Assume that you are going to start a small business of your

Assume that you are going to start a small business of your own. Further, imagine that you are able to adequately differentiate your product, or service so that you can establish your business as a monopolistically competitive firm.

Describe the business and its likely main competitors.

How would you structure your advertising and customer service to differentiate your product/service?

How easy would it be for new competitors to enter your market and erode your customer base or selling price?

What would be your prognosis for the long term profitability of such a business?

What could you do to protect that long term profit stream?

Solution

Monopolistic competitive market is a market which has many competitors and each firm in the market compete with each other through various strategies like product differentiation. Let us consider a firm ABC which is going to establish its business with products like cosmetics, beauty soaps etc. The market or industry of such firms will be much competitive and there are many giant competitors in this market.

The dominating competitors in this market have its own reputation which has been obtained through its efficiency and quality of the products. In such market our company being the new entrant will have to strive a lot with marketing activities and good customer service to grab the attention of the customers. Through advertisements the firm can highlight the benefits and effectiveness of its products so that the customers can compare themselves. They can also highlight their mission and vision regarding the quality and service they provide.

In such market the threat of new entrant is high and the firm ABC will have to conduct intense market research continuously so that they could identify the changing market trends and the nature market. This will enable them to identify appropriate strategies to remain dominant in the market.

Providing quality product and high quality customer service is the only option for the firm in this monopolistic industry to sustain in the competitive market. Through they can form good customer base which is essential for gaining competitive advantage