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There Are No Structural Barriers To Competition


There Are No Structural Barriers To Competition

It is questionable whether there have ever been real long-term structural barriers to market entry. Certainly, economies of scale provide cost advantages to large-scale producers and high capital requirements may keep some potential competitors at bay. For example, if you wanted to start an international oil company, you would need to have enough capital to produce and refine oil on the scale of ExxonMobil to be viable. That’s a pretty big nut to crack, but it can be done.

Economies of scale did not preserve the dominance of the US automobile industry or the photographic film industry. Rather, failure to stay close to customers and innovate in ways to better serve those customers with new technologies, services, and business models were the reasons for the loss of dominance. Dependence on structural barriers to competition is a false hope.

Firms can make it more or less difficult for competitors to enter a market. Product and brand differentiation, branding, advertising and promotion expenditures, access to limited distribution space, production and operations efficiencies, exemplary and responsive service operations, and strong customer relationships can all make it difficult for other firms to compete. But, these so-called structural barriers provide an advantage in the long run only to the extent that they continue to enable and support the effective fulfillment of customer needs.

A unique role for marketing, and perhaps the defining role of marketing, is to assure that investments meet customer needs and produce positive cash flow.

Contributed to Branding Strategy Insider by: David Stewart, President’s Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

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