effects of competition on agency costs. Another explanation for this can be traced from the ‘survivor principle’, which states that competition improves efficiency "by weeding out the weaker firms, leaving only the more efficient firms in the industry" (Stigler, 1958).
Economic competitions in a market have been classified into four principal levels namely; consumer need or generic level, direct or brand, industry and market level competition Stigler (1958). Any producer venturing into a business should identify level of competition that may present any resistance and get a clear image of its market position. Examining at the competitor’s market share, company stability, relative growth and product/services characteristics, one will be able to develop and implement a marketing strategy that will yield the desired achievements (Raith, 2003).
Consumer need of competition highlights specific needs of consumers. This is sometimes referred to as budget or generic level competition. At this level, producers find out what services are required by the consumer through ways such as research or direct interviews. Included at this level are those products that consumers might want to spend their available money on for example an education institution that has $200,000 available may choose may choose to spend it on different items such as purchase of books, stationeries among others which can be seen as competing for each other for the institution’s available money.
Direct or brand is another level of competition involving specific brands competing head-on with other similar products or services that performs the same function. This competition level may be exemplified using a brand of passenger vehicles competing with several different brands of passengers’ vehicles (Keller, 2009). Sometimes two or more companies are rivals and one may modify its services for a competing advantage against the other yet they offer same services. On the other hand, market level competition involves rivalries against all companies that produce of sell products that can easily be substituted since they serve the same purpose. A perfect example is the beverage and soft drink industry, in which a company offering carbonated soft drink such as Pepsi is in direct competition with rivals like Coca-Cola.
Market Competitive Analysis
Analysis of competition in a market can be done in various situations since it is of importance. It involves taking stock of the number and nature of the competitors presenting a direct or indirect threat to a business. From competitive analysis, any aspiring entrepreneur can get a clearer understanding of the marketplace condition in any industry they are planning to venture into therefore understanding its advantages in strategic planning can take one’s strategic plans to the next level (Baggs, J. & Jean-Etienne de Bettignies, 2005).
The main purpose of conducting an industry or market competitive analysis is to determine the competitiveness of the market and the ease with which a new entry can establish business in the market and compete with existing players. Market analysis will also enable a person or a business to design effective marketing strategies with which they can position their products in the market and command high sales. Though establishment of barriers to entry, power of suppliers, powers of buyers and internal rivalry, an organization will be able to determine how to alter their products to leverage on their innovativeness and create competitive advantages (Baggs, J. & Jean-Etienne de Bettignies, 2005).
Lastly, market competitive analysis can enable a business to evaluate opportunities and threats in the market. After establishing the availability of opportunities and potential threats, the business can thus use its internally-generated strengths to overcome the threats and take advantage of opportunities to beat their competitors. It can also conduct competitor mapping, which provides the unique positioning of competitors. Competitor mapping will allow a business to establish product features offered by competitors and thus develop products that have attributes unique to the market.
Five Force Model for the Beauty Industry
The beauty industry can be defined as a collection of products that associates to maintain the physical well-being of consumers. Beauty industry is composed of businesses dealing in the production and distribution of beauty products such as cosmetics, foot and hand products, face products, hair care products, and general body case products. Companies in this industry compete by developing innovative products and waging aggressive marketing campaigns. However, there are various factors that influence the entry, operation and competition of firms operating in the beauty products industry. These factors can be analyzed using porter’s five forces model. Porter’s five forces were developed by Michael Porter to facilitate the analysis of the external competitive environment of a company (Porter, 2008).
Barriers to Entry
Barriers to entry into and exit from the market refer to difficulties that firms encounter when entering or exiting the industry. From the analysis of the industry, it can be established that there are high costs associated with entry into the beauty and cosmetics industry. Many competitors in the industry also reduce the attractiveness of the industry since profit margins are reduced when many firms operate in an industry. Therefore, barriers to entry into the market include the restrictive costs, competition among firms and limited profit margins (Porter, 2008). This means that there are high barriers to entry into the industry.
Threat of New Entry (Low)
The threat of new entrant into an industry is a factor that analyses the ease with which new firms can enter into an industry and offer competition to already established firms. Competitive industries are more likely to attract more new entrants, which will strive to acquire significant market share (Franchise Help, 2013). When firms are strongly established in an industry, and have developed strong and competitive brands, the entry of a new firm will have minimal impact on the market share and profitability of already established ones. The beauty products industry has a low threat of new entrants. Initial costs for establishing a cosmetics firm is prohibitively high. New firms have to develop new and innovative products, which require more resources in research, development and commercial production.
Bargaining Power of Suppliers (Low)
The bargaining power of suppliers gives them power to influence the product price changes by determining the price at which they supply firms with materials. Therefore, suppliers with significant power will influence price changes through mechanisms such as hoarding and restraining supply (Keler, 2009).
Due to the large supply of diverse products into the market and the high number of market players, the bargaining power of suppliers in the beauty industry is low. This is also attributed to the innovativeness of the industry and the continuous introduction of new products into the market ...
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