Price and Non-price Competition. Price Competition  The main aim of businesses is to maximise profit.  Firms may try to increase sales by cutting price.

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Presentation transcript:

Price and Non-price Competition

Price Competition  The main aim of businesses is to maximise profit.  Firms may try to increase sales by cutting price – price competition

Price competition involves:  Discounts

Price competition  Buy one, get one free

Price Competition  Sale prices

Price Competition  Interest free terms

Price Competition  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 DifferentiationProduct Variation Location Packaging Advertising Branding Service SponsorshipModification of the product Vertical product variation

Product Differentiation  Making the good or service APPEAR different or superior to the competition.

Location  Choosing a better location than it’s competitors (convenience, 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)

 Packaging:  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:  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  Sense of fair play  Discredit the opposition (Whitakers)  Sex appeal  Fun

 Branding:  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:  Extra or better services could be offered.  Petrol station- check oil & water, wash windscreen  Fast food outlets-claim the fastest service available

 Sponsorship:  Some firms sponsor events (sporting, cultural) to be identified with something worthwhile, at the same time as getting media exposure for their brand name.  Rebel Sport Super 14  Heineken Open (tennis)

Product Variation  Real variations are made to the product so it actually is different.  Product modification:  Producers attempt to bring in new variations, i.e. new features (cars- cruise control)

Vertical product variation  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):  Impreza (sedan and wagon)  WRX (sedan and wagon)  Legacy (sedan and wagon)  Outback (wagon)  Forrester (wagon)

Advantages and disadvantages of Non- Price competition Consumers Advantages More variety/choice Improved quality Better service Opportunity to win competitions 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 Avoids price wars Disadvantages Increased cost of Production may Decrease the profit