Transcript Price and Non-price Competition

Price and Non-price Competition
Price Competition
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The main aim of businesses is to maximise
profit.
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Firms may try to increase sales by cutting
price – price competition
Price competition involves:
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Discounts
Price competition
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Buy one, get one free
Price Competition
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Sale prices
Price Competition
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Interest free terms
Price Competition
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Loss leaders (below cost prices on one item to get you
into a shop where you will hopefully buy more –
supermarkets use it)
Businesses often prefer to
compete through non-price
competition
Non-price Competition
Product Differentiation
Location
Sponsorship
Packaging
Advertising
Service
Branding
Product Variation
Modification
of the product
Vertical product
variation
Product Differentiation
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Making the good or service APPEAR different or superior
to the competition.
Location
 Choosing a better location than it’s competitors (convenience,
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classy, close to other shops, good parking).
Businesses of similar goods locate close together as it becomes
acceptable for consumers to buy a certain product in that
particular area (e.g. second hand car dealers, restaurants,
takeaways, etc)
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Packaging:
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Firms compete by making their packaging more attractive
(stand out).
Includes logo’s and trademarks that helps to identify a
product (e.g. horse-National Bank)
Advertising:
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Media e.g. TV, radio, print media (magazines, newspapers,
posters etc)
Usually used for non-price competition by attracting attention
to the business by other means
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Sense of fair play
Discredit the opposition (Whitakers)
Sex appeal
Fun
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Branding:
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Producers can create a brand name to differentiate from another
product e.g. Coke for cola, BP for fuel.
Brand loyalty can be encouraged through competitions and
promotions (fuel stations)
Service:
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Extra or better services could be offered.
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Petrol station- check oil & water, wash windscreen
Fast food outlets-claim the fastest service available
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Sponsorship:
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Some firms sponsor events (sporting, cultural) to be identified
with something worthwhile, at the same time as getting media
exposure for their brand name.
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Rebel Sport Super 14
Heineken Open (tennis)
Product Variation
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Real variations are made to the product so it actually is
different.
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Product modification:
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Producers attempt to bring in new variations, i.e.
new features (cars- cruise control)
Vertical product variation
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This is aimed at creating a range of their products
in order to appeal to a wider range of consumers.
E.g. subaru (car manufacturer):
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Impreza (sedan and wagon)
WRX (sedan and wagon)
Legacy (sedan and wagon)
Outback (wagon)
Forrester (wagon)
Advantages and disadvantages of NonPrice competition
More variety/choice
Improved quality
Advantages
Better service
Opportunity to win
competitions
Consumers
Advertising improves your
knowledge
Disadvantages
Higher prices to cover
increased
costs of production
Advantages and disadvantages of
Non-Price competition
Producers
Advantages
Increased demand
Leads to more sold
At higher prices-profit
Disadvantages
Avoids price wars
Increased cost of
Production may
Decrease the profit