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Posts Tagged ‘branding’

‘Better Together’ Indeed

The Scottish debate revolved around a variety of issues and one of the key factors that added weight to the ‘No’ campaign was the idea of being British. But the concept of ‘Britishness’ is not just important to those who live here. It still appears to be a key signal of quality in foreign markets and it is something which foreign consumers are willing to pay a price for.

Barclays Corporate Banking has undertaken research into eight key export markets to determine the value of ‘Britain’. One of the key factors that boost demand for a product is quality and another is the idea of a brand. As quality improves and brands become more recognized, a product’s demand curve will begin to shift to the right, thus pushing up the market price. In other words, with higher quality and brand recognition, an individual’s willingness to pay rises. One brand that foreign consumers seem willing to pay a premium to purchase are those labelled ‘Made in Britain’.

The research indicates that 31% of customers in emerging markets have been prepared to and have purchased products that are from Britain, despite the higher price. Seeing the label ‘Made in Britain’ seems to send the signal of quality and this in turn creates a higher willingness to pay. Furthermore, this willingness to pay, while still good for Scottish, English and Welsh products, is higher for ‘British’ products, perhaps another indication of the truth behind the ‘Better together’ campaign.

The increase in willingness to pay between products with seemingly no country of origin and a British country of origin is 7% and this knowledge should give a confidence boost to the British export market. It should also indicate to exporters in Wales, Scotland and England that they are better to advertise as ‘Made in Britain’ than ‘Made in Wales, Scotland or England’. The expected boost from the 8 key emerging markets is around £2bn. The following articles consider the concept of ‘Brand Britain’.

Good news for exports as Brand Britain is revealed to be valuable concept Small Business, John Bromley (3/11/14)
Britain ‘best brand’ for Welsh exports, survey suggests BBC News (26/11/11)
Overseas consumers 64% more willing to pay premium for ‘Brand Britain’ Marketing Week, Sebastian Joseph (3/11/14)
Report flags up ‘British’ benefit The Courier, James Williamson (3/10/14)

Questions

  1. Using a diagram, illustrate the effect of a product’s being a well-known brand on its equilibrium price and quantity.
  2. Why is it that the relative willingness to pay a premium for British products is higher in developing countries than in developed countries?
  3. Using the concept of marginal utility theory, explain the impact of the ‘Made in Britain’ label.
  4. The BBC News article suggests, however, that some Welsh companies have not found the brand effect to be the case. What factors might explain this?
  5. To what extent are the concepts of consumer and producer surplus relevant here?
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An oligopoly price war

Oligopoly is the most complex market structure, characterised by a few large firms which dominate the industry. Typically there are high barriers to entry and prices can be very sticky. However, perhaps the most important characteristic is interdependence. With this feature of the market, oligopolies, despite being dominated by a few big firms, can be the most competitive market structure.

There are many examples of oligopolies and one of the best is the supermarket industry. Dominated by the likes of Tesco, Morrisons and Asda, competition in terms of branding, product development and quality is constant, but so is price competition. During the recession, you could hardly watch a TV programme that included advert breaks without seeing one of the big four advertising their low prices.

However, in the past few years, the supermarket industry has seen competition grow even further and the big four are now facing competition from low-cost retailers, including Aldi and Lidl. This has led to falling sales and profits for the likes of Tesco and Morrisons.

Tesco, Morrisons, Sainsbury’s and Asda have all felt the emergence of discount retailers and have seen their customer numbers fall. All have reacted with rounds of price cuts and new deals, and this price war looks set to continue. Morrisons have just announced a 14% average price cut on 135 products to match earlier changes in pricing strategies by the other main competitors. As I’m writing this during the Algeria v. South Korea match, I have just seen an advert from Sainsbury’s, promoting their milk chocolate digestive biscuits, priced at £1. The advert explicitly states that they are ‘less than Morrisons’, where the price is £1.50. This was soon followed by another from Sainsbury’s saying that the Cif bathroom spray is £1.50, which is ‘less than Tesco’, priced at £2.75. I need say no more.

So, what is it about this industry which means it is so susceptible to price wars? Are all oligopolies like this? The following articles consider the supermarket industry and the price wars that have emerged. Think about this sector in terms of oligopoly power and consider the questions that follow.

Morrisons announces another round of price cuts/a> BBC News (22/6/14)
Tesco suffers worst sales for decades The Guardian, Sarah Butler and Sean Farrell (4/6/14)
Britain’s Morrisons to cut prices on 135 products Reuters (22/6/14)
Morrisons slashes more prices by up to 41pct The Telegraph, Scott Campbell (22/6/14)
Sainsbury’s and Netto in discount store tie-up BBC News (20/6/14)
Slow to respond, Tesco now pays the price Wall Street Journal, Peter Evans and Ese Erheriene (19/6/14)
One million fewer customer visits a week at Tesco The Guardian, Sean Farrell (3/6/14)
Asda only one of big four to grow share as Lidl achieves highest ever growth Retail Week, Nicola Harrison (3/6/14)
Will Asda shoot itself in the foot with in-store cost cutting? The Grocer, Alec Mattinson (28/5/14)
Tesco sales slide at record speed as discounters pile on the pressure Independent, Simon Neville (3/6/14)
Quester: Back J Sainsbury to prove doubters wrong The Telegraph, Graham Ruddick (11/6/14)

Questions

  1. What are the key characteristics of an oligopoly?
  2. How do the above characteristics explain the conduct of firms in an oligopoly? How relevant is this to the supermarket industry?
  3. In many oligopolies, prices are sticky. Why is it that in the supermarket industry price wars break out?
  4. Is the kinked demand curve a relevant model to use when talking about the supermarket industry?
  5. What other industries fit into the category of an oligopoly? Is the kinked demand curve model relevant in these industries?
  6. Would there be an incentive for the big 4 supermarkets to collude and fix price? Explain your answer.
  7. Interdependence is the key characteristic in an oligopoly. Can this explain the behaviour of the supermarkets?
  8. Given that oligopolies are characterised by high barriers to entry, how is that Aldi and Lidl have been able to compete with them?
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