The transformative power of technology may be best illustrated by the rapid growth of the marketspace , an information- and communication-based electronic exchange environment mostly occupied by sophisticated computer and telecommunication technologies and digitized offerings. Any activity that uses some form of electronic communication in the inventory, exchange, advertisement, distribution, and payment of products and services is often called electronic commerce . Network technologies are now used for everything from filing expense reports, to monitoring daily sales, to sharing information with employees, to communicating instantly with suppliers.
Many companies have adapted Internet-based technology internally to support their electronic business strategies. An intranet, for example, is an Internet-based network used within the boundaries of an organization. It is a private network that may or may not be connected to the public Internet. Extranets, which use Internet-based technologies, permit communication between a company and its suppliers, distributors, and other partners (such as advertising agencies).
The fourth component of the environmental scan, competition , refers to the alternative firms that could provide a product to satisfy a specific market’s needs. There are various forms of competition, and each company must consider its present and potential competitors in designing its marketing strategy.
LO 3-5Discuss the forms of competition that exist in a market and the key components of competition.
Alternative Forms of Competition
Four basic forms of competition form a continuum from pure competition to monopolistic competition to oligopoly to pure monopoly. Chapter 13 contains further discussions on pricing practices under these four forms of competition.
At one end of the continuum is pure competition, in which there are many sellers and they each have a similar product. Companies that deal in commodities common to agribusiness (for example, wheat, rice, and grain) often are in a pure competition position in which distribution (in the sense of shipping products) is important but other elements of marketing have little impact.
In the second point on the continuum, monopolistic competition, many sellers compete with substitutable products within a price range. For example, if the price of coffee rises too much, consumers may switch to tea. Coupons or sales are frequently used marketing tactics.
Oligopoly, a common industry structure, occurs when a few companies control the majority of industry sales. The wireless telephone industry, for example, is dominated by four carriers that serve more than 90 percent of the U.S. market. Verizon, AT&T, Sprint, and T-Mobile have 117, 107, 55, and 34 million subscribers, respectively. Similarly, the entertainment industry in the United States is dominated by Viacom, Disney, and Time Warner, and the major firms in the U.S. defense contractor industry are Boeing, Northrop Grumman, and Lockheed Martin. Critics of oligopolies suggest that because there are few sellers, price competition among firms is not desirable because it leads to reduced profits for all producers.