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Case study Fashion industry How advertising in monopolistic competition helps to increase sales in the Fashion industry

Let’s take example of clothing brand H&M H&M has many characteristics of monopolistic competition and which proves that this brand operates under monopolistic competition Let’s have look at the H&M brand under clothing industry and see what makes it a monopolistic firm 

Size of the firm H&M is not a very huge or small firm in the industry it comprises of 3500 stores operating in 57 different countries, and a total of 132000 workers working world wide

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Barrier of entry and exit The firm has few barriers of entry and exit which includes cost for producing and employment and packing

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Competition Because of large number of firms in the industry H&M faces a huge competition in the industry as many similar clothing brands produces a slightly differential products at comparable prices.

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Product differentiation As many brands in the industry produces almost similar products which are almost similar in shape, color, size etc. So H&M doesn’t have much control over its price.

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Brad loyalty and price control H&M employees a unique marketing and advertising strategies to build up its brand loyalty, and due to partial product differentiation the firm has partial price control over its products, due to which people are willing to spend a bit higher to purchase the H&M products.

Fig 1

This graph shows that the firm can charge higher price in the long run if it develops its brand loyalty Due to excessive advertising the demand will become inelastic and firms will continue to advertise until the demand will become elastic because profits are only maximized when demand is elastic. Hence firms can charge higher prices in the long run. 

Advertising Since there are large number of similar firms in the industry Advertising is very crucial for the H&M to sell its products and gain consumes demand and gain its brand loyalty. H&M does its advertising and branding through Magazines Leaflets Television commercials Public advertisements According to a survey conducted by the PHD students of Gavel university among the consumers of H&M Advertising, store front and logotype has a great impact on the sales Typography, packing, and printed material has comparatively less impact on the sales Color, slogan, uniform, and Equipment facility has very low impact on the sales

Advertising effects on sales in India: - Increase in sales of H&M in India In just 3 years of entering in India, H&M had crossed Rs. 1,100 crore sales in India during the year ending 2018, which is double than the previous year increase in sales, as previous year sales grew by 20% (ref fig 2). The main reason for increase in sales is due to the main focus of the firm is on Advertising, “the firm has focused more on online advertising”. India makes the highest sales of 42% as compared to 11% in Sweden, 8% in the UK, 15% in Poland and 16% in China, in the quarter 1 of the financial year of 2019. The firm invest 3% of its sales revenue in advertisement * globally. Fig: - 2

Rise in the sales of H&M in india 1150 1100

1100

crores

1050 1000 950

955

900 850

2017

2018 year

Rise of the sales in of H&M in India

*globally: - since the data for India was not available

Conclusion Demand in monopolistic firms is elastic and hence they don’t have much price control, therefore advertising plays a crucial role in increasing the price of goods Advertising makes demand inelastic and also increase cost of the product, and firms tend to advertise till the time there revenue is more than the cost for advertising. Firms advertise till the demand for the commodity gets elastic because profit is maximized when the demand gets elastic Now since in the above case study the firm has focused mainly on advertising to increase the sales which has made demand more inelastic which lead the firm to increase its sales for more than 1100 crore in 2018.

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http://www.diva-portal.org/smash/get/diva2:636698/FULLTEXT01.pdf https://brandequity.economictimes.indiatimes.com/news/business-of-brands/swedish-brandhm-takes-fashion-to-a-new-high-sales-in-india-crossed-rs-1100-crore-in-2018/69414792 https://hmmarketstructure.weebly.com/industry-and-marketplace.html https://ivypanda.com/essays/advertising-in-monopolistic-competition-and-oligopoly/...