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Substitutes and Complements

Customers and Demand


Characteristics Current situation Future trend
Segmentation of customers Sex-age segmentation. The same.
Does a buyer's purchase volume represent large fraction of typical seller's sales revenue? No. The same.
Switching cost Switching cost insignificant due to large number of players on the market. The only switching cost is searching cost. The same.
Can buyers find substitutes for industry's product? No. There are no substitutes for footwear. No.
Price elasticity of market demand Low elasticity in general. Due to adoption of western life style owning more pairs of shoes can become normal so demand elasticity can increase.
Price elasticity of demand for typical firm High due to low switching cost. The same.
Price elasticity of various customers High elasticity for high-quality woman shoes. Will increase.
Price discrimination (actual and potential) There is no price discrimination. No.
Versioning (actual and potential) There is no versioning. No.
Bundling and Tie-ins (actual and potential) There is no bundling and tie-ins. No.
Are prices negotiated on each individual transaction or set as take-it-or-leave-it" for all transactions? The price is the same for all transactions. Will stay the same.
Do buyers pose credible threat of backward integration? (for B2B) There is no B2B on this market. The same.
Does product represent significant fraction of cost in buyer's business? (for B2B) There is no B2B on this market. The same.


Substitutes and Complements


Characteristics Current situation Future trend
Availability of close substitutes As footwear is a basic necessity, the threat of substitutes to the market is limited. However, there is a significant degree of substitution between segments of the market. For example, sportswear is often a substitute for other more traditional footwear types. Overall, the threat of substitutes is moderate to weak. There is no up-ward or down-ward trend of close substitutes in footwear industry.
Price-value characteristics of substitutes Because firms try to use product differentiation strategy according to the needs of potential customer groups, they set a value pricing model for their products. But, season fashion affect a lot on the products produced, so actually a lot of characteristics are similar, and this make it difficult to set prices at a high level and can damage firm profit. Future trend will remain the same, and the situation of fashion influence will always affect the product, despite price-value chain. The threat of too high price for relatively the same products will exist in future as well.
Price elasticity of industry demand There are many substitutes of available in the market. Industry demand is elastic; increase in price would have great effect on the quantity demanded. Total revenue is more influenced by the lower quantity and decreases as price increases. In the future time demand in footwear industry will be still elastic. Presence of close substitutes will not allow having inelastic demand. (In case if there were no other footwear brands available on the market, then demand would have been inelastic, it means that increase in price would have no or minor effect on the quantity demanded).
Availability of close complements Footwear producers offer apparel and accessories to complement its athletic footwear products. It also offers footwear, apparel and accessories in collections designed in a similar fashion or for a specific purpose. There will be ongoing development of complements/ apparel/accessories in footwear industry. It is ranging from socks, sneakers, to umbrellas and bags.
Price-value characteristics of close complements Price-characteristics of complements relatively are low Same no change



Competitors and competition


Characteristics Current situation Future trend
Market concentration (number of firms, concentration ratios, HHI) The market can be described as supersaturated. There are so many firms producing and selling shoes that market is competitive. Most part of the market is small firms which have connection to Chine production facilities, which is why they have ability to set low prices. The HHI index for high competition is near 0,01. Nowadays we can conclude that there are about 10 big producers of footwear in Russia produce about 50% of the Russian footwear on the market. But still the profitability of Russian producers is about 9%, which of course canít be compared with high profitability rates of foreign producers, which are also on Russian market. Small firm, which couldnít stand in this competition because of inability to charge price which satisfy consumer needs. Access to Chine production facilities and low cost of production is the most important driving force on this market. Because of the supersaturation now, there will be trend towards re-saturation of the market, and only those firms, which have good established brand, market power and ability to produce at lower prices, will survive. If it goes about small local market, we should admit that there are not competitor for Chine production, so low quality shoes will stay at local markets for a long time.
Market growth The consumption of footwear is growing with a rate of 30%, and for Russian market mostly 40% of supply is from local firms. Most of them produce shoes in Chine, where low costs are available. The supply of shoes is highly affected by seasons, but average growth of supply of footwear is about 24% (Russian companies on the market). Researches tend to think that market growth rate will increase at list to 40%. The consumption of footwear in Russia will also increase as the trend of recent years
Cost differences (among firms) Roughly saying cost of producing footwear can be divided to cost of workforce and cost of materials. The cost of materials for firms, which has great market power are of course lower, a good example of that is cost of leather: for a small local firm the cost of leather will be about 13-15 RUB, for a big producer there will be price of 10-11 RUB. Of course a lot depends on the economy of scale that is why we see the cost differences. Because of the power of big firms there are significant cost differences on the market. Cost differences will tend to decrease because more and more firm will have access to low material prices and low production costs
Product differentiation The product on the market differentiates according to season, to materials, to age and quality needs. There is significant difference of products according the needs which these products satisfy (spot, casual, elegantÖ). Products are also highly affected by fashion which actually drives the design. The trend is product differentiation to satisfy every consumer need, so differentiation will increase.
Price differences Prices differentiate a lot according to the type of consumer firm choose. For high segment there are high prices, because of the brand name and expensive materials used in production. For low market prices are really low and close to production prices. The trend is a significant move towards value pricing, so price difference of course will remain the same, but the difference among groups will decrease a little bit
Excess capacity Marginal costs are relatively average at their level. Because we cannot say that this competition is exactly the Bertrand competition, we canít conclude about the exact value of excess competition Changes in the production will be according to the consumer needs so marginal cost actually can decline
Are prices and terms of trade transaction observable? Most prices and terms of trade transaction are hidden. Hopefully the situation will change towards more observable terms and prices of trade transaction, but actually in Russia there are no signals for that.
Can firm adjust prices quickly? It is hard to adjust prices quickly during one season, but it is easy to adjust prices season to season It will be hard to adjust prices quickly during one season, but it will be easy to adjust prices season to season
Type of competition (price, quantity, simultaneous, sequential) The main type of competition on the market is price competition.   As it was in the past this will remain the same. Price competition is the most common type for footwear market.
Leadership pricing? Leaders of the markets charge very high prices on their product if we compare to actual price of the product neglecting the brand additions. This tendency will remain the same.
Tacit collusion (actual and potential) Some Russian companies use that strategy, but because the physical presence on the market of Russian footwear is about 20% this collusion do not affect most mart of the market and unable to influence the power of foreign producers. We can conclude that there is a kind of hidden collusion on the market, because price competition is the main type on the market, but there are no price wars, because they can ruin all the situation. There will be a kind of hidden collusions, but no open collusion strategies or special alliances of producers.
Antitrust litigations In Russia there are actually no such situations -



Threat of Entry


Characteristics Current situation Future trend
Importance of reputation and brand loyalty in purchase decision On this market reputation and brand loyalty represent customersí belief in products quality, so it is important in purchase decision. Product quality, design and service quality will become more important for customers, so importance of reputation and brand loyalty in purchase decision will increase.
Entrants' access to distribution channels Easy access to distribution channels. New companies can open separate outlets, there is no significant costs for remodeling premises. Access can become more difficult because shopping tends to become more concentrated in shopping malls, which charge retailers for opening an outlet.
Entrants' access to raw materials Easy access. The same.
Entrants' access to technology and know-how Level of technology is unified for the industry. New entrantsí access to technology is easy. Significant innovations in the production process are unlikely in the near future. The situation will stay the same.
Entrants' access to favorable locations Hard access to favorable locations (e.g. Nevsky prospect) due to high rent and high demand for these locations. Favorable locations can become more accessible if new shopping malls will be constructed (supply of selling space will increase).
Experience-based advantage of incumbents No, except brand loyalty and reputation. The same.
Network externalities No. No.
Government protection of incumbents No. No.
Perception of entrants about expected retaliation of incumbents There is no retaliation specific for this market. The same.



Date: 2015-12-11; view: 1186

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