The problem Nation TV is facing currently is the fact that they have remained number two position for the five years they had been operating. Viewership was stagnant and yet 1% increase in viewership translates to 1.5% revenue growth. Profitability growth in years 2003 and 2004 had started declining as it grew by only KES 22 Million compared to KES 238 Million between 2002 and 2003. More investments were also being channeled to broadcast compared to newspapers and magazines.
They management decision that needed to be made was either to re-brand itself with a new image, separate from the parent company or to rely on past record by taking advantage of the parent company’s name recognition, and proven mark of excellence in the broadcast media.
The other factors to consider are as follows:-Demand Analysis and Forecasting – The Media Industry has been growing but industry commentators reckon that there is still a long way to go.
The upcoming trend was cross-media ownership with media houses owning newspapers, television and radio stations.
The most watched program was News/Habari and the youth (30 years and below) dominate the viewership.
Competitive Analysis – The main competitors were Kenya Broadcasting Corporation “KBC”, Kenya Television Network “KTN”, and Citizen TV. KTN and Nation TV were the ones dominating the TV space, although KTN was leading.
The media industry offered opportunities for both local and foreign entrepreneurs
Regulation – Although media was liberalized in 1990s, there was still an ongoing debate as to the extent the media industry was free and fair.
This is also evidenced by the affiliation of the media house owners to the government.
The most general theory of the firm states that the management’s primary goal is to maximize the value of the firm. The main objective of the management of Nation TV is therefore to advise the Directors to choose the alternative, which will ensure that profit is maximized.
What possible alternatives would you consider?
The possible alternatives that management are exploring are:-Re-branding Nation TV with a new image, separate from the parent company; or
Rely on past record by taking advantage of the parent company’s name recognition, and proven mark of excellence in the broadcast media.
What is clearly coming up from the two alternatives is that change is needed to change the stagnating narrative of Nation TV and both alternatives have cost implications. The alternatives we would consider are as follows:-Reorganize the structure of the programmes and add additional ones that will target the bulk of the viewers as well as retire those that are not adding value;
Capitalize on the parent company’s name to market Nation TV programs; and
Exploration of alternative channels of broadcasting such as introduction of Radio which is the upcoming trend in the media industry.
Nation TV station and Nation newspaper are both well-established Business unit owned by Nation Media but with the dilemma in which Nation media finds itself regarding rebranding or changing the image of the company by splitting the Business units into two independents entities with perfectly different identities.
From the case study many issues have arisen from the different company’s officials about the risks that Nation media might face if the decision to disassociate the Tv station from the Newspaper is taken or not. Some of those questions are
The expenditure for the image change and the infrastructural change is heavy
The public might view this disassociation as holding monopolistic power over information if both units keep the same name after separation
Foreigner perceive Nation media as a Kenyan media than regional
Nation being perceived to be associated with former autocratic and corrupt regime
Looking at these different issues around the idea of image change to be taken by the owners of Nation Media, we can say that they find themselves in a situation where indeed a change has to be made but this change comes with the risk of not achieving what they intend to do.
Not only this but if the disassociation is done successfully with the option to keep the same name for both units, extra marketing strategies will need to be done in order to clear away the idea of holding monopolistic power over information or if the change is made with the option of having different names for the units, the company will have to make use of marketing tools in order to convince the public that it is something new that has nothing to do with the old unit which will strip them way from the goodwill built with the name Nation media.
Determine the type of market structure that Nation TV fits in (10 marks).
In an oligopoly, a small number of large firms dominate the market. Each firm must anticipate the effect of its rivals’ actions on its own profits and attempt to fashion profit-maximizing decisions in response. Again, moderate or high- entry barriers are necessary to insulate the oligopolists from would-be entrants.
Nation TV was therefore oligopolistic. There were few companies offering the same TV broadcast service i.e. KBC, KTN, Citizen and Nation TV. There was also free entry as evidenced by the vibrancy of the media industry which offered opportunities for local and foreign entrepreneurs.
This kind of imperfect competition is characterized by having a relatively scarce amount of firms, but always more than one, which produce a homogeneous good. Due to the small number of firms in the market, the strategies between firms will be interdependent, thus implying that the profits of an oligopolistic firm will highly depend on their competitors’ actions.
Firms in oligopolistic market can have a wide range of behavior patterns making it difficult to have a single model. Static models are used as they present a simple way of analyzing equilibriums in this market. Both companies will receive profits derived from a simultaneous decision made by both on how much to produce, and also based on their cost functions: TCi=C-qi. (Antoine A. Cournot. 1838).
For example, in Kenya, the following have markets each have few major sellers: Beer, tyres, banks petrol stations and soft drinks whereby if Coca-Cola changes their price, Pepsi is also likely to change.
Looking to the case of The Nation Media Group they had already dominated the market covering the major towns in East Africa as the supplier of newspapers.
They had differentiated products for each target group including children’s magazine and they had ensured that every day of the week had a special informative magazine sections such:
NMG also owned the television station Nation TV and the radio station Easy FM-Kenya.
Prateek Agarwal. (2019) objective is competing to increase their own market share at the expense of their competitors. The assumption is that when a rival firm increases its price, other companies will not follow, but if a competing business decreases its price, then others will follow. This behavior leads to a ‘kink’ in the demand curve.
Using the profit maximization rule, Marginal Cost = Marginal Revenue, anywhere on the vertical MC curve works. The price and quantity don’t change regardless of cost. Price remains at P* and output Q*, even at MC Upper or MC Lower.( Prateek Agarwal. 2019)
Explain the objectives of product differentiation under monopolistic competition.
Chamberlin(1933), defined this market structure as characterized by a group of related products that can be considered to be close substitutes amongst each other which is reflected by their high crossed elasticity. Monopolistically competitive firms are most common in industries where differentiation is possible, such as:
In 1933, Edward H. Chamberlin pointed that “The objectives of Product differentiation under monopolistic market is;(I) making customers perceive the product of a specific firm as unique or superior to any other product belonging to the same group, and so creating a sense of value.
He explained further that; differentiation does not always imply changing the product, sometimes it is enough just by simply creating a new advertising campaign or by changing its packaging. (II)Product differentiation can also be a way to avoid or to create entry barriers and thus become a source of competitive advantage.
As a product becomes more differentiated and unique for consumers, it will become more difficult to compare it to other products and it will move competition with other products to non-pricing factors. There is an important distinction to be made between different differentiation strategies.
Product differentiation can be subject to subjective or objective preferences. Two categories are distinguished from this division, horizontal and vertical differentiation.
The horizontal is given when consumers base their purchasing decision on subjective preferences when comparing products, e.g. flavors or colors, while on the other hand vertical occurs when a product can be evaluated against the other ones in terms of measurable and qualitative factors, e.g. technological differences or technical properties in engines”.
Aashish Pahwa. (2019) pointed out other objectives such; to translate the product attributes into benefits, to give the customers a reason to purchase the brand’s product and repeat the purchase, to increases the recall value of the product, to increases brand loyalty and builds HYPERLINK ” t “_blank” brand equity and to attribute-based differentiation is important for the brand to defend their price from levelling down to the bottom part of the price spectrum.
These markets differentiate their products for well-defined target market that is willing to pay more and remain royal. Consider the high price for a Harley Davidson motorcycle, and the royalty shown by the owners. Well differentiated and almost unique (Kefah Njenga.2018).
Relate Nation TV’s product differentiation to decision making under oligopoly markets.
An oligopoly market is a market characterized by relatively small number of dominant firms offering a similar product or service CITATION McG11 l 1033 (McGuigan, Moyer, & Harris, 2011). An Oligopoly represents a market where power is concentrated among a small number of firms.
A few firms produce most of the markets’ outputs. Since this type of market is effectively controlled by a few large firms, it is imperative for the firms to formulate appropriate business strategies and just as importantly to react appropriately to the business strategies of competing firms. CITATION Ros14 l 1033 (Rosenberg & Halloran, 2014).
An oligopoly has the following characteristics:
Product differentiation means that the variety of products that each firm produces may be different from the varieties being produced by other firms in the market CITATION Fra86 l 1033 (Fradera, 1986).
Product differentiation strategy can be a tool of competitive advantage which is adopted by organizations in order to provide products that satisfies individual customer’s needs. In satisfying individual customer needs, quality has become a major differentiating factor among products CITATION Dir13 l 1033 (Dirisu, Iyiola, & Ibidunni, 2013).
In order to achieve a competitive advantage, an organization need to make decisions with regard to many factors which can be divided into two theories:
The internal resources are of great importance to the profits made by a business organization. Internal resources affect the maintenance of a firm’s competitive advantage and its ability to create market advantage. A firm has a competitive advantage when it creates a successful strategy based on resources that cannot be duplicated by the current or potential competitors.
Organizations with similar resources often have difference in the efficiency of resource utilization brought about by the difference in capability. Core capability is the accumulated knowledge of organization, especially on how to coordinate the different skills of production and organic integration of a variety of technical flow of knowledge.
Nation TV can adopt the following strategies for product differentiation.
Through the new image concept, it would have created a fresh look to the current viewers as well as attract new viewers. There is a cost implication to this choice but if Nation TV carried out intensive promotion, it would get return on its investments.
Nation should focus on hiring qualified and experienced personnel to deliver the best to its viewers and when it gets the best, it should ensure that they are well remunerated such that they are not lost to the competitors?
Penetrate in foreign markets which the competitors had not ventured in. This would have increased viewership as well as grow revenues and profits for the company.
Nation TV should consider trying out Market Segmentation, where they have programs for all ages aired at the time convenient for each age bracket.
Explain how being under the three other different market structures(than the one you have named above) may lead to different conclusions?(10 marks).
A competitive market is characterized by a large number of buyers and sellers who buys or sells just a small proportion of the total industries output. For this reason, the actions of a single buyer or single seller cannot have a perceptible impact on the market price of the products. The sellers in a competitive market cannot influence the prices of products in the market and are price takers since the products offered in a competitive market are perfect substitutes of each other.
Mr Aluanga mentions that there will be a 10% return on investments spent on promotional activities. He further says that this is something that they can bank on based since there is proven record. Mt Natubola however pointed out that this assumption will only work out if there are no new kids on the block. This cannot be the case in a competitive market since it’s characterized by many buyers and sellers and any seller can freely join and leave at any time.
The impact of a single buyer in a competitive market such as advertising would have no effect on the market price or market share. Such additional costs might even drive a company out of business. Nation TV however can advertise to grow its market share and increase its revenues since it’s falls under oligopoly.
In a Monopoly Market Structure, there is great to absolute product differentiation in the sense that there is no available substitute for a monopolized good or service. The monopolist is the sole supplier of the good or service in question.
A buyer can either buy from the entity’s terms or stays without the product. Nation Media Group however have a perceived as monopoly control of information and domination of the media industry. Despite the privilege they continued to trail behind the Standard Group.
Thompson et al. (2012) emphasize that managers at different firms always have a slightly diverse spin on how best to deal with competitive and industry driving forces, what future market conditions will be like, and what strategy specifics makes the most sense for their particular company in light of the Company’s strengths and weaknesses, its promising market opportunities and the external threats to its future.
With respect to the latter it is paramount that even as the National Media boasts of near to monopoly information in the Media industry the management should take into consideration of the external environment and the future of the industry hence the need to remain agile in its decision making than maintain the status quo.
According to Porter (1980) competitive strategy involves positioning a business to maximize the value of the capabilities that distinguish it from its competitors. Monopolistic firms sell products that have real or perceived non-price differences.
The goods perform the similar elementary purposes but have variances in qualities such as type, style, superiority, status, presence, and location that distinguish them from each other. Under monopolistic competition market structure the Nation’s management would have to invest in new technologies, brand image and advertisements to increase viewership and hence having a positive ripple effect on the firm’s revenue.
Being a monopolistic market structure the managers can make independent decisions without consideration to what effect its decision may have on competitors as any action will have such a negligible effect on the overall market demand that a monopolistic firm can act without fear of prompting heightened competition.
Thompson et al. (2007) mention that a firm endeavoring to thrive through differentiation must study buyers’ needs and behavior prudently to learn what buyers consider significant, what they perceive has value, and what they are willing to pay for.