What Are The 4 Basic Forms Of Competition In Marketing?

What Are The 4 Basic Forms Of Competition In Marketing?

All companies have competition in marketing. Yes, that includes businesses with unique selling propositions, software innovations, and even those with a completely new industry created by a business.

Why? That’s just how the free market works. In the free market, when one party wins, then another party automatically loses. One business will always strive to gain profit by competing with another. In fact, competitor research is the second step in any marketing strategy (the first is identifying your audience). There isn’t a single company, product, or service in the world that is the only choice a customer has.

The job of a marketer doesn’t end at serving the needs and wants of the target customers. Other companies may see the same needs and wants, and enter the market with improved products and services that serve the same end goal. That’s part and parcel of why competitor analysis in marketing is an integral part of the overall strategy.

In this article, we discuss the four main types of competition in marketing and how they influence both marketers and consumers.

Competition in Marketing: Four Most Important Types

There are a total of four types of competition in marketing and each has different features. Let’s learn them one by one and how they play their roles when it comes to competition analysis in marketing.

  1. Perfect Competition

    Perfect competition is nearly a real-life market competition. In a market that’s perfectly competitive, the forces of demand and supply determine the amount of products and services produced. It also decides the market prices set by businesses in the market.

    In theory, a perfectly competitive market structure is ideal. There is free entry and exit. With so many competitors companies can enter the market and easily exist when it’s not profitable. The influence of one business or buyer is small enough that it does not influence the market as a whole. Each company also earns enough profit so it can stay in the market.

    The products and services within a perfectly competitive market are seen as homogenous. There is little difference between the products and services offered. The products are identical, and information regarding the product’s price and quality are openly given to the public.

    Examples of perfection competition in marketing:

    • Agricultural markets. Farmers sell identical products to the market, so it is easy to compare prices.
    • Foreign exchange markets. In this market, currency is all homogenous. Traders have access to various buyers and sellers so there’s good information about the relative prices of currencies.
    • Online bookstores. The internet has made it possible for bookstores to start selling online and with lower barriers to entry. It is also easier to compare prices quickly and efficiently. For instance, it is easy to compare the prices of books on Bookazine or Bleak House Books.
  2. Monopolistic Competition

    Unlike in a perfect competition, the companies in monopolistic competition in marketing sell similar but slightly differentiated products. It does not assume lowest possible cost production.

    More importantly, companies sell very similar products and services with small differences they use to push their marketing and advertising. For instance, there’s a skin care company that conducts competitor research for their bath soap. Bath soap is pretty much the same that we use it to keep ourselves clean and fresh. However, small differences like shape, fragrance, added oils and nourishing benefits are used in advertising and in setting prices. They also serve as the basis for competition analysis in marketing — what sets one product apart from the other?

    When the profits are attractive, businesses enter the market freely. The minor differences between the products or services create imperfect information regarding price and quality, enabling producers to be the price maximizers.

    When the profits are attractive, businesses enter the market freely. The minor differences between the products or services create imperfect information regarding price and quality, enabling producers to be the price maximizers.

    Examples of monopolistic competition markets include:

    • Service and repair markets like HVAC repair companies
    • Tutoring companies
    • Providers of landscaping services
    • Beauty salons and spas
  3. Monopoly

    A monopolistic competition in marketing exists when there is only one seller in the market. The business controls a complete industry or sector. The company has control over all the supplies, goods, commodities, infrastructure and assets related to a particular product or service. Monopoly markets are a highly undesirable market structure and there’s little to no room for competitor research or competition analysis in marketing.

    If a company has a monopoly in a particular market, they can charge any price for the products or services they offer as no factor can restrain the exorbitant prices. Monopolies have a competitive advantage over their competitors as they control the largest market share or they’re the sole providers of the goods/services.

    Due to its high barrier to entry, it is difficult to enter a monopoly market. A monopoly company can develop its control over the market due to two reasons:

    1. The government has permitted the company to provide particular goods/services.
    2. The company has acquired the patent for the product or service.

    This type of competition in marketing is highly undesirable as the company has the sole power to decide the prices of the product or service. As there are no competitors, there’s no one to keep them in line. For this reason, products sold by monopoly companies tend to be sold at higher prices than their actual prices.

    Examples of monopolistic competition in marketing:

    • Railways. Public services like railways are often provided by the government. In turn, they are monopolist in the sense that private companies are not allowed to run railways.
    • Luxottica. This company owns all the major sunglasses brands. It’s bought almost all of the eyewear brands in the world, they’re just named differently. This creates an illusion in the customers’ minds that they have a variety of eyewear options to choose from when in truth, they are all manufactured by one company. As of 2021, Luxottica produces over 80% of the world’s eyewear.
    • As a computer and software manufacturing company, Microsoft holds more than 75% market share and is the world’s market leader and monopolist in the tech space.
  4. Oligophy

    With monopolistic competition in marketing, only one firm controls the entire market. But not all companies aim to sit as the only building in a city. As opposed to monopolies, oligopolies have companies that work together or collaborate to limit competition or dominate an industry or a market.

    The companies in these market structures can be small or large. However, the most powerful firms often have finances, patents and control over raw materials that create tough barriers for new companies to enter the market.

    However, oligopoly is also not favorable for both companies and consumers. As all firms have equal market share, they seldom put extra efforts to get a competitive edge over the other. This leads to stagnant advancements or slow innovation in the industry. Competitor research and competition analysis in marketing do not thrive in this market structure. The market prices can also be high as the firms mutually decide prices based on the leadership of a single company.

    Examples of well-known household names that operate in an oligopolistic market:

    • The airline industry is an oligopoly because if an airline cuts ticket prices, other players usually follow suit.
    • Automobile manufacturing is an oligopoly with leading manufacturers being Ford, Toyota, Honda, Renault-Nissan-Mitsubishi, and Volkswagen Group.
    • Hollywood has long been an oligopoly. Aside from independent labels, there are only a couple of film distribution companies and movie studios to choose from. The same goes for the music entertainment industry which is dominated by a handful of players such as Warner, Sony, and Universal Music Group.

Competition Analysis in Marketing: A Necessary Tactic

We’ve gone through the major types of competition in marketing. At this point, you should know which type of market structure you belong in so you can proceed to the next step: competitor research and standing out from the competition.

A company’s ability to differentiate their solutions is crucial to their success. If you can’t convey to consumers how you’re different and better than the competition, one of two things will happen: You’ll lose opportunities, or you’ll be forced to lower your prices to win over customers.

Here are simple ways to include competition research and analysis in your marketing strategy:

  1. Identify your product’s unique value proposition. In other words, what makes your product different from your competitors? This can inform your marketing efforts in the future.
  2. Figure out what your competitor is doing right. Take a look at their sales tactics, results, pricing, and any perks they offer. This information is critical to ensuring your product and marketing campaigns are outperforming industry standards and also helps you stay relevant.
  3. Discover where your competitors are falling short. Look at their social media presence and go-to platforms. Analyze the level of engagement they’re getting and how they promote their content. This lets you identify areas of opportunities in the market and test out new marketing strategies they haven’t leveraged yet.

These tactics are especially beneficial in a perfectly competitive market, or in a monopolistic competition. Before you accurately compare your competition, establish which market structure you belong in by taking an objective look at your business and then conducting competitor research. By doing so, you can create solid strategies that help you stand out from the competition and thrive, not just survive.

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