Differentiating Between Market Structures
ECO/365

Differentiating Between Market Structures Kudler Fine Foods (KFF) commits to provide its customers with the finest selection of foods and wines available on the market. The owner’s vision is to be the premiere gourmet grocery store for discerning shoppers seeking the best meats, produce, cheeses, and wines (Apollo Group, Inc., 2011). To further her mission and vision, owner Kathy Kudler formed the business within the monopolistic competition market structure, developed a marketing overview, and created market surveys to evaluate the business’s competitiveness in the marketplace. The monopolistic competition market structure includes many firms selling slightly differentiated products. There is an easy entry into the market by new firms in the long run, and the firms are large enough to influence the total supply. There are also multiple dimensions of competition including distribution outlets, advertising, and product attributes (Colander, 2010). The marginal cost will be less than price at its profit-maximizing output level. According to the text, a monopolistic competitor cannot make long-run profit (Colander, 2010). The benefits of the monopolistic competition market structure are the ability to act independently to adapt to changing economic forces and customer tastes to differentiate KFF’s from its competitors. KFF exercises monopolistic behavior through product differentiation and marketing strategies to gain competitive advantage. Additionally, collusion is unlikely to occur because of the difficulty of getting a large number of firms to act as one (Colander, 2010). The challenging characteristics of the monopolistic competition market structure that KFF faces are the few barriers to entry so that many firms are competing in the same market. As a result, KFF must continually advertise and implement marketing strategies to convince consumers that their products and services are better than the competition. Moreover, as gourmet fine food firms increase their success and profitability more firms will enter the market, thereby exacerbating or eliminating long-run profitability (Colander, 2010). The firm must work toward increasing its market share by increasing its outputs to lower the average costs. KFF has several firms competing for customers’ food and beverage dollars: traditional grocery stores, health-conscious food markets, international foodstuff stores, and independently owned specialty food stores and restaurants. KFF does not recognize any of these firms as direct competition because of the manner in which Kudler has differentiated her business’s customer service and product line. KFF strives to attract a discriminating gourmet customer base that seeks excellent and organic food products, knowledgeable customer service, and an array of specialty food preparation utensils (Apollo Group, Inc., 2011). Kudler also differentiates her business from others by exercising socially responsible activities such as, purchasing locally grown organic produce, using unbleached flours in baked goods, eliminating unnecessary preservatives in products, and continually rotating the food inventory. Kudler donates products still in “good” condition to local food kitchens and homeless shelters (Apollo Group, Inc., 2011). Kudler’s commitment to contributing to the communities in which she operates her businesses builds her reputation as a socially conscious business operator and sets her apart from some of the competition. Advertising how their products and services are superior to the competition motivates monopolistic competitive firms. Firms operating within this market structure rely on advertising to sell more products and to allow them to charge a higher price. To achieve this, the advertising must inform consumers convincingly about the superior quality and value of the products and services offered. However, advertising is relatively expensive so the firms must recognize that it will increase the total cost of its goods. Advertising will benefit the firm if the marginal revenue derived from the advertising exceeds the marginal cost of the advertising. Kudler significantly increased the advertising and marketing budget in 2004 to include advertising in local newspapers, in-store leaflets, and flyers for special events such as wine tastings and cooking classes. Kudler works cooperatively with the managers of the three stores to identify sales items and to shift merchandise between stores to meet consumer demand. Further, KFF intends to expand its catering services, which have proven to drive customers into the stores. Other marketing efforts include customer incentives for increasing attendance at food preparation classes, frequent shopper incentive programs, improving internal efficiencies, and evaluating customer market surveys. Kudler’s goals to remain competitive include activities designed to increase loyalty and customer profitability. KFF designed programs to increase the number of visits to the store, which will likely increase sales and profit. The food preparation classes and the frequent shopper are two such incentive programs. The discerning nature of KFF’s customer base led management to track consumer purchasing behavior patters, which validated the intuitive knowledge that KFF’s customers are less concerned with price and more concerned with finding quality and specialized products. As a result, KFF eliminated everyday discounts on items and initiated a loyalty points program that customers can redeem for high-end gift items, food products, and other specialty rewards (Apollo Group, Inc., 2011). KFF is also improving its internal efficiencies to reduce costs. The management team is evaluating its internal processes and developing new strategies to yield increased value to the customers. Kudler is implementing a personal shopper program to improve customer service, integrating updated technology, and establishing training programs for the employees. Additionally, staff monitors inventory more closely with the new methods developed by the purchasing department for food ordering and food storage. Fewer food products are held on back shelves for future sales, which lowers costs to the business and reduces food waste. The market surveys reveal that KFF is strong in several key areas, including the hours of operation, décor, product selection, value, and customer satisfaction. Most customers were complimentary of the quality of the products, the variety of the selection, and the satisfaction with the merchandise (Apollo Group, Inc., 2011). Customer service improved in 2011, which was necessary for Kudler to maintain and expand its market share. In 2010, staff knowledge and courtesy were identified as areas that needed improvement. If Kudler had not acknowledged her customers’ feedback, her customers eventually would defect to her competitors with comparable product lines. Trader Joe’s is a real-world organization similar to KFF. Its goal is to bring quality specialty products at reduced prices to its customers. Like Kudler, Trader Joe’s is also a socially responsible firm and informs its customers of food health benefits and avoids unnecessary preservatives and fillers. Kudler should continue with its loyalty programs but also become better versed in the nutritional content of its food products. Many people are turning to vegetarian or vegan diets or are concerned with the use genetically modified organisms. KFF should further educate its consumers about its organic products to broaden and diversify its customer base and to remain competitive in a quickly changing retail environment. Kathy Kudler has established a successful niche retail specialty store that attracts wealthy shoppers. The store operates in a monopolistic competitive market structure, which limits the length of time in which the business can operate. In the long-run profit is eliminated as additional firms enter the market at the time Kudler is maximizing profits. The firm continually must develop marketing and advertising strategies to differentiate itself from the competition. Moreover, it must act upon the pertinent feedback provided by KFF’s customers in the market surveys to improve customer service and business operations.

References
Apollo Group, Inc. (2011). Kudler Fine Foods. Marketing overview. Retrieved from ECO/365 – Principles of Microeconomics course website.
Apollo Group, Inc. (2011). Kudler Fine Foods. Market surveys 2010, 2011. Retrieved from ECO/365 – Principles of Microeconomics course website.
Apollo Group, Inc. (2011). Kudler Fine Foods. Strategic plan 2003. Retrieved from ECO/365 – Principles of Microeconomics course website.
Colander, D. (2010). Thinking Like An Economist. In D. Colander, Economics. New York: McGraw-Hill Irwin.