Price and Nonprice Competition Price Competition The main

Price and Non-price Competition

Price Competition The main aim of businesses is to maximize 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 Differentiation Location Sponsorship Packaging Advertising Service Branding Product Variation Modification 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 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