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PRODUCT DIFFERENTIATION IN MONOPOLISTIC MARKETMentor- Prof. Deepika M G Team members: Mahesh Guleria Pallab Misra Manohar Shetty Milind p m Saquib Kalam Mayur Somani

WHAT IS MONOPOLISTIC COMPETITION?

Monopolistic competition is a market structure in

which:A

large number of independent firms compete. Each firm produces a differentiated product. Firms compete on product quality, price, and marketing. Firms are free to enter and exit.

WHAT IS MONOPOLISTIC COMPETITION?

Large Number of Firms Like

perfect competition, the market has a large number of firms. Three implications are: market share

Small No

market dominance impossible

Collusion

WHAT IS MONOPOLISTIC COMPETITION?

Product Differentation Making

a product that is slightly different from the products of competing firms. differentiated product has close substitutes but it does not have perfect substitutes. the price of one firms product rises, the quantity demanded of that firms product decreases.

A

When

WHAT IS MONOPOLISTIC COMPETITION?

Competing on Quality, Price, and Marketing Quality Design,

reliability, service, ease of access to the product. downward sloping demand curve. and packaging

Price A

Marketing Advertising

WHAT IS MONOPOLISTIC COMPETITION?

Entry and Exit No A

barriers to entry.

firm cannot make economic profit in the long run.

WHAT IS MONOPOLISTIC COMPETITION?

Identifying Monopolistic Competition Two

indexes:four-firm concentration ratio Herfindahl-Hirschman Index

The The

OUTPUT AND PRICE DECISIONS How,

given its costs and the demand for its jeans, does Tommy Hilfiger decide the quantity of jeans to produce and the price at which to sell them?

The Firms Profit-Maximizing Decision The

firm in monopolistic competition makes its output and price decision just like a monopoly firm does. Figure on the next slide illustrates this decision.

OUTPUT AND PRICE DECISIONS1. Profit is maximized when MR = MC 2. The profit-maximizing output is 125 pairs of Tommy jeans per day. 3. The profit-maximizing price is $75 per pair. ATC is $25 per pair, so 4. The firm makes an economic profit of $6,250 a day.

OUTPUT AND PRICE DECISIONS

Profit Maximizing Might Be Loss Minimizing Some

firms in monopolistic competition have a tough time making a profit.

A

burst of entry into an industry can limit the demand for each firms own product. Figure on the next slide illustrates a firm incurring a loss in the short run.

OUTPUT AND PRICE DECISIONS1. Loss minimized when MC = MR 2. The loss-minimizing output is 40,000 customers. 3. The price is $40 per month, which is less than ATC. 4. The firm incurs an economic loss.

OUTPUT AND PRICE DECISIONS

Is Monopolistic Competition EfficientEfficiency requires marginal benefit to equal marginal cost. In monopolistic competition, price exceeds marginal cost, which is an indicator of inefficiency. Making the Relevant Comparison Price exceeds marginal cost because of product differentiation. But product variety is valued. The Bottom Line The bottom line is ambiguous. But compared to the alternative, monopolistic competition looks efficient.

DEVELOPMENT AND MARKETING

Innovation and Product Development Wherever

economic profits are earned, imitators

emerge. To maintain economic profit, a firm must seek out new products. Cost Versus Benefit of Product Innovation The firm must balance the cost and benefit at the margin.

DEVELOPMENT AND MARKETING

Advertising Firms

in monopolistic competition spend a large amount on advertising and packaging their products. Expenditures large proportion of the prices that we pay cover the cost of selling a good.

Marketing A

DEVELOPMENT AND MARKETING Selling

Costs and Total Costs

Advertising

expenditures increase the costs of a monopolistically competitive firm above those of a perfectly competitive firm or a monopoly. costs are fixed costs. costs per unit decrease as production

Advertising Advertising

increases. Figure

on the next slide illustrates the effects of selling costs on total cost.

DEVELOPMENT AND MARKETING1. When advertising costs are added to . . . 2. the average total cost of production, 3. average total cost increases by a greater amount at small outputs than at large outputs.

SURF EXCEL VS ARIELSurf was launched in 1959 by HUL. A family brand with tough stain removal and caring image. International to Ultra to Excel Surf Excel is available in 4 variants: Surf

Excel Blue Surf Excel Quick Wash Surf Excel Automatic Surf Excel Detergent Bar

CONTD..Ariel was introduced in India in 1991 by P&G. Ariel contains unique Fragrance in detergents with new technology based detergent Ariel is available in 3 variants: Ariel

Fresh Clean Ariel Spring Clean Ariel Front-O-Mat

MARKETING OBJECTIVESSURF EXCEL

ARIEL

To continue market leadership 37.8% in Indian Market Approaching New Markets Launching Product Extensions Maintain Brand Loyalty

To increase market share 7.7% P&G in Indian Market Switch Consumers from Existing Brands in the present Market Product Innovation Increase Brand Loyalty

PRICE CHARTSIZE SURF EXCEL QUICK WASH SACHET Rs.2/SURF EXCEL BLUE Rs.2/SURF EXCEL AUTOMATIC -

200gm

Rs.23/-

Rs.20/-

-

500gm

Rs.56

Rs.41

Rs.80/-

1kg

Rs.109/-

-

Rs.155/-

CONTD..SIZE ARIEL FRESH CLEAN Sachet Rs.2/ARIEL SPRING CLEAN Rs.2/ARIEL FRONTO-MAT -

200gm

Rs.26/-

Rs.26/-

-

500gm

Rs.55/-

Rs.55/-

Rs.80/-

1kg

Rs.107/-

Rs.107/-

Rs.155/-

MAJOR PLAYERSMajor Players HUL ( blue, Quick wash, Automatic) Nirma P&G ( Tide, Ariel) Henkel India (Mir, persil, porwall, vernel, purex,henko) Reckitt Benckiser ( Varnish)

CROSS ELASTICITY OF DEMAND

Cross Elasticity of the demand is defined as the ratio of the percentage change in the demand for one good to the percentage change in the price of some other good. Substitute goods: Tide, Rin, ghadi etc. Cross Elasticity will be positive in this case Complement goods: detergent cake, liquid soap Elasticity is always negative.

INDEXESThe Herfindhahl-Hirschman Index (HHI)

It is the sum of squares of market share of each company in the industry. H = s12+s22+.+sn2 H= Herfindhahls index S1,S2Sn are market share of each company For detergent industry(in our case) H = (37.8) 2 + (7.7)2 + (3.7)2 + (1.5)2 + (.26)2 = 1504.15 {as market share of other companies is almost negligible in the industry}

CONTD..The four-firm concentration ratio It is a sum of market share of top 4 firms in the industry For detergent industry(in our case) ; Surf Excel : 37.8% Ariel : 7.7% Henko : 2.9.% Nirma : 1.14% Total : 48.74 Conclusion : As 4 firms concentration ratio is less than 50%,So this let us to conclude that Detergent industry has a Monopolistic market.

OUR OBSERVATIONS Surf

Experienced Player Competitive Advantage with well laid distribution and retail network Innovative advertising approaches Willingness to venture out with new variants

CONTD..

Ariel

Strong first mover advantage in the Pricing War Entrenched firmly in minds on basis of superior cleaning quality Need to bring out new variants focus on aggressive advertising important

CONCLUSION

So in the monopolistic form of competition the firm doesnt have price war like in perfect competition, in this form of competition there exist product differentiation firms compete among themselves by differentiation their products and to promote their product they incur huge selling cost in the form of: Advertising Promotion Packaging Design price

THANK YOU