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The rapid development of technology has changed how the world works. User behaviour and media consumption has taken an entirely different route, thanks to the internet. This change has forced marketers to follow and adapt to the changing marketing channels. Even advertising isn’t limited to traditional channels anymore. It’s now the era of digital advertising.

Just like traditional advertising, digital advertising comes in numerous shapes, sizes, and forms. The basic principle behind digital ads is the same as that of conventional ads. Still, these ads have their own set of importance, types, advantages, disadvantages, and even operations that differ from traditional ads.

But what exactly is digital advertising?

What Is Digital Advertising?

Digital advertising is the action of calling public attention to an offering through online and digital paid channels by an identified sponsor.

Precisely, digital advertising is any form of advertising that appears online or on digital channels like websites, search engines, social media platforms, mobile apps, digital OOH, and other channels that can be accessed digitally.

Digital advertising is a branch of digital marketing and deals only with the promotional mix, and not with other Ps of the digital marketing mix.

Characteristics Of Digital Advertising

Digital advertisements come with their own unique set of characteristics. These are:

• Paid form: Digital advertising, just like other forms of advertising requires the advertiser (also called the sponsor) to pay to create the advertising message and creative, buy advertising space or slot, and monitor advertising efforts.  
• Measurable: Digital ads are highly measurable in terms of how many people view them and how many people interact with them. Often, advertisers are even able to calculate accurate ROI of these ads.
• Goal-oriented: These ads are always backed by goals – to promote, sell, increase exposure, etc.
• Data backed: Digital ads are backed by data of what they are about, whom they are targeted at, and how the target audience interacts with them. Data forms the backbone of digital ads.
• Personal or non-personal: Ads on digital media can be highly personalised based on user activity over the internet or non-personal with a motive to enhance brand awareness.

Evolution Of Digital Advertising

The internet has changed the landscape of advertising. At the beginning of 90s, the investment in the digital advertisement was zero. But over the years, in 2025, digital advertising is expected to cross over $500 billion worldwide.

It all started in 1994 when hotwired.com, a Wired website, released the first banner ads on its website.

The same year saw the development of HTTP cookie that helped the advertiser and publisher track user behaviour.

Soon after, in 1996, Flash was introduced, which formed the framework for web advertising.

In 1997, pop-up ads were discovered and found wide usage all over the internet.

In 1998, Google launched and brought a concept of minimal search engines. The company started monetising in 2000 and paved the way for pay per click advertising and search engine marketing.

Mobile advertising also started in the year 2000.

In the early 2000s, Facebook launched and brought in its hyper-targeted ads model that used user interests and demographics for advertising. This started the trend of targeted ads.

The late 2000s and early 2010s saw the launch of YouTube, Smartphones, iPad, Instagram, Snapchat, Internet of Things, and Real-Time Bidding that later changed the advertising scenario to:

• Bidding
• In-app and mobile
• Microtargeting

The digital advertising agency is still growing, and everyday finds its application in a new channel.

Types Of Digital Advertising

The digital media landscape is vast. It caters to every activity of the user on a digital device and the web. Digital advertising makes sure to tap the user’s attention on every touchpoint it can. Thus, it can be divided into different types depending upon the type of ad, channel, and the ad’s intent.

Search Ads

Also called search engine marketing, this type of advertising uses search engine results to promote the offering. Advertisers target keywords that people search for on a search engine and push their webpages at the top of the results by paying such search engines like Google, Bing, etc.

Such ad campaigns are intent oriented and are also called pay per click or PPC campaigns as they’re paid for by the advertiser only when a user clicks on the result.

These ads are further divided into search ads, shopping ads, maps ads, etc. depending upon the search engine they’re listed on and the intent behind the target user’s search.

Display Ads

Display advertising is the most common form of digital advertising. It comprises images, text, and animation, and shows up as banners on websites and blogs.

These ads can be personalised according to the user activity on the internet or non-personalised and are usually released to increase brand exposure, offer exposure, and fulfil other such motives.

Usually, display ads are further categorised as:

• Traditional Display Ads: These ads have fixed sizes and occupy a fixed space irrespective of the device the website is loaded on.
• Responsive Display Ads: These ads adapt to the size of the screen a website is viewed on.

Native Ads

Native ads are camouflaged ads that blend with the content they are added to. Sponsored listings within or after blog posts form an example of native ads. These ads result in better user interaction when compared to other forms of digital ads because of their property of matching the structure and function of the platform it appears on.

Video Ads

Video ads are digital ads used to promote an offering using videos or motion graphics that play before, during or after streaming content, or as a standalone banner or native ads.

Used mostly on video streaming platforms like YouTube, Facebook Watch, etc. video ads are also used on websites and blogs as out-stream ads to gain website users’ attention.

Audio Ads

Audio ads are used majorly on audio streaming platforms like Spotify, LiveXLive, Pandora, etc. The advertiser gets into a contract of the streaming platform or the content creator to add the brand’s ads within, before, or after the content.

Mobile Ads

Mobile ads are digital ads that are delivered on mobile devices. These ads use two different platforms:

• Mobile Web: These are the websites, blogs, and webpages arranged to fit the mobile screen sizes.
• In-App: Mobile applications are specialised applications developed to target specialised moments. These apps are easy to download, navigate, and involve a higher retention rate than other channels.

Remarketing Ads

Remarketing ads are digital ads targeted to a brand’s online visitors with a motive to bring them back on the website or application, or perform an action. For example, a brand targeting its ecommerce store’s visitor through ads to make him complete his/her incomplete transaction. Another example could be of an event brand that targets its website visitors with informative ads of new events that they could attend.

Social Media Ads

Social media ads appear on social media platforms like Facebook, Instagram, Snapchat, Reddit, LinkedIn, etc. These ads can be display ads, native ads, video ads, audio ads, remarketing ads or mobile ads.

Social ads are hyper-targeted ads that target the users depending upon their demographics, locations, interests, and even psychographic and behavioural interests.

Influencer And Curator Ads

Influencer ads and curator ads are comparatively new ad forms where a brand directly contacts the content developers and/or content curators with good followership to place the brand or offering in their content. This helps the brand to gain exposure and trust of the influencer’s followers.

How Does Digital Advertising Work?

Even though digital advertising is different from traditional advertising, it works in a way similar to the latter. There are parties involved, a contract backs the transaction, and the creative and the ad copy is developed to meet the advertising goals.

Parties

A typical digital advertisement involves three different parties:

• Advertiser: It’s the brand that creates and funds the advertisement. For example, Nike with its campaign ‘Just Do It’.
• Advertising Network: It’s the middleman that connects the advertiser with the publishers and the advertisement space providers. For example, Google runs AdWords for advertisers and AdSense for publishers.
• Publisher: A publisher is anyone who owns a digital property and is willing to monetise that property by selling ad spaces. For example, Feedough.com.

Generally, an advertising network acts as a mediator that connects an advertiser with numerous publishers or digital property owners.

However, in cases of big players like with social media advertisements, the publisher, like Facebook, LinkedIn, etc., becomes the advertising network itself.

Structure

Every digital advertisement is backed by a goal or a motive. It could be to get more exposure, more leads, remarketing, or more action performed. And this goal forms the spine on which the advertisement’s structure stands on.

Besides the goal, the advertisement structure includes the following:

• Medium: Which medium will the ad use to reach out to the users?
• Creative: What will be the graphic and textual content of the ad creative?
• KPI: How will the advertiser measure the return on investment for the advertisement campaign?

Contract

A variety of contract models exist for digital advertising. These are:

• Pay Per Impression (PPI): The advertiser pays a fee every time an ad is displayed to the user, no matter if an action is performed over the ad or not.
• Pay Per Click (PPC): The advertiser pays a fee every time an ad is clicked on.
• Pay Per Action (PPA): The advertiser pays a fee every time the user performs an agreed action. The action could be anything from filling up a form, signing up, registering for something, or buying a product.

Generally, more than one advertiser applies for a single ad space which increases the competition. Space is then provided to the advertiser who bids the most. This process works real-time and is called real-time bidding.

Digital Advertising Vs Traditional Advertising

Traditional advertising is offline advertising. It involves using channels like magazine, newspaper, television, radio, direct mail and billboards to advertise an offering or an idea. These ads differ considerably from digital advertising.

	Digital Advertising	Traditional Advertising
Definition	Digital advertising is the act of calling public attention to an offering or an idea through online and digital paid channels by an identified sponsor.	Traditional Advertising is the act of calling public attention to an offering or an idea through offline paid channels by an identified sponsor.
Medium	Online and digital channels like website, search engines, social media platforms, etc.	Offline channels like radio, television, newspaper, etc.
Data-Driven	Digital ads development, deployment, and measurement are backed by data.	It isn’t possible to get accurate data to back all traditional advertisements.
Communication	Digital ads include both single sided communication and two-sided communication. The user gets to interact with the advertisement.	There’s no way for a user to interact with a traditional advertisement.

Pros And Cons Of Digital Advertising

Digital advertising comes with its own set of advantages and disadvantages that sets it apart from traditional advertising. 

Advantages

• User-Targeted: Digital advertising is highly user-targeted and can even be microtargeted to the target audience’s smallest section.
• Inexpensive: Considering the ROI of digital ads, it is considered an inexpensive form of promotion.
• Data-Backed: Digital ads are data-backed. This data can be used to develop campaigns that were not possible before.
• Interactive: Digital ads can be made interactive, increasing engagement and proving beneficial for both the advertiser and users.
• Real-Time: Changes in digital ads can be made real-time. Even the analytics and data can be collected in real-time. This proves to be a great advantage.
• Global Coverage: It’s easy to launch digital ads to a worldwide audience without even going to such places.
• Wide Range Of Formats: Digital ads come in numerous shapes and sizes, and the scope is still untapped. 

Disadvantages

• Limited Audience: Only 59 percent of the global population uses the internet. The rest don’t have access to it yet. So, if the brand’s target audience doesn’t have internet access, digital advertising could be of no use.
• Competition: Many advertisers bid for one ad space that increases the competition and prices of ads.
• Increasing Ad-Blockers: Ads are everywhere. This bugs digital users who look for ways to block such ads.
• Requires A Specialised Skillset: Running digital ads requires a specialised skill set to develop and optimise ads and bidding for the same. 

Digital Advertising Examples

Here are some examples of each type of digital advertising to understand the concept better.

Search Engine Marketing

Search engine ads usually appear as native ads on search engines like Google. Such ads appear at the top of the results and are prefixed with the term ‘Ad’.

Display Ads

Display ads occupy a particular space on publisher’s digital property in return for money.

Social Media Ads

Social media ads usually appear as native ads on social media channels like Facebook, Linkedin, etc. However, these ads do carry a tag of ‘ad’ or ‘sponsored’ on them.

Mobile Ads

Mobile ads are specific to mobile websites and apps. These ads are developed in sizes that cater mainly to the mobile audience.

Video Ads

Video ads are usually developed to promote to video consumers before, after, or in their video.

Remarketing Ads

Remarketing ads are tailor-made ads including offers and other CTAs designed especially for the users who visited a particular website or webpage.

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In today’s growing economy, it is impossible to identify markets that witness a perfect competition or even a pure monopoly. However, there does exist a market structure that lies in-between these aforementioned polar opposites.

In 1933, Mr. Edward H. Chamberlin published the Theory of Monopolistic Competition, through which he popularised the concept of a monopolistic competition form of market structure.

But what is monopolistic competition?

Let’s find out!

What is Monopolistic Competition?

Monopolistic competition is a market structure where the market has numerous players who offer products or services that are similar but not perfect substitutes.

To further simplify this concept, let’s break it into three parts-

• Market structure: A market structure is how a market is organised. It explains the competition in the market and how different players are connected to each other.
• Numerous firms: There exist several competing firms in an industry that witnesses monopolistic competition.
• Differentiated offerings: Product differentiation refers to the distinguishing of a product or service from those of other firms. This causes these products to be imperfect substitutes of each other.

Characteristics of monopolistic competition

A monopolistic competition form of the market structure shows certain characteristics. These are:

• A large number of Sellers – There exists a large number of sellers in a monopolistic competition.
• Differentiated goods – Goods produced by different industries are non exactly the same as each other. Their differences can range from minor to major. These differences cause consumers to prefer one brand over another. An example of this could be the toothpaste industry. The taste of one toothpaste brand differs from the taste of the toothpaste of another firm, making them imperfect substitutes.
• Freedom of Entry and Exit – There exist no barriers to entry in monopolistic competition. Firms in an industry are free to enter and exit at their own will. However, one should note that entering and exiting an industry that exercises monopolistic competition is not as easy as it is in a perfectly competitive market.
• Selling Cost – Selling costs are the costs incurred by firms on the marketing, adver­tising and sales promotion of their product. These costs are necessary in order to persuade consumers to choose one product over another. The cost incurred for this purpose constitutes a major part of the total cost in monopolistic competition.
• Non-Price Competition – Monopolistic competition witnesses a non-price competition wherein competing firms compete using sales promotion, positioning strategies, and other marketing strategies.
• Lack of Perfect Knowledge – Buyers in a monopolistic competition lack perfect knowledge. A customer believes a certain good is superior to the goods produced by another firm, just because of the differential positioning strategies used.

Monopolistic Competition in the short run

In the short run, the firm tries to maximise its profits. In order to maximise its profit, the firm strives to produce a quantity which ensures the firm’s marginal revenue (MR) is equal to its marginal cost (MC). Therefore, the quantity produced is at the point where the MR intersects MC.

At that output, the firm collects a price based on the average revenue (AR) curve.

At the collected price, the firm gains a profit which is equal to the difference between the firm’s average revenue (price) and average cost, multiplied by the quantity.

Monopolistic Competition in the long run

In the long run, the firm continues producing at the point where marginal cost (MC) intersects marginal revenue (MR).

However, in the long run, the demand curve shifts leftwards as other firms enter the market. This is because, now, the heightened competition leads to demand being distributed among all the existing firms as well as the new entrants. Thus, the demand experienced by the firm sees a relative decline. This causes the firm to lower its price until it is equal to the average cost.

Since the average revenue (AR or price) is equal to the Average Cost (AC), the firm does not gain any economic profit.

Examples of monopolistic competition

Below are some common examples of industries that witness monopolistic competition:

• Fast food companies – Fast food companies like McDonalds, Burger King, Wendy’s, In-and-out and many other fast food companies sell burgers which cannot be perfect substitutes of each other.
• Soap industry – Dove, Dial, Irish Spring, Caress, Olay and many other soap brands are produced by numerous firms.
• Cereal industry – Cheerios, Froot Loops, Frosted Flakes, Honey Bunches of Oats and many other cereal brands are produced by several other firms.

Advantages of monopolistic competition

Some of the advantages of this form of market structure are:

• Increased competition – New firms face no barriers to entry, and so increased competition can be witnessed in a monopolistic competition form of market structure. This leads to firms employing more efficient means of production, innovation, producing better quality products, et cetera in order to stay in the game.
• Diversity for consumers – With more firms in the market, consumers can choose from a variety of products and services. If the price of one product rises, they always have the option of opting for another product. If the quality of one product degrades, the consumer could always choose a product produced by another firm.
• Better quality products and services – Since there are several competing firms in a monopolistic competition form of market structure, every firm is compelled to strive for quality in order to maintain their existing consumers and attract new consumers. If the firm fails to do so, it will simply lose customers as there are other firms in the market who promise better quality.

Disadvantages of monopolistic competition

Some of the disadvantages of this market structure are as follows:

• Shift of focus– firms employ advertising and marketing teams and services in order to create brand awareness among consumers. Due to this, a shift of focus is seen. Firms now focus more on attracting attention rather than focusing on bettering their product. More importance is laid on how the firm presents its product rather than focusing on what is being delivered.
• Increased prices due to selling costs – Selling costs constitute a large part of the total cost of a product. Firms extract these added costs from their consumers, who then have to pay a higher price for the product due to these selling costs.
• Pricing strategies that hurt other players – big firms often employ pricing strategies that may hurt smaller firms in the industry. They do so by engaging in pricing strategies like predatory pricing, where the price charged for a product is below average cost. In such cases, smaller firms are compelled to exit the industry as their average costs are higher than the price charged for the concerned product in the market by the big firm.

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As economies continue to develop, various industries witness a rise in competing forces. Due to this, it is often difficult to come across industries that house just monopolies (single seller) or duopolies (two sellers). However, one may easily come across a multitude of industries that house only a small number of dominant players or firms. Such market structures are called oligopolies.

But what exactly is an oligopoly?

Let’s find out!

What is An Oligopoly?

An oligopoly is a market structure wherein a small number of dominating firms make up an industry. These firms hold major chunks of the overall market share for a commodity.

The Greek word ‘oligos’ means “small, or little” and the prefix polein finds its roots in Greek, meaning “to sell”. Hence, the word oligopoly translates to small number of sellers.

To understand this concept better, let us break it down further –

• Market structure: A market structure is how a market is organised. It explains the competition in the market and how different players are connected to each other.
• Small number: Oligopolies exist in industries that only house only a small number of key players. This number could be anything more than two. While there is no upper limit to the number of firms that exist in an oligopoly, the number is essentially low enough that the move that one firm makes significantly affects all the other firms in an industry.
• Dominant firms: Dominant firms, or key players, are the firms that hold a significant market share in an industry.

Characteristics Of An Oligopoly

An oligopoly displays characteristics that are different from other market structures. These characteristics are as follows:

• Interdependence: The firms in an oligopoly are interdependent. This is because every firm’s strategies affect the market condition for that product. For example, if Netflix were to reduce its subscription fees, Amazon Prime Video would likely suffer a loss of consumers, and hence, Amazon too would consider changing its pricing strategy.
• Group behaviour: Preference is given to group behaviour in an oligopoly. In that way, the interest of all firms is protected.
• Advertising: Advertising is of great significance when it comes to an oligopoly. This is because advertising is an important competitive mechanism that firms have to employ in order to “stay in the game”.
• Competition: In an oligopoly, dominant firms constantly try to outdo their rivals in order to grab a higher market share.
• Barriers to entry: Barriers to entry prevent other firms from entering the industry.  Oligopolies have high barriers to entry in order to gain or maintain a greater market share.
• Lack of uniformity: Firms in an oligopoly may not necessarily be of the same size. Therefore, we see an asymmetry in the sizes of firms.
• No price competition: Firms in an oligopoly practice rigid pricing. This is because lowering the price to win a greater market share would only lead to competing firms retaliating by charging even lower prices. This would lead to an unnecessary price war that would benefit none. Hence, no price competition is witnessed in an oligopoly.
• An indeterminate demand curve: One cannot predict what the demand curve of a firm would look like. This is because of the uncertain nature of an oligopolistic market structure, wherein the strategies of one firm affect the demand other firms experience.

Examples of Oligopolies

Below listed are a few examples of oligopolies:

• Music Streaming Applications (Global): Players like Spotify (30% of the total market share), Apple Music (25%), and Amazon Music (12%) dominate the industry.
• Video Streaming Services (USA): Players like Netflix (51% of the total market share), Hulu (31%), and Amazon Prime Videos (14%) dominate the video streaming industry.
• Airline industry (USA): Players like American Airlines, Inc., Delta Air Lines, Inc., Southwest Airlines, and United Airlines Holdings fly just under 70% of domestic passengers in the USA.

Types of Oligopolies

There exist four types of oligopolies in an economy. These are:

• Pure Oligopoly: If the firms in an oligopoly produce perfectly homogenous goods and services, it is referred to as pure oligopoly. While such oligopolies are seldom found – as firms in an oligopoly often engage in product differentiation – such oligopolies are prevalent in steel, copper and aluminium industries.
• Imperfect Oligopoly: If firms in an oligopoly produce differentiated products, it is known as an imperfect oligopoly. For example, the automobile industry, wherein firms engage in adding different features, innovations and designs to their car models which consequently make them stand out in the car market.
• Collusive Oligopoly: When the firms in an oligopoly cooperate with each other and then come to a common agreement with regards to the price and the output, it is known as a collusive oligopoly.
• Non-collusive Oligopoly: When the firms refuse to cooperate with other firms in the oligopoly and instead decide to compete with each other, it is referred to as a non-collusive oligopoly.

Duopoly: A special case:

A duopoly is a market structure wherein just two firms dominate an industry.

It is regarded to be a form of oligopoly.

Examples of duopolies:

• Soft drinks industry: dominated by The Coca-Cola Company and PepsiCo.
• Mobile operating systems: dominated by Android and Apple iOS.

Advantages of Oligopolies

In an economy, oligopolies have several advantages. Some of these are as follows:

• Price stability: As there is practically no price competition in an oligopoly, prices of commodities and services are stable.
• Lower prices: If a product is priced too high, consumers always have the option of approaching commodities produced by another firm in the industry. Hence, firms are compelled to balance creating profits with their aim of attracting new consumers. This leads to firms charging lower prices for their products.
• Innovation: Firms in an oligopoly invest in innovations as this attracts more consumers. Firms scramble to bring out new innovations to have an edge over their rivals. Consequently, these innovations allow them to capture a greater market share.

Disadvantages of Oligopolies

When viewed from the economy’s point of view, oligopolies have their disadvantages. Some of these disadvantages are listed below:

• Less Choices – As only a few firms dominate the industry, consumers have limited options. Potential entrants are kept out of the industry by the various barriers of industry, and hence, they are unable to offer their products in the market.
• Reduced competition – Cartel-like behaviour witnessed in collusive oligopolies significantly reduces competition.
• Barriers to entry could cause a potential loss to the overall economy – New entrants have the potential to bring out new innovations for the economy and gain considerable profits for the same. Due to barriers of entry, these potential entrants aren’t given the opportunity to do so. This causes a potential loss to economic welfare.
• Inefficient – It has been observed that oligopolies typically under-allocate resources. This makes oligopolies inefficient when it comes to allocation of resources and productivity as well.

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Customers are the biggest asset a business can have, and this asset is built through satisfaction and relationships.

A customer is satisfied only when the offering provided to him matches or surpasses the promises made. To guarantee this, businesses provide quality offerings along with after-sale services.

But what exactly is after-sales service? Why is it important? What are its types?

Here’s the answer to all.

What Is After Sales Service?

After-sales service, also called after-sales support, refers to the services and support a business offers to the customers as part of its customer satisfaction and customer retention policy after the offering is sold.

This after-sales service definition can be divided into three parts for better understanding:

• Services and support provided to the customers: After-sales services include all the services provided to the customer by the manufacturer, retailer, or a third-party customer service or training provider concerning the offering.
• As part of customer satisfaction and customer retention policy: After-sales services form a part of the marketing strategy targeted to increase customer satisfaction, brand loyalty, and word-of-mouth-marketing by fulfilling what’s promised to the customers. 
• After the offering is sold: Such services are provided after the customer has paid for the offering. 

Types Of After-Sale Services

After-sales services constitute all the services and support provided after the product sale. These include –

• Usage: Guidance on how to use the offering.
• Education: User training, courses, etc.
• Assurance: Guarantee, Warranty, Upgrade, Return, Replacement, etc.
• Assistance: Product configuration, installation, reinstallation, relocation, etc.
• Support: Online and offline support, 
• Reward: Loyalty rewards, offers, referral rewards, etc.

The business offers all these services to reaffirm to customers that their decision to rely on the brand is justified and that they should stick with the brand for the long term.

Importance Of After Sales Service

Complex products, expensive products, or products with long lifespan often require the seller’s involvement to aid the customers in setting up and/or using the offering. Sometimes, marketing efforts also require the seller to provide the customers with some guarantee of usage and product lifespan to aid the sales.

All these constitute after-sale services and are important towards the fulfilment of the short-term and long-term goals of the organisation, like:

• To get more customers on board.
• To prove that the product is worth buying.
• To reaffirm customers’ decision of relying on the brand.
• To retain customers and make them buy from the brand again.
• To build relationships with the customers.
• To enforce referral and word of mouth marketing strategies.

After Sales Service Examples

The rise of competition in every industry has resulted in the rise of various types of after-sales services that are both customer and niche specific. Here are some examples of the best after-sales services offered by top brands.

After Sales Support – Lenovo Vantage

Lenovo is a famous computer and laptop brand that offers after-sales support in the form of Lenovo Vantage – an application pre-installed in Lenovo devices to help users update their drivers, run device diagnostics, request support and discover apps.

The application makes it easy for the users to diagnose the problem with their system and even connect with the Lenovo help centre from the same application if they face any difficulties.

Guarantee and Warranty – CamelBak

Camelbak deals in adventure products like backpacks, bottles and accessories. The company boasts the quality of its products and to prove this, provides after-sales support in the form of The Got Your Bak™ Lifetime Guarantee scheme.

User Training – GetResponse Courses

GetResponse is an online platform providing solutions for email marketing, landing page, webinars hosting and more. As a part of its after-sales service, the company provides its customers with specialised courses that help them learn the importance and intricacies of the online marketing techniques and how they can use the company’s offering for the same.

Free Installation – Air Conditioner Retailers

Air conditioner brands and retailers often offer a free installation service to customers. This service is usually charged for when ordered otherwise.

Return & Replacement – Amazon

Amazon, to enhance customer satisfaction and boost online sales, offers a free return and replacement service where the customers can return and/or replace the products if they don’t meet their expectations. This after-sales service strategy has really helped Amazon in tapping new markets that were devoid of ecommerce.

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Economies around the world witness a combination of different market structures. While there’s a lot of competition in most industries, some industries witness just one seller. There exists no competition in such industries as there are virtually no other players. Such market structures are termed as monopolies.

But what exactly is a monopoly and how does it work?

Let’s find out.

What is a monopoly?

A monopoly is a market structure that consists of a single seller who has exclusive control over a commodity or service.

The word mono means single or one and the prefix polein finds its roots in Greek, meaning “to sell”. Hence, the word monopoly literally translates to single seller.

To understand the concept better, let’s break the definition into three key-phrases –

• Market structure: A market structure is how a market is organised. It explains the competition in the market and how different players are connected to each other.
• Single seller: A single seller is the key characteristic of a monopoly. This means that only a single seller is solely responsible for the production of output of a certain good.
• Exclusive control: Exclusive control, in this context, is the power an entity has over the production and selling of the concerned offering.

Characteristics of a monopoly

A monopoly displays characteristics that are different from other market structures. These characteristics are as follows:

• Single seller – A single seller has total control over the production, and selling of a specific offering. This also means that the seller has no competition and holds the entire market share of the offering that it deals in.
• No close substitutes – The monopolist produces a product or service that has no similar or close substitute.
• Barriers to entry – In a monopoly market structure, new firms cannot enter the industry due to barriers like government regulations, contracts, insurmountable costs of production, etc.
• Price maker – A monopolist has the power to charge any price for its product of service.

Types of monopoly

There exist several different types of monopolies in an economy. These different types of monopolies are listed below:

• Private Monopoly – A private monopoly is one that is owned by an individual or a group of individuals. These monopolies mainly aim for profits.
• Public Monopoly – A public monopoly is one that is owned by the government. These monopolies are set up for the welfare of the masses. An example of a public monopoly would be the U. S. Postal Service.
• Pure/ Absolute Monopoly – The monopolist controls the entire market supply for its product without facing any form of competition. This is possible because there is absolutely no close or remote substitute available in the market.
• Imperfect Monopoly – The monopolist controls the entire market supply for its product as there is no close substitute, but there is a remote substitute for the product available in the market.
• Simple Monopoly – A simple monopoly is one in which a single seller sells its product or service for a single price. There is no price discrimination in a simple monopoly.
• Discriminating Monopoly – A discriminating monopoly is one where a single seller does not sell his product or service for a single price. Price discrimination is witnessed wherein prices may vary from region to region, or people coming from different economic backgrounds may be charged a different price, etc.
• Legal Monopoly – A legal monopolist enjoys government approved rights like trade mark, patent, copy right, etc.
• Natural Monopoly – A natural monopolist enjoys or benefits from natural factors like locational advantages, locational reputation, natural talents and skill sets of the producers, etc.
• Technological Monopoly – When a firm holds a technologically superior position that other firms cannot compete with, the firm is said to be a technological monopoly.
• Joint Monopoly – When two or more firms join hands in order to form a monopoly, it is referred to as a joint or a shared monopoly.

Monopoly Examples

Some examples of monopolies which have great historical significance are listed below:

• Andrew Carnegie’s Steel Company (now U.S. Steel): From the late 19th century to the early 20th century, Carnegie’s Steel Company maintained a singular control over steel in the US market.

• American Tobacco Company: Incorporated in North Carolina on 31 Jan. 1890 by James B. Duke, American Tobacco Company maintained a singular control over tobacco in America till 1906 and controlled four-fifths of the entire domestic tobacco industry other than cigars.

Barriers to Entry: How a Monopoly Maintains its Power

Several factors and strategies allow a monopoly to maintain the power that it holds in an industry. These essentially pose as barriers to entry to potential entrants. Some of these are:

Economies Of Scale

When it is said that the production of a certain commodity has become efficient, it means that the firm does not have to spend large amounts on the cost of production. After existing in the market for a considerable period of time, output can be generated at a larger scale with fewer input cost. This is known as economies of scale.

Due to this phenomenon, the output generated by a monopolist is large, with lesser input cost. In case a new firm tries to enter, the cost of production would be higher than that of the monopolist and the output generated would be lower than the monopolist. It is, hence, evident that the new entrant would be at a disadvantage in terms of production costs. Hence, the monopolist gains a cost advantage.
This inevitable disadvantage deters potential entrants and so, economies of scale poses as a barrier to entry.

Strategic Pricing

Strategic Pricing allows a monopolist to charge any price for their offerings. The price may be set to be extremely low – predatory pricing – in order to prevent any firm from entering the market. This is often done by a monopolist to demonstrate power and pressurise potential and existing rivals.

Sometimes, a monopolist often sets the price of its product or service just above the average cost of production of the product/service. This move ensures no competition. This is because if a competitor too decides to charge the same price for the commodity, the competitor will face losses as the cost of production for the monopolist is far lower than the competitor’s cost of production.

Ownership Of Essential And Scarce Resources

Monopolies that first enter a market have access to resources that it may choose to keep for itself. Due to this, these scarce but essential resources are made unavailable to the potential entrants.

This is often the case with natural monopolies.

High Sunk costs

Sunk costs are those which cannot be retrieved in the case a firm shuts down. These are costs that are essential for the firm, like advertising costs, but cannot be recovered.

With the existence of a large monopoly, the risk of a potential entrant going out of businesses always looms. Hence, these potential entrants hesitate when it comes to taking a risk that could cost them too much. This consequently poses as a barrier to entry.

Contracts

Monopolies maintain their power by creating contracts with suppliers and retailers.

Consumer Brand Loyalty

Consumers often develop trust and loyalty with firms that offer them quality products and services. A sense of familiarity that generates consequently deters them from going elsewhere to satisfy their demand. This does not allow other entrants a chance. Hence, they find it difficult to capture market share for the product and service that they offer.

A great example of a company using this technique to develop a monopoly is Google.

Advantages Of Monopoly

Monopolies are advantageous to economies in some ways. Some of these reasons are listed below:

• No price wars – Price wars often discompose markets. In the absence of price wars, consumers enjoy a certain degree of certainty with regards to the prices they pay for a commodity. Hence, this becomes an advantage that monopolies bring to consumers in a market.
• Large economies of scale – A monopoly has the power to produce large quantities of output at low input costs. Thus, they can and provide them to the masses at lower costs. But this advantage would benefit consumers only if the monopoly is ethical.
• More research and development- A monopoly tends to feel confident about its market share. This encourages them to go ahead and invest more in research and development. Research and development leads to the generation of new goods and services as well as enhanced manufacturing efficiencies which eventually benefits consumers.

Disadvantages Of Monopoly

The disadvantages of a monopoly in an economy often outweigh its advantages. Below listed are the disadvantages of a monopoly:

• Affects the quality of products and services offered – Due to a lack of competition, monopolists often do not realise the need to upgrade. They tend to not engage in innovating, and so, many monopolies go out of trend for the same. A good example of this could be Blackberry, a cellphone brand that captivated the global market in the early 2000s but has now been compelled to discontinue making its own smartphones in 2016. Monopolies also offer inferior products and services in an attempt to save on the cost of production. Since there are no close substitutes, consumers have no option but to buy these inferior products.
• Higher prices – A monopoly is essentially a price maker. Monopolies have the power to determine the price of their commodity without having to analyse competitor prices since there are virtually o competitors. This allows them to indulge in charging excessive prices for their commodities.
• Price discrimination – This selling strategy is employed by monopolies wherein they charge different prices for the same product in different markets. They charge a price based on what they think the consumer would agree to. For example, a product that is being sold at a relatively affluent area would be priced more than the same product that is being sold at a poor.

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Traditionally, when the world wasn’t civilised, businessmen used to scout for customers themselves. Later, when towns and cities developed, these businessmen started doing businesses in physical shops. Customers who desired the offering used to visit such shops to conduct trade face-to-face.

This business model exists even today and constitutes a majority of offline businesses. It’s the brick and mortar business model.

What Is Brick And Mortar?

Brick and mortar is a business model that involves a physical presence of the business which offers face-to-face customer experiences.

In simple terms, brick and mortar:

• Is a business model: A business model is how a business operates and makes money. Brick and mortar is a model where the business operates offline in a building or other structure and makes money via face-to-face transactions.
• Involves a physical presence of the business: Brick-and-mortar businesses operate in an office or store that the business owns or rents.
• Offers face-to-face customer experiences: This model involves face-to-face interactions of the employees and customers where employees and other staff focus on answering customer questions and provide them with an experience.

Precisely, a brick and mortar is a traditional street-side business where the owner rents, leases, or buys a shop where the customers visit, interact with staff in person, touch and feel products, and buy the products in person.

How Does a Brick-and-Mortar Work?

Brick-and-mortar businesses are true opposites of ecommerce stores. These businesses operate offline in a rented or owned store, office, or factory.

Furthermore, the store hires employees as salesmen who give a personalised experience to the customers, often resulting in developing a relationship with them. The customers get to touch, feel, and even try the products before buying. Such businesses also focus on personalised marketing efforts wherein salesman and other staff suggest, upsell, and cross-sell based on customer’s preferences and their relationship with the business.

Brick And Mortar Examples

While ecommerce has started getting the spotlight, brick and mortar businesses still account for 94% of the total retail sales. This model powers numerous brands like:

• Walmart: It’s the world’s largest brick-and-mortar retailer that promises lesser prices. Walmart operates 11,400 stores under 55 banners in 26 countries.
• Target: Target operates retail shops that deal with everything from groceries to pets.

Other small examples of brick and mortar businesses are local grocery stores, banks, pet stores, gyms, etc.

Advantages And Disadvantages Of Brick And Mortar

B&M businesses have their own set of perks and cons. And with the advent of the internet and ecommerce, this list of advantages and disadvantages has just increased.

Advantages

• Physical connection: The biggest advantage of a bricks-and-mortar store is that the business gets to establish a physical connection with its customers, which, in turn, increases brand loyalty.
• Convenience: A physical store makes it convenient to feel and try the product and get it instantly.
• Expertise: Store employees provide expert guidance and suggestions to help customers get the most out of their resources.
• Experience: Physical stores often use a mix of human interaction, decoration, and activities to develop an experience worth remembering for the customers. For example, a restaurant with Jazz music and beautiful lightings and decoration could turn out to be an experience for customers.

Disadvantages

• High costs: Brick and mortar model requires the business to rent or purchase a physical place, get employees on board, and spend more variable and fixed costs to maintain the store and experience. This increases the cost substantially.
• Geographic limitations: Having a store at one place limits the customers a business can serve to that geographical area only.

Brick And Mortar Challenges

According to data by Statista:

• 67 percent of millennials prefer to shop online,
• 56 percent of gen-x prefer to shop online, and
• 41 percent of baby boomers prefer online shopping.

Such rising demand for online stores resulted in a great challenge for brick and mortar businesses and a never-ending debate of online retailers vs brick and mortar stores.

Online retailers have the upper hand over brick and mortar stores in the form of

• Low Costs: Online businesses saves a lot of costs as they don’t have to rent or buy space, hire frontline employees, and pay for store maintainance.
• Wider Market: Online retailers serve to a wider geographical area compared to the retailer stores. They often target multiple cities or the whole country if they have the resources to deliver to them. Usually, these retailers partner with delivery partners who help them deliver to a wide geographical area.
• Better prices: Since not operating offline saves a lot of money, and since catering to wider market increases economies of scale, online retailers get to price their goods at a price lower than B&M stores.
• More Offerings: Since there is no shelf space limit, online retailers tend to provide more offering varieties compared to offline retailers.
• Data-Backed Surveillance: Operating online gives more freedom to track leads and target them with personalised ads to convert them.

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