COMPETITION IN A FREE MARKET ENT 12

2 FREE-MARKET SOCIETY Canadians live in a free-market society. Free market – an economic system that permits profit, private property and competition

3 PROFIT Profit is the reward a businessperson receives for risking time, energy, capital and reputation Profits may be re-invested, used to pay off debt, used to pay taxes, etc.

4 PRIVATE PROPERTY A free-market society allows Canadians to hold private property—people can buy things and keep them, sell them, or give them away.

5 COMPETITION Having a free market means that competition is allowed and encouraged. There are 4 major market structures: 1.Perfect competition 2.Monopolistic competition 3.Oligopoly 4.Monopoly

6 PERFECT COMPETITION A market characterized by a large number of small companies, none of whom have an opportunity for market control. It requires government legislation to restrict growth in order to prevent market dominance by any of the competitors.

7 MONOPOLISTIC COMPETITION A market consisting of a large number of companies, each having an opportunity for a degree of market control. OLIGOPOLY A market with a small number of large companies, each with a substantial amount of market control.

8 MONOPOLY A market in which a single company has complete market control. The Canadian government regulates monopolies.

9 BENEFITS OF COMPETITION Encourages creation of new businesses Wide selection of goods and services offered to consumers Increase in level of service offered by service businesses Better products at better prices New technology that improves our standard of living

10 DIRECT COMPETITION Direct competition – when companies with products that are very similar are competing for the same market –ie. A movie theatre with stadium seating vs. the downtown movie theatre that makes great popcorn

11 INDIRECT COMPETITION Indirect competition – when companies with products that are not similar are in competition for a consumer’s discretionary income –ie. You have $20—do you spend it on pizza or a new DVD? OR

12 COMPETITIVE ADVANTAGES Businesses look for advantages over their competition—some are temporary (development of a flavour of soft drink that is “copied” by a competitor) or sustainable or long term.

13 SUSTAINABLE COMPETITIVE ADVANTAGES Methods by which a business holds on to its customers in spite of the competition by: Developing a unique selling proposition Lowering production costs Serving a niche market Creating customer loyalty

14 UNIQUE SELLING PROPOSITION Why would a target customer buy from me instead of from my competitor? “I advertise more.” “I make that product in green.” “I deliver.” “This is a patented design.”

15 LOWERING PRODUCTION COSTS Using cost-efficient, high-tech systems to reduce costs Building a plant in a country with lower taxes or labour expenses

16 SERVING A NICHE MARKET Providing a product or service for a small market and keeping competitors out of that market –i–ie. Software packages for specific needs

17 CREATING CUSTOMER LOYALTY The customer develops a strong relationship with the product or retailer and will not consider another unless the retailer makes a big mistake.

18 NON-SUSTAINABLE COMPETITIVE ADVANTAGES Those which can be used by competitors to shift sales in their direction. They include:  Promotion  Placement  Quality  Benefits of use  Price  Design features

19 PROMOTION Achieving top-of-the-mind awareness for a brand (ie. “Roll up the rim to win” by Tim Hortons) PLACEMENT To compete, a product must have a placement in the market—it must be there. –ie. Seaman’s beverages (PEI) in Vancouver –ie. Bottled water at a fitness centre

20 QUALITY Businesses try to make their products stronger, faster, lighter, easier to open, add features to improve the product, etc. BENEFITS OF USE The value is not in the product itself so much as in what that product will do for the person who buys it.

21 PRICE All features being equal, price is only a competitive advantage if its product or service is less expensive than the competitor’s. DESIGN FEATURES Consumers will buy one product rather than another because they like the style, the way it looks, or the way the product makes the consumer look. Package design also competes for customer’s attention.