Executive Summary
It is important for an organization to understand the changing markets and behave in the manner that it can meet the dynamic market requirements and that is the only reason it can move ahead the competition in the long run. The inference drawn from this report is based in a discussion of the market strategies and the forces that drive the market. A comparison of Dell and Microsoft gives us a detailed idea of how a major player enters the market and enjoys monopoly which is lost in case if new entrants enter the market and start taking the market share. The report also gives a summary of the way Microsoft and Dell excelled and remained consistent in the long run.
Introduction
Competition and Strategy go hand-in-hand, and both are altered according to each other’s behavior in a given market. Porter (2008) mentioned that the industries grow on the basis of the strategy that they define and the type of market that they get in order to operate their products. The market actually represents the relation that exists between the buyer and the seller, and it is related to various theories that include models and structures, defining the activities that take place.
Household and businesses buy the end products that enter the market, based on the demand and local requirements, and the supplying firms keep a track of the commodities in demand, to maintain their supply and balance the prices that hit the consumer. The markets dominate both, the consumer and the producer hence it is important to understand the kind of market that is related to a particular commodity and the kind of strategy that must be implied by a particular organization in order to sustain comfortably and beat the competition. Another, important factor which must be discussed while looking into an organization behavior is related to the fact that the markets are dynamic and they keep on changing the structures due to which regardless of the study of type of a market, or the forces that basically a drive consumer or organization or organization behavior the strategy of doing business in an environment is required to be changed regularly.
The importance of study of market and organization behavior is due to the fact that, it is required to forecast the trends of a market and understand that which are the forces that are important at the moment and what will be the driving factors that will impact the market in the long run. This report will concentrate on discussing the market types and the forces that drive an organization behavior, also there will be a close comparison of two major multinationals in order to understand their behavior according to the identified market positions.
There are four majorly identified market types e.g. Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly and it is important to discuss the type of characteristics these organizations possess, to understand the impact that they have on the organizations.
Perfect Competition
These are the kind of markets that are controlled by the demand and supply, the prices, services and the goods reach according to the competition and are not dependent of any one supplier or buyer for the determination of the output and related costs. The market forces rule here and there is an intense competition in the market due to which the fluctuations of prices take place when the competitors change their sales strategy or take steps to gain competitive advantage. In these markets there are multiple participants, i.e. buyers and sellers and the procurement or sale of products is homogeneous. The buyers and sellers in a perfect competitions market are ineffective towards the pricing piece, as they are so small that they cannot control the pricing. They enjoy freedom to enter the market at any point of time and leave the same accordingly as well. Free from advertising costs, these buyers and sellers are able to sell the products at the market prices. The condition for such a market is that all the buyers and suppliers are aware about the actual product quality and pricing, and the sold products remain the same considering that they are homogeneous.
Monopolistic Competition
While discussing about a monopolistic market, it is important to understand that this type of market is a hybrid or intermediary. They behave as if between the extremes of a perfect competition and monopolistic markets. Hence, with the above explanation it is clear that this kind of a market possesses qualities of both, Perfect Competition and Monopolistic market. It has multiple buyers and sellers and the product type is heterogeneous. The firms that operate in these markets ensure that considering the uniqueness of their product type, they are able to take a control over the prices that they set for their products. Another major point to notice here is that like in a perfect competition market the sellers may anytime enter or exit the marker however they incur advertising costs, while reaching the customers to promote the uniqueness and utility of their products. And, there is lack of information between the buyers and sellers related to the product pricing, product differentiation and quality.
Oligopolistic
This kind of market is represented by only few of large or small firms that dominate a particular market and face a competition internally between each other. There is a strong attempt of these organizations to create a barrier in order to restrict other firms from entering the market. The oligopolistic market is characterized by few organizations that control the market and usually this fewness is defined by the numbers between 2-15. These firms are impacted by each others’ strategy related to the change in price, advertising and output etc. One of the major characteristics possessed by these markets is the collusion where the set price tends to collude the market through explicit collusion (open collusion for price and output determination) and implicit collusion (agreement by oligopolists to fix price). Cost and Technology are the barriers that restrict more competition to join this race and imperfect information about the pricing and product specialty exists in the market. This is the market that spends maximum on advertising, in order to create brand loyalty among the customers.
Monopolies
These markets are owned and covered by a single form and there is no competition in these markets due to which the marginal cost is equal to the marginal revenue. It can also be said about this type of industry that the firm is the industry and vice versa. The firm therefore becomes a price maker and determines its own market price simply due to the absence of competition. The cost, technology and management are the barriers that may be produced by a monopolistic firm in order to control and restrict any other firm from entering the market and taking a portion of the market share.
Hence, the above are the basic market types, where various types of firms operate and according to the products that they choose, they sustain their behavior and decide their strategies of operating and reaching the consumer.
Marketing Structures: Impact on Pricing and Output Decisions on business organizations
Now that there has been a detailed introduction to the type of structures, it is important to discuss the kind of impact these structures have on the pricing and output decisions of a firm. If we look at the perfect competition market, which is quite close to being a hypothetical structure, It is clearly understood that due to the intense competition between the players, the prices become one of the major factors to gain competitive advantage and therefore the entire price structure of the homogeneous commodities depend upon the perfect competition strategy.
On the other hand in case of the Monopolistic Competition, there is a huge variation which is seen as the prices are not only impacted here due to the competition, but there is also a major impact of the heterogeneity of products. The advertisements that are done in order to produce brand image and create awareness about the products also incur cost and contribute to the addition of prices in the market. The close competition within the market forces the suppliers to produce quality goods and win more and more market share; hence the output is positively impacted by this kind of market. The Oligopolistic strategy also leads to a major impact on the output and cost, and this is the type of market, where only few players exist, hence at times in case if they decide to go ahead with explicit collusion there is a major difference that appears between the prices and the product output of the players. Moreover, in case of an implicit collusion, all the players have a common agreement on the pricing, which means that the prices are determined by the market according to the strategy, and the consumer is forced to buy the product on those prices. Finally, the monopolistic market gives the entire chance to the firm to play with the cost of the products that it is dealing with, however they also have to ensure that the output delivered is satisfactory as otherwise there will be an opportunity for more service providers to enter the market, thus leading to the market no more remaining monopolistic.
Market Forces: What drives the market?
This statement is quite generic to say that the demand is directly proportional to the pricing of a product, but there are many factors that control the market and the same are defined by the market forces. The major factors that impact the market are Competition, New Entrants, End users/buyers, Suppliers, Substitutes and the complementary products. Competition is already discussed as a factor that controls the market and the moment competition increases, the supply increases due to which the prices go down, similarly if there are new entrants that enter the market, they reduce the prices of the initially launched products in order to obtain greater market share. End users or buyers, control the demand side of the market and that is the reason, behind the decrease in the prices due to the lack of demand and increased availability of the product. The suppliers are obvious to control the supply side and the moment, this force controls the supply the demand increases and so does the price. The substitutes are products that increase the supply in the market, thus impacting the prices and lowering them down. Hence, these are the forces that control the market and according to the impact of these force the market changes.
Dell and Microsoft: A close comparison of the market strategies . . .
Dell and Microsoft are one of the major players in the Information Technology domain and they operate in almost all the geographies of the world, although they are the key players in the market and are competitors also in certain product lines however it will be interesting to see how they approach the market, in terms of strategies and market decision making. Microsoft initially enjoyed a monopolistic approach and introduced its product in the market where, the products enjoyed a great market share, however later on there were many competitors that entered the market and Microsoft faced a steep competition from some of the players, however the company recovered due to its policy of continuous improvement and investment and innovation to produce new and improved products every now and then and to ensure that the brand image remains the same all throughout.
Dell on the other, hand entered the market at the time, when there were already many players in the computer hardware market and were holding a major market share. After, a few setbacks, Dell started producing products only based on the demand in the market and this included a lot of research and an effective market forecast system. The products which were produced were of high quality, and the market was monopolistic competition, and it required a major product and price control mechanism, hence the company sold its products on competitive price (on the higher side), and targeted the markets where the demand was quite large and there was a huge need to provide quality products, the company was successful in meeting the market demands and stands as one of the largest producers of computer hardware.
If we compare the behavior of these organizations, during the initial phases, it was very different. On one hand Microsoft had a monopoly over the market which still continues in terms of various product lines, Dell faced a major competition, due to which it received a slow start. These companies have faced various market situations and have altered their strategies accordingly and have been able to meet the competition and perform according to the demand. Microsoft, is an organization which was a new entrant once and then faced multiple similar entrants who started gaining market share due to which it became important for the company to change the strategy from monopoly to oligopoly and then finally monopolistic competition. Dell already entered a market which was in the Monopolistic Competition phase and then sustained itself in the market by ensuring that the supply side is always according to the changing market needs.
Works Cited
Case, M. (n.d.). Dell Marketing Strategies. Retrieved December 20, 2011, from www.entrepreneurslife.com: http://www.entrepreneurslife.com/thoughts/entry/dell-marketing-strategies/
dwsmg.com. (2008, November 17). Microsoft Marketing Strategy: Why Bill Was Better Than Steve. Retrieved December 20, 2011, from www.dwsmg.com: http://www.dwsmg.com/microsoft-steve-balmer-and-bill-gates.html
Heslop, M. (2000). Market Structures or Models of Market Structures . Virginia: North Virginia Community College.
Porter, M. E. (2008). The Five Competitive Forces That Shape Strategy. Boston: Harvard Publishing.
