Price and Non-price
Competition
Price Competition
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Imperfect competitors use marketing
strategies to increase their sales, their
market share and consequently, their
profitability.
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Price competition= Encouraging increased
sales by discounting price
Price competition involves:
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Discounts
Buy one, get one free
Interest free terms
Sale prices
Loss leaders ( below cost prices on one
item to get you into a shop where you will
hopefully buy more – supermarkets use it)
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Firms that are selling substitute goods can
compete by cutting their prices as well.
This will increase their market share (more
people will buy their product over the
substitute).
E.g. Coke vs pepsi.
Coke could use price competition to try to increase it’s market share in cola drinks
Market for Coke
Market for Pepsi
Price
($)
Price
($)
P
P1
D
Q Q1
D1
Quantity
D
Quantity
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This type of price competition may lead to a
price war (prices constantly falling)
While consumers love this, producers loose
profit
Price wars tend to continue until one or
more businesses fail
Once this happens, prices will increase as
the remaining business(s) try to recover lost
profits even though they may now have a
bigger market share.
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.
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Location:
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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)
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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
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 NonPrice 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