Introduction

Basically, a market is an interaction between buyers and sellers. A generic market however, can be described as an interface between sellers and a broad group of customers with approximately the same universal needs.
For instance, consumers of analgesic drugs want their pains relieved fast; buyers of photographic lenses need quality images for their money.
How can a firm position itself in a homogeneous market so as to have discretion in setting its prices and gain competitive advantage above its peers?


Generic Markets

In generic markets, consumers hardly care about the manufacturers of the product they purchase; they simply ask for a generic and any product offered by the seller is acceptable to them since all products in the industry furnish them with the same basic satisfaction at the same price. A generic market to this extent can be described as a perfectly competitive market. Basic examples are the salt, sugar, chalk and pure water markets.
Firms in a generic market are price-takers but they can have their profits increased or become price-makers only if they possess competitive advantages over their peers.


Competitive advantage

A firm is said to possess a competitive advantage over its rivals if it sustains profits that exceed the industry average. Essentially, competitive advantage may be in the form of cost advantage or differentiation advantage. Cost advantage emphasises a firm’s ability to deliver the same benefits as its competitors but at a lower cost whereas, a firm possesses differentiation advantage if its product delivers benefits that exceed those of its competition.
A firm can achieve cost advantage over its competition through better buying conditions, greater labour productivity and several cost reduction strategies. Differentiation advantage on the other hand is subject to several complex factors.


Product Differentiation

“Differentiated products refer to a group of products that are similar enough to be considered variations of one generic product but dissimilar enough that they can be sold at different prices” (Lipsey)
In product differentiation, the firm has a limited discretion in the setting of its prices. Product differentiation is intended to distinguish the product of one producer from that of the other producers in the industry. It can be real, when the inherent characteristics are different; or fancied, when the products are basically the same. Differentiation should be real to a reasonable extent because customers must be able to see the product as unrivalled and unequalled, therefore, the price elasticity of demand for the product tends to be reduced and customers tend to be more brand-loyal. This can provide considerable insulation from close competition.

Real product differentiation in some industries (e.g. pharmaceuticals) could be difficult so the consumer has to be persuaded, via advertising, packaging or design, so as to make the product unique in the mind of the consumer. This is because alterations to a drug compound gives another drug entirely which must be approved by NAFDAC.
According to an estimate presented by Bleidt (1992), most pharmaceutical companies spend slightly more on marketing and promotions than on research and development. This can be linked to the product differentiation strategy applied by these firms in their bids to soften price competition.
For example, PANADOL and EMZOR paracetamol differentiate their products by packaging them in sachets. Another is CAPQUINE, which is an encapsulated (aimed to prevent the bitter taste of the drug) brand of chloroquine.
Psychologically, a drug consumer feels more secured buying a packaged drug compared to unpackaged generics. Moreover, since the brand name is trusted the consumer feels a psychological healing; this, generics hardly offer.

To buttress this view, Fridman et al (1987) reported that only half of 245 surveyed physicians believed generic drugs to be as reliable as branded drugs. Physicians and patients alike believe more in branded drugs than generic ones because definitely, the branded or owner drug actually pioneered the production of the drug and the drug company would have operated in a monopoly thereby creating a trusted name in the minds of the consumers. The brand creates anticipation in the consumer’s mind; a unique and defined experience, obtainable through consuming the product offered by the brand. Another case is the branding of salt by UNILEVER under the brand name: ANNAPURNA. Annapurna, a brand of salt contains the normal iodine quotient required for the human body compared to the generic, which is highly deficient in iodine.


Patents

For a firm to sustain its competitive advantage, it must have resources and capabilities that are superior to those of its competitors; without this superiority, competitors could simply replicate what the firm was doing and its advantage disappears. Examples of such resources are: patents and trademarks, proprietary know-how, installed customer base, reputation of the firm, brand equity etc
Of utmost importance to us at this juncture are patents.

Firms invest in research and development in order to find better ways of doing things and to gather relevant information for effective decision-making. A research exercise may be directed towards the development of a new product or a new way of doing something; when this becomes a success, the firm may be granted patent right, which gives it the sole right to manufacture the product. Patents last for specific numbers of years after which other manufacturers in the industry may follow suit. Brands manufactured under patent protections enjoy a sort of monopoly throughout their patent life; the abnormal profits earned diminish after the expiration of the patent thereby placing the brand in a monopolistic competition.


Genericised Trade names

Some brand names weld enormous influence or have their usages abused that their trade names become genericised over time. Genericised trade names are former brand names, once legally protected as trade names, which have since come to signify a generic product regardless of its manufacturer.

The genericisation of a trade name sometimes results because the trade name is the name of a product protected by intellectual property rights, especially patents. Since the patent gives an inventor the exclusive right to manufacture a product for a period of time, consumers will only know that product by the inventor's trademark and name for the period of the patent. When the patent expires, the inventor's competitors begin producing their own adaptations, but using the inventor's trade name to christen their products because this is the name by which the general public identifies such items. In some instances, when the new entrant gives his product a very unique name, consumers tend to call the new product the same name as the older product.

Some patents that lost their trademarks these ways are:
‘Cola’ - soft drink; genericised part of Coca-Cola;
‘Aspirin’ – acetylsalicylic acid; still trademarked in many places around the world by BAYER and
‘Heroin’ - narcotic drug; also originally registered by BAYER as a pain reliever.

Also, the following current trademarks are often used generically:
DHL - to courier something, e.g. I need to DHL this parcel
Omo – detergent registered by UNILEVER
Pampers - disposable nappies for babies
Sellotape - transparent adhesive tape
Vaseline - petroleum jelly
Xerox - photocopy machine. Sometimes used as a verb, e.g. "Xerox two copies for me"

Rank Xerox at a time advised its customers to ‘photocopy’ their documents and not ‘xerox’ it. The effect of genericisation of trademarks on a brand is that customers may purchase other adaptations of the brand thinking they are one and the same.


Transition from Generic to Brand

Note however that a firm in a perfectly competitive market can move into a monopolistic competition by product differentiation. And when it differentiates its products, the demand for its product becomes less price elastic. A manufacturer of generics can create an entirely new brand from that generic product, so that the brand becomes a differentiated product in the industry. EVA and RAGOLIS table water differentiated themselves from the generic pure water; PANADOL and EMZOR paracetamol differentiated themselves from the generic paracetamol; ST. LOUIS sugar also differentiated itself from the generic granulated sugar by presenting its refined sugar in cubes thereby allowing consumers ease of measurement.
Successful differentiated products are innumerable and their secrets are simply the sustainable competitive advantages they possess over their competition.


Summary

Before branding a homogeneous product, cost-benefit analysis of the strategy must be carried out and a positive contribution should be feasibly earned so as to increase the revenue base of the firm.
However, a firm can decide to stay in the generic market while creating another product through differentiation with the intention of having another product line on which it has reasonable price discretion. A simple application of marginal costing techniques should guide the firm in this decision-making process. Furthermore, the firm must be careful in its pricing policies because its product now faces a price elastic demand whereby increase in prices reduces the units purchased.

References

Aronson, Thomas et al, The impact of generic competition on brand name market shares (1997)
Cannon, Tom, Basic Marketing: Principles and Practice (London: Cassell Publishers Ltd, 1992)
Koutsoyiannis, A., Modern Microeconomics (London: Macmillan Press LTD, 1979)
Lipsey, R.G, Principles of Economics (Oxford: Oxford University Press, 1999)
Porter, M., Strategic Competition (1980)