Competitive Settings and Personal-Selling Strategy

Individual companies operate in different competitive settings. Industries dif­fer as to the maturity level and the number of competitors. These differences result in different competitive settings. Economists identify four basic kinds:

[1] pure competition, (2) monopolistic competition, (3) oligopolistic com­petition, and (4) no direct competition. Assuming different levels of impor­tance in each competitive setting are the various components of overall marketing strategy. How the importance of the personal-selling component varies is significant for sales management.

1. Pure Competition

Pure competition, as defined by economists, is a market setting with large numbers of buyers and sellers, none powerful enough to control or to influ­ence the prevailing market price. Economists assume, among other things, that (1) no single buyer or seller is so large relative to the market that it can appreciably affect the product’s total demand or supply; (2) all sellers’ products are identical, so buyers are indifferent as to which sellers they buy from; (3) no artificial restraints on prices exist (i.e., no governmental price fixing or administering of prices by individual companies, trade associations, labor unions, or others); and (4) all buyers are always informed about all sellers’ prices

If these assumptions represented the “real world” in an industry, no company would concern itself with marketing strategies of any sort. Each seller would be too small to gain business at the expense of its competitors through price cutting, and if it did cut the price, they would immediately match the cut. No seller could compete by offering a “better” product, because product differentiation is ruled out. No seller would push a prod­uct through personal selling or stimulate its sale through advertising, as this would be futile since all potential buyers buy only on a price basis and are already fully informed. The real world contains no known instances of industries operating under pure competition; consequently, we need not concern ourselves with this competitive setting.

2. Monopolistic Competition

Most modern marketers operate in competitive settings that approximate monopolistic competition, which means that some or all of the assumptions of pure competition do not hold. More precisely, monopolistic competition exists when there is a large number of sellers of a generic kind of product but each seller’s brand is in some way differentiated from every other brand. Furthermore, under monopolistic competition, it is easy for additional com­petitors to enter the market; for instance, retailers entering as private-label competitors. This competitive setting describes that of many products during late phases of their market growth and much of their market-maturity life­cycle stages.

Nearly every seller’s brand of product, whether it be nail polish remover or pet food, can be differentiated (at least in final buyers’ minds) from competing brands. Most ultimate consumers appear convinced that different brands of even such “identical” products as aspirin, table salt, and flour are not exactly alike, providing individual marketers with opportunities to build brand preferences among buyers, and hence, to control a share of the market. Furthermore, most ultimate consumers (and even many industrial users) are not fully informed—frequently not even adequately informed—about the offerings of competing sellers. Sell­ers differentiate their “market offerings” through individualizing one or several components of overall marketing strategy. Unique packaging may differentiate the product (for example, table or picnic-sized shakers of salt); an unusual distribution method, such as house-to-house selling of cosmetics, may differentiate the product’s distribution; or pricing gim­micks, such as “cents-off” pricing and list pricing, may differentiate the product’s pricing.

However, the main way sellers of products in the market-growth and market-maturity stages differentiate them is through promotional strategy. Advertising differentiates the brand in the minds of final buyers and stimulates selective demand. Personal selling sees that the desired distribution intensity is secured and maintained and that intermediaries provide the needed “push.”

Competitive settings characterized by monopolistic competition pro­vide marketing opportunities and clearly require skill in planning and implementing overall marketing strategy. Whereas the key element in the overall marketing strategy for these products is the ability to differentiate the product, even if ever so slightly, in some way(s), appropriate promotion (usually some blend of advertising and personal selling) is the critical element in implementing such an overall marketing strategy. Advertising’s role is most often that of relating market messages to final buyers. Personal selling’s role is that of servicing the distribution network and stimulating promotional efforts by the intermediaries.

3. Oligopolistic Competition

Increasing numbers of marketers operate under oligopolistic competition, a competitive setting where the number of competitors is small enough that they are individually identified and known to each other and it is dif­ficult for new competitors to enter the market. Each competitor is a large enough organization and has a large enough market share that changes in its overall marketing strategy have direct repercussions on the others. Each must weigh the possible reactions of each of its competitors in formulating and implementing its own overall marketing strategy.

In the United States and other developed countries, oligopolies exist in such industries as automobiles, appliances, personal computers, soaps and detergents, and shoes in the consumer-goods field and in data-processing equipment, steel, aluminum, textile machinery, and machine tools in the industrial-goods field. The successful firms keep on growing, and the less successful fail or disappear (through merger). The soap and auto indus­tries provide dramatic examples, both having been reduced from numer­ous competitors to a small group.

Oligopoly produces the most aggressive competition. When a few large companies dominate an industry, the competitive moves of any one affects the entire market. When, for instance, one competitor introduces a new variation of a basic product (such as a new scent in hand soap), the other competitors risk a rapid loss in market share if they do not respond appro­priately and almost instantaneously. For this reason, competitors’ actions are watched closely, and marketing changes by one firm are matched or other­wise countered. Changes in one competitor’s product, in its distribution, in its promotion—if they hold some promise of increasing its market share— are imitated, improved upon, or otherwise countered by competitors as rap­idly as they can launch counteroffensives. Price changes by individual indus­try members can be and often are matched by others almost immediately. Industrywide price adjustments are often made so quickly that they appear to result from collusion, when, in fact, there has been none whatever.

Personal-selling strategy under oligopolistic competition plays import­ant roles in building and maintaining dealer cooperation, in servicing the distribution network, and in gathering information on competitors’ activities. As under monopolistic competition, promotional strategy gen­erally features both advertising and personal selling, with both playing highly critical roles, particularly in the successful implementation of overall marketing strategy.

4. No Direct Competition

Neither the monopolist nor the company marketing a radically new and different product in its market-pioneering life-cycle stage has direct competitors. But both have indirect competitors; both vie with sellers in other industries for the same prospects’ interest and buying decisions, the monopolist on a long-term basis and the innovating marketer for the limited period it is free from direct competition. Both must initiate and stimulate primary demand—that is, demand for the product cate­gory—through promotional (personal selling and advertising) strategies aimed to influence final buyers and intermediaries. Both need distribu­tion strategies providing for marketing channels, intermediaries cooper­ation and the product’s physical distribution, and the putting into effect of these distribution strategies requires the effective implementation of personal-selling strategy in terms of both kind and number of sales per­sonnel. Both require a pricing strategy: the monopolist (at least in theory) being free to maximize profits through “charging what the traffic will bear,” the innovating marketer choosing between either a price-skimming or a penetration-pricing strategy, depending mainly upon how soon it expect direct competitors to enter the market. Here, too, putting into effect the chosen pricing strategy calls for the effective implementation of personal-selling strategy. Further, both the monopolist and the innovating marketer seek to integrate their individual product, distribution, promo­tion (including personal selling and advertising), and pricing strategies into overall marketing strategies (that is, competitive postures) consis­tent with their long-term goals. This consistency is obtained when all elements of overall strategy are “in balance.”

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.