Competition in Supermarket Industry - Essay Example

Supermarket Industry The supermarket industry Research questions What are the problems confronted in delineating the market boundaries in the supermarket industry? Is price discrimination a form of competitive behaviour or a monopolistic market? What are the influences of structural factors on the competitive conditions? What are the differences between the advantages accruing to large firms and the barriers to entry? Static level of competition Many researchers have noted that in the last five fiscal years the level of competition has been defined by the supermarket industry’s level of competition which is no longer determined by market forces; rather, they are determined by the quality and availability of commodities in the stores (Penn et al 2010, p.85). This static competition explains why in marking out the boundaries within the supermarket sector, there are numerous problems that oftentimes arise. When trying to capture a large market, especially during the peak periods of the year, most supermarkets tend to lower their prices in comparison to that of their rivals in a bid to retain and get more customers due to the competitive advantages that they seek to leverage within the market. In marking the boundaries in this industry the researcher must note that most supermarkets open up new stores so as to bring their products closer to the customers (i.e. to gain a greater degree of market penetration) (Masso et al 2011, p. 13). This of course has the effect of causing the profit margin to go lower than expected since much of their focus and monetary resources are devoted to the new stores rather than the existing ones (Karakaya et al 2011, p. 175). There are of course a host of problems that arise during entry; or the point in time that a given a supermarket tries to cut a notch for itself in the highly competitive sector of supermarkets. When there is free entry into the market, even the supermarkets which have a high concentration are readily contested (Upton et al 2012, p.94). When a new supermarkets attempts to enter into the this highly competitive territory, it is incumbent upon them to have all of the logistical steps together with their requisite emphasis on supplier networks, employee retention and development programs, and market strategy. As such an entrance is an extraordinarily expensive proposition, these steps are necessary to have perfected so that the unforeseen issues with the competition and the market changes can be solely focused upon (Wang et al 2010, p. 3). Conclusion of static competition During the evaluation of competitiveness in the supermarket sector there are many hiccups that arise as a result of the many delineations within the boundaries of this sector. It is difficult to establish the factors to consider in an attempt to inflate the market share of the industry (Wilkie et al 2012, p. 958). This is because some of the strategies used to delineate the boundaries work for certain supermarkets while for others they did not. As a researcher, it is difficult to establish the positive and negative factors which directly affect each and every entrant into the market. However, one can determine clearly that the need for a market entrant to clearly delineate the market and carefully position themselves accordingly is of primal importance (Gary 2003, p. 4) Dynamic level of competition Research shows the dynamics that arise within the supermarket industry contribute much more to the current level of competition than any other factors (Chang 2012, p.884). Furthermore, in the last 3 years, the research shows that dynamic factors have led to diversification in the overall level of competition. This helps to explain why certain participants may create economies of scale as a way to leverage their own unique advantages. Similarly, some supermarkets rely solely on large advertising to bolster their overall sales levels (Adler 1999, p. 60). Conclusion on dynamic competition Dynamics lead to variations in the level of competition; especially in the supermarket sector. This implies that there are a number of changes that occur inside the organization that can dynamically affect the level of competition. Naturally, there are external factors too that have effects on the supermarket sector (Mukherji et al 2011, p. 54). Approaches In the research involving market factors surrounding the supermarket industry there are various approaches that a researcher must consider. An example of such an approach is the fact that supermarkets are keen to analyze and collect data with respect to the given market (Williams 2012, p. 66). One way in which this is oftentimes affected is for the representatives of the marketing teams to conduct oral interviews with the supermarket management of different stores as a way to gain helpful insights into what marketing strategies they believe would be most effective within their given region. Interviews would vary from big supermarkets to small stores and would necessarily include different best practices and ideas from a litany of different shareholders (Zhu et al 2012, p. 100). Next, the supermarket examines the information collected and compares the two parties interviewed. Finally, the information collected helps to bring out the various factors in play and allows the supermarket to make an informed and concrete decision. Price discrimination Price discrimination appears in the supermarket industry for both competitive reasons and monopolistic reasons. In this sector, there is price discrimination especially during the peak periods where most supermarkets lower the prices of certain goods as an attempt to capture a larger share of customers. During these periods, many buyers choose to buy from the store whose prices on basic the commodities are low (Evans 2003, p. 5). This implies that every supermarket which hopes to remain competitive must lower their prices to avoid losing customers. In most cases, some supermarkets will lower their prices excessively in order to obtain a high number of customers that have previously sought out other supermarkets. This particular tactic is especially useful due to the fact that such competitive pricing seeks to motivate shoppers in their direction. Though many researchers see this as creating a monopolistic edge, critically evaluating the situation, this is a matter of increasing the level of competition. During this time, most of the supermarkets will be trying to maintain their dominance in the region. As such, price discrimination does not lead to monopoly (Schröder et al 2010, p. 248). Some supermarkets which have been struggling to remain competitive may take advantage of this period of price cuts to seek out a further competitive advantage. As previously seen this may be affected by lowering the prices of some basic commodities so as to attract many customers and regain the loss they incurred during the past period. Considering the supermarket sector, one can find support from the research work Nichol et al that most supermarkets may concentrate in one area where there are potential buyers rather than in all the branches consecutively (Nichol et al 1999, p. 48). Lowering the prices in one area may lead the number of buyers to increase; however, this does not imply that the supermarket has become monopolistic since not all the stores are operating at the same prices. The branch which has lowered its prices to increase the number of customers would not be monopolistic even though many buyers in that area are purchasing from it according to research (. Such a presupposition would mean that the supermarket is monopolistic over their other branch, which is of course technically absurd. One branch may be more competitive than the other but cannot be monopolistic in comparison to the other branches of the same store (Galbrath 1996, p. 476). Structural factors For a supermarket to stand out in the market which is highly competitive there is a need to establish a robust structural structure of the supermarket in terms of the dynamism in technology (Taussig 1999, p. 207). Structures may lead to intrinsic economic technology differentiations within the supermarket brand. Additionally, many customers prefer shopping at a supermarket where the services are quick. These services include, but are not limited to, the technological services that the cashier and the checkout experience has to offer (Murray et al 2012, p. 55). Supermarkets whose keying in the system gets outdated will serve remarkably few customers and will always be characterised by long queues of customers waiting to be served. Advantages accruing to large firms and barriers to entry In the investigative research, it has been determined that barriers to entry are a prerequisite to establishing the powers in the market. If the entry into the supermarket sector is free, even the large firms which enjoy a high concentration are prone to failure. Considering the supermarket sector displacement barriers to entry are the ones where the economies of scale are such that it is possible to gain enormous profits from production for the existing producer. This form of barrier to entry is natural since the entry of a second participant means that none of the firms exists profitably. The natural factors leading to this include intrinsic economies of scale, which indicate that if there are many participants in this sector, none of them makes immense profits. Government fiats are external barriers which may include explicit charters by the government. These act as a way to give exceptional privileges to a national supermarket. In many instance, the government sets up strict rules which govern the safety of products and the working conditions of workers. Smaller supermarkets have the burden of disproportionate paperwork and regulations with which they must uphold. The power of the government is therefore prejudicial in favour of existing producers. Large supermarkets may also create suppliers and networks which undermine other smaller supermarkets. In this way large supermarkets may purchase goods from suppliers at a considerably lower prices than their non-aligned and non contractual competitors would. Conclusion Competition is an essential issue in every business. For a business to survive there is a need to maintain a level of exceptionally high competition. Most supermarkets come up with various strategies to ensure that they remain competitive; some of which include price discrimination and barriers to entry – especially by large supermarkets. Additionally, some of the factors which have been discussed may aim at increasing the overall level of competition or gaining a monopolistic environment. External factors may lead to the exit of new entrants in the market while some of the factors may be captivated by the large supermarkets so as to eliminate the upcoming supermarkets and retain key elements of the competitive nature that the new entrants may seek to undermine. The reading incorporates key factors that play a key role in ensuring that a supermarket remains competitive in the market; therefore rendering this research study relevant. 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