The Economics Behind Marketing New And Improving Products - Essay Example

The Economics behind Marketing "New and Improving" Products Introduction A monopolist is the sole seller of his product in the market hence he acquires market autonomy or power. A monopolist’s market is characterized by a number of features like barriers to entry, product differentiation and market power (Lynn, Barry). By barriers to entry, we mean that unlike perfect competition, where new firms are allowed to enter whenever they see existing firms making above normal profits and leave whenever they are not covering up their costs, this is not possible in the case of a monopoly. There are usually barriers that prevent new firms from freely entering the market and hence this gives the monopolist his autonomy. He is the sole seller of the product and he can make above normal profits, which he usually does, even in the short run. Also, unlike perfect competition, where the products are all identical, monopolist’s products are usually categorized as being different and thus unique. Designer articles can be considered a monopolist’s work since they are all unique and differentiated. This gives the monopolist the right to charge as much as he wills. He can charge much higher than the cost that he pays for the product since his product is unique and there is no other seller, the monopolist is not afraid of competition from somewhere else. Likewise, monopolists usually discriminate the buyers in price too (McKenzie, Richard). We may encounter the same product with different price labels in different places. This right too belongs to the monopolist only. When companies improve their products When we talk about the gains from a monopolist’s market, the most important one is that there is a lot of innovation in the product range. The products are much more creative and newly designed. In most cases, the quality is also not compensated since the monopolist is not afraid of higher costs, he can always transfer those higher costs to the buyers who are bound to pay. Thus the economics of marketing “new and improving” products has much to do with the monopolist’s market than with any other market structure. Here, we mean the economics or the production, distribution and consumption of goods and services that are marketed or promoted as being new and improved version of some good that was available in the market earlier (Hawley, Ellis). For example, laptops such as those by Sony have been some of the most expensive ones in the market since decades. However, whenever there is a new Sony laptop launched we see the same or maybe increased amount of fervor in the buyers. This is because the company has developed some level of trust and label loyalty because of which consumers are sure that the product is definitely a newer and an improved version of the laptops that currently exist. This consumer loyalty needs to be developed over time (Scott, David). Budding companies need to make such an impression that the consumers begin to believe their marketing strategies. For example Olpers Milk recently showed a price hike, because of other competitors providing almost the same quality of milk with a lesser price, Olpers lost its market. It did start an aggressive media campaign to convince the users of the newness and the improved quality, however it failed. Such failing cases have not been new to the business world today. In fact, it is because of these that we know of some companies that have been there no matter what. For example, who does not know of Louis Vuitton? It is a French fashion house established back in 1854. It is known for its shoes, watches, jewellery, accessories, sunglasses, books, bags and purses. No matter how costly these items may have become, the brand has gained its loyalty over time and now consumers trust it for its word (Pasols, Paul). They know that if the company claims that there has been a quality improvement or a price hike, there must have been. This is indeed in the hands of the monopolist himself to make his mark in the market first. That is the most essential step towards making a monopolistic mark forever. Some companies come and their effect erodes over time, in order to stay in the market it is important that the consumers believe the producers. For example, Dexpel is a budding company based in Pakistan. It provides covers for laptops, I phones, PSPs, X Box etc. Since it is still in the process of making its mark it is important that it gains the trust of the consumers by providing them with good quality and service and a price compatible with the product. Charging too high a price is always an offset, even for a monopolist. When companies bluff Till now, we have looked at the brighter side of the topic where firms strive to make their mark and they improve their product. They say what they deliver and the consumers trust them. Not all cases are this ideal in the world that we live today. There are instances where miscommunication of information persists. Even worse, there are cases where the incorrect information is voluntarily spread and imposed. For example, there may be companies that claim to have a new and improved product through their marketing strategies but it might be just the same. By spending millions on advertisements and jingles that allure all, such companies hope to gain a positive response from the consumers by doing nothing to the product itself. This is a big pitfall in an imperfect economy. Since there are no restrictions, the buyers may unduly exploit the consumers since there is no check over the buyers (Trott, Paul). For example, every other day we see a new shampoo being launched by Sunsilk. Although the company has gained sufficient repute over the years and is one of the very trusted brands globally, it has tarnished some of its image through incorrect and inconsistent marketing. Sunsilk is known by various other names in different countries, it is also sold under the name Sedal and Sedak. Despite being a popular brand, every other day we see an advertisement that says that Sunsilk experts have come up with something new. They may claim to have developed a formula that would make the hair longer or healthier or shinier or prevent them from breaking and split ends etc. A recent global survey however shows that the buyers are now questioning the truth behind this marketing. They doubt if there is much change than the many different colors of bottles that appear on a rack of Sunsilk shampoos. Surely, no customer will pay for a different colored bottle, at least not so if he is considered to be rational. It is very common in today’s world to see firms raise misconceptions or if not misconceptions, just convey incomplete information to the buyers which prohibits them from knowing what option is best for them. This is common in an imperfect market situation which is in fact the real life situation. Examples of companies that convey incomplete information when they are endeavoring the promotion of what they call a new and improved product are the telecommunication firms. Companies like Zong, Warid, Mobilink and Ufone are established and well known names in the telecommunication industry. They have provided years of dedicated service which is truly appreciable but every now and then they come up with a package or two and most of these packages are advertized in the most attractive fashion. With young girls and boys humming out tunes of great melodies, these advertisements seek to baffle people of what reality holds. Recently, Warid activated the Glow package and it advertised rigorously for it. So many banners, so many SMS etc and so many advertisements on television were observed for its promotion. However, the cost to the buyer was wrongly communicated. It was left uncertain as to what the charges would be and as most users later found out, the package was not too much in the favor of the users and it increased their monthly budget on phone cards by a large amount. Consumer decisions We have so far focused on the producer side of the economy. Equally important is the consumer side of the economy and the decisions that the consumers make. For some consumers, it is important for firms to keep evolving; they want newer products and improved quality. However, there are a proportion of people who would like to have the same product for years on end. They develop a liking for the product and they hope that the product they use cannot be improved any further (Baker, Charles). Such loyalties are difficult to justify using valid reasoning and logic but that is what economics is all about. People have their preferences, rational or irrational, valid or invalid and they make choices that best suit their preferences. For example, in the case of necessities like sugar, oil, salt etc not many people look for improved versions of granulated sugar or a new packing of oil. Consumers would not mind using the same product for years. However for products like cars and refrigerators etc, the latest models and the most improved designs are preferred. Conclusion Since the market forces are governed by both the consumer side and the producer side of the market, only one of the two opponents cannot significantly affect market trends. Of course we need new and improved products to advance in the world that we live in, using the same products will keep us at the same economic level and indeed, economic stagnation leads to the decay of the economy on the whole. We need to welcome newer products and improved versions of the existing products. Alongside, we also need to make sure that we have the complete and correct information before we end up buying the product. Most monopolists tend to use their market power to exploit the consumers unjustly by giving them partial information about the new and improved goods or by miscommunication of some of the features of the product. It is, in this case, the buyer’s responsibility to make sure he has perfect knowledge at his end (Hazlitt, Henry). A monopolist’s products are differentiated and unique and thus deserve to be paid over and above the cost price but how much above should be a fair measure of the firm’s share in the market and also the demand that it faces for the product. Any discrepancy in this will imbalance the economic structure and will lead to one party being better off than the other or one party being more satisfied than the other. References: Lynn, Barry (2010). Cornered: The new Monopoly Capitalism and the Economics of Destruction. Wiley. Pasols, Paul (2005). Louis Vuitton: The Birth of Modern Luxury. Harry N. Abrams, Inc. McKenzie, Richard and Le, Dwight (2008). In defence of Monopoly: How market power fosters creative production. University of Michigan Press. Hazlitt, Henry (1988). Economics in one lesson. Three Rivers Press. Hawley, Ellis (1995). The New Deal and the Problem of Monopoly: A study of economic ambivalence. Fordham University Press. Baker, Charles (2009). Monopolies and the People. University of Michigan Press. Scott, David (2010). The new rules of marketing and PR. Wiley. Trott, Paul (2008). Innovation Management and New Product Development. Prentice Hall. Read More