Price and non-price competition
| Price and non-price competition |
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Price competition
It is competition aiming to increase market share and profits, between entrepreneurs. It involves offering to buyers lower product prices than that offered by competitors. Price competition is a topic of great interest to economists who perceive it as a coordinating power, leading to the compatibility between the volume of production and the quantity of goods that consumers are able to buy.
Non-price competition
It is rivalry between entrepreneurs based on the use of non-price characteristics of products or services that influence the transaction decisions of the customers. These characteristics should include, first of all the quality of goods and services and access information about products (e.g. advertising), which allows increase of the degree of market transparency and develop preferences of buyers. In addition, elements such as the conditions of sale of goods manufactured or services provided (e.g. credit), guarantee conditions, maintenance services, attractiveness of shopping, time of service, loyalty and functionality.
Comparison of price and non-price competition
Both price and non-price competition that exist in a capitalist system are the result of rivalry between companies having limited resources.
Price competition occurs as a result of balancing between supply and demand for specified goods. Results of non-price parameters competition are changed qualitative characteristics of individual goods and services.
Marketing and types of competition
Marketing allows companies to participate in various kinds of price and non-price competition. From the point of view of participation in the processes of competition, marketing is a universal mechanism of action on the market. All kinds of competition are based on the instruments and activities, which are at the same time the content of the instrumental structure of marketing.
Examples of Price and non-price competition
Price competition:
- Price-matching: Price-matching is a form of price competition where businesses offer to match the lowest price advertised by their competitors. For example, Walmart offers price-matching on many products they sell. Walmart will match any competitors' advertised price on identical products.
- Price wars: Price wars are a form of price competition where two or more companies attempt to outdo each other in terms of pricing. This can involve lowering prices, offering discounts, or other incentives. For example, when Pepsi and Coca-Cola were competing in the soft drink market, they often lowered prices in order to gain market share.
Non-Price Competition:
- Quality: Quality is a form of non-price competition where businesses strive to offer superior products or services. For example, Apple is known for their high-quality products, such as iPhones and Mac computers. By offering products of superior quality, Apple is able to differentiate itself from its competitors and charge premium prices.
- Customer service: Customer service is another form of non-price competition. Businesses strive to provide excellent customer service in order to differentiate themselves from their competitors and attract more customers. For example, Amazon offers same-day delivery and 24/7 customer support to its customers, which has helped them become one of the largest online retailers in the world.
Advantages of Price and non-price competition
Price and non-price competition are two of the most popular forms of competition in the market today. The advantages of price and non-price competition include:
- Price competition encourages businesses to reduce their prices in order to compete, which can lead to lower prices for consumers. In addition, businesses must innovate and create value in order to differentiate themselves and remain competitive.
- Non-price competition allows businesses to differentiate their products from their competitors by focusing on product quality, customer service, and other aspects. This can lead to better products and services for consumers.
- Price and non-price competition can lead to more innovation as businesses seek to outdo each other and create new products and services. This can benefit consumers as it can lead to new and improved products and services.
- Price and non-price competition can encourage businesses to invest more in research and development, which can help them stay ahead of the competition and create better products and services.
- Price and non-price competition can encourage increased efficiency and productivity as businesses strive to reduce costs and improve their processes. This can lead to more affordable products and services for consumers.
Limitations of Price and non-price competition
Price competition is a type of competition that focuses on the pricing of products or services with the aim of gaining or maintaining a competitive advantage in the market. Price competition has both benefits and drawbacks, which can be seen in the following list of limitations of price and non-price competition:
- Price competition can lead to a price war, in which firms are forced to continually lower their prices to stay ahead of their competitors. This can put downward pressure on prices and reduce profits, leading to unsustainable business practices in the long run.
- Price competition can also lead to a situation in which firms are unable to differentiate themselves from their competitors, resulting in a market that is saturated with the same product or service. This can lead to problems in terms of brand loyalty and customer retention.
- Price competition can also lead to a situation in which firms are unable to differentiate themselves from their competitors on non-price factors, such as quality and customer service. This can lead to customers only focusing on price, meaning that firms are unable to create long-term, loyal customer relationships.
- Price competition can also lead to a situation in which firms are unable to innovate, as they are too focused on competing on price. This can lead to a lack of new products or services in the market, as firms are unable to invest in research and development.
Price competition is an important element of business competition, but there are other approaches related to price and non-price competition that can be used to gain an edge on competitors. These include:
- Product Differentiation: Differentiating a product from competitors' through superior quality, unique features, or attractive packaging can create a competitive advantage.
- Focus on Distribution: A business can focus on optimizing distribution channels that help it to reach customers more effectively, such as through online or mobile sales.
- Branding: Developing a strong brand name can help a business to stand out from competitors and create loyalty among customers.
- Customer Service: Providing excellent customer service can help to build trust among customers and create a better shopping experience.
- Innovative Strategies: Finding new and innovative ways to promote products, such as through social media marketing, can help to create a competitive advantage.
In conclusion, price competition is an important element of business competition, but there are other approaches related to price and non-price competition that can be used to gain an edge on competitors. These include product differentiation, focus on distribution, branding, customer service, and innovative strategies.
References
- Gabszewicz, J. J., & Thisse, J. F. (1979). Price competition, quality and income disparities. Journal of economic theory, 20(3), 340-359.
- Moorthy, K. S. (1988). Product and price competition in a duopoly. Marketing Science, 7(2), 141-168.
- Shaked, A., & Sutton, J. (1982). Relaxing price competition through product differentiation. The review of economic studies, 3-13.
