Difference between Price and Nonprice Competition

Introduction

In economics, market is defined as any place where in fact the retailers of certain particular goods and services meet with the potential buyers of the same goods and services and a exchange may take place amongst both.

Any market has two main aspects, that happen to be demand and offer. Demand and supply are the most crucial concepts of a market economy.

Demand is defined as the quantity of goods or services that consumers will quickly buy at different prices within a given time period, during which factors other than the purchase price are kept constant.

Whereas source is thought as the quantity of goods or services that companies will be ready to sell at different prices within a given time period, during which factors other than price are presented constant.

In this answer we will be looking at both the demand as well as the resource side of the market. Hence we will consider both the producer and the consumers' perspective. Through the consumers point of view we are looking at the idea of elasticity while from the producers' viewpoint we will consider the market framework as well as the purchase price and non-price competition that prevails in it.

Market Structure

Interconnected characteristics of a market, like the number and relative strength of customers and retailers and amount of collusion among them, level and forms of competition, degree of product differentiation and simple entry into and exit from the market. Four basic types of market composition are (1) Perfect Competition-Many customers and sellers, none being able to impact prices (2) Monopoly-Single owner with substantial control over supply and prices (3) Oligopoly-Several large retailers who have some control over the prices and(4) Monopolistic-Large variety of retailers sell differentiated products which can be close substitutes for just one another.

Perfect Competition- A perfectly competitive market is one in which there is a big number of customers and sellers of any homogenous product and neither a retailer nor a buyer has any control on the price of the merchandise. A properly competitive market is assumed to really have the following quality -

Large volume of customers and sellers- The number of retailers is assumed to be so large that the share of each seller in the full total supply of a product is very small. Thus the organizations are price-takers not price-makers.

Monopoly- It is market situation in which there is a single seller of a commodity of 'lasting variation' without close substitutes. A monopoly organization enjoys a complete capacity to produce and sell a commodity. Monopoly organizations too have to face indirect competition; there are in least two main sources of indirect competition.

One way to obtain indirect competition is rivalry between monopoly goods and other goods produced by other monopolies and competitive companies for claiming a considerable show in consumers' budget.

And the next way to obtain indirect competition is from the availableness and price of second-rate substitutes.

Oligopoly- It really is market dominated by a relatively few large firms. The merchandise they sell may be either standardized or differentiated. Area of the control that firms in oligopoly marketplaces exercise over price and outcome stems from their capability to identify their products. But market vitality also comes from their sheer size and market dominance.

Whether the vendors within an oligopolistic market compete keenly against one another by differentiating their product, dominating market share, or both, the actual fact that there are relatively few vendors creates a situation where each is carefully enjoying the other as it places its price. In economics we refer to this pricing patterns as mutual interdependence. This means that each seller is setting its price while explicitly considering the reaction by its competitors to the purchase price so it establishes.

Monopolistic- It is a market in which there are many firms and relatively easy entry. These two characteristics are extremely comparable to those of perfect completion. What enables firms to set their prices (that is to be monopolistic) is product differentiation. By somehow convincing their customers that what they are available is not the same as the offerings of other businesses on the market, a monopolistic competition is able to set its price at a rate that is greater than the price set up by the causes of supply and demand under conditions of perfect competition.

Elasticity

Elasticity is thought as a percentage relationship between two factors, that is, the ratio change in a single variable in accordance with a percentage change in another.

Co-efficient of elasticity = Percentage change in A

Percentage change in B

Price Elasticity

The way of measuring of sensitivity of the change in quantity demanded is to an alteration in cost in percentage terms is called the price elasticity of demand. Demand price elasticity is thought as a share change in number demanded caused by 1percent change in cost.

According to economists there are three categories of price elasticity(Ep)

1. Comparative Elasticity of Demand

Ep > 1

This occurs when a 1percent change in price causes a change in quantity demanded higher than 1percent.

2. Comparative Inelasticity of Demand

0 < Ep < 1

Here the percentage change in price is higher than the matching change in number.

3. Unitary Elasticity of Demand

Ep = 1

A 1percent change in price leads to a 1percent change in number in the contrary direction.

There are two restricting instances at the extremes of the elasticity level -

1. Perfect Elasticity

Ep = Л†

In this circumstance there is merely one possible price with that price an endless quantity can be sold.

2. Perfect Inelasticity

Ep = 0

Under this problem the quantity demanded remains the same regardless of price.

Cross Elasticity

Cross elasticity or cross-price elasticity handles the impact in ratio on the quantity demanded of a specific product created by a cost change in a related product while everything else remains constant. In economics, there are two types of marriage - substitute good and complementary good.

Substitutes will be the same products but are sold by different suppliers and one provider can be viewed as a substitute for the other.

Complements are the products that are used or used along along with one product.

The mix elasticity(EA, B) is a measure of the percentage change in number demanded of product A caused by a 1 percent change in the price of product B. The general equation can be written as -

Income Elasticity

Quantity of deal is a function of or does indeed get influenced by the consumers' income. Matching to economists, income elasticity(EY) is a measure of the percentage change in volume consumed caused by a 1percent change in income. The general equation can be written as -

EY = % change in volume consumed

% change in income

Some products will be demanded by consumers whose incomes are low, but as earnings climb and consumers' feel " better off " they will shift use to goods more commensurate with their new economic status. Commodities of the type are usually known as poor goods.

So, in the idea of income elasticity there are three categories -

Income elasticity > 1 :- Superior goods

Income elasticity > 0 and 1 :- Normal goods

Income elasticity < 0 :- Second-rate goods

Price Competition

Price competition involves competing firms looking to beat the other person in terms of the costs they sell their product at. Companies competing in prices react quickly and aggressively with their competitors' prices. These companies try to capture a larger show of the market by selling the products at the cheapest price.

Match and beat the price of the competition. To contend effectively, need to be the lowest cost company.

Must be happy and in a position to change the purchase price frequently.

Need to answer quickly and aggressively.

Competitors can also act in response quickly to your initiatives.

Customers take up brand switching to make use of the lowest priced brand.

Sellers move across the demand curve by raising and bringing down prices.

Non Price Competition

- Emphasize product features, service, quality etc. Can build customer commitment on the brand.

- Should be able to differentiate brand through unique product features.

- Customer must have the ability to perceive the distinctions in brands and view them as advisable.

- Ought to be difficult / impossible for competition to emulate the distinctions (Patents).

- Must promote the distinguishing features to create customer recognition.

- Price variations must be offset by the perceived benefits.

- Sellers transfer the demand curve out to the right by stressing distinctive characteristics.

Points of Difference between Price and Non-price Competition

The major difference between price and non price competition is that price competition implies that the firm allows its demand curve as given and manipulates its price in order to try and attain its goals, while in non price competition it looks for to change the location and condition of its demand curve.

The non price competition is a online marketing strategy in which one firm will try to tell apart its product or service from fighting products on the basis of capabilities like design and workmanship. The company can also separate its product offering through quality of service, considerable distribution, customer emphasis, or any other than price.

In case of price competition the firm tries to tell apart its service or product from rivalling product based on low price.

Non Price competition involves promotional expenditures, marketing research, new product development and brand management cost. The promotional expenditures includes advertising, adding personnel, the positioning convenience, sales advertising, coupons, special orders or free gift idea. Firm's prefer non-price competition, despite additional costs engaged it is usually more profitable than reselling at lower price and avoids the risks of price war.

Although any organization may use non price competition, it is most common among Oligopolies and Monopolistically competitive companies, because firms can be hugely competitive. To be able to identify themselves they use non-price means.

Major Factors influencing Pricing Decisions -

Organisational and Marketing Objectives

Types of costing Objective

Buyers perceptions

Supply and Demand is an economic style of price determination in the market. Within the competitive market the machine price of the particular good will change until it settles at the point where the quantity demanded by the consumer( at the existing price) will equal the number given by the producer(at the current price), leading to an economic equilibrium price and amount.

Store Visited - Big Bazaar, Vasant Square Mall

Details of Screen - The shampoo segment was mainly divided among 3 racks

The display was the following -

1st Rack - Mind and Shoulders, Medical clinic All Clear, Garnier Fructis, Clinic Plus, Vivel

2nd Rack - Pantene, Loreal, Dove, Sunsilk, Fiama Di Wills

3rd Rack - Nyle, Chik, Halo, Himalaya, Vatika

Even a go through the display is sufficient to state that the bigger priced shampoos covered a larger as well as more unique position to be obvious to the consumers. It had been also pointed out that generally shampoo brands of similar companies were stored togethar.

The main market leaders in the shampoo section of the market were ITC, Hindustan Unilever, Loreal and Procter and Gamble.

All these businesses had more than one brand in the market such as Hindustan Unilever - Dove, Sunsilk etc. Procter and Gamble - Pantene, Mind & Shoulder etc. Loreal - Loreal, Garnier etc.

Not just various brands of different companies but each brand too got various categories of shampoos such as beauty shampoo, anti-dandruff shampoo, shampoo for oily locks, shampoo for dried out scalp, shampoo for stand out, shampoo for colored mane, shampoos for kids etc.

There were three main segments for the dissimilarities in the category of shampoos but all the three segments were mainly differentiated on the basis of prices more than quality since it was not a lot of an issue for the consumers to pay more for better quality.

After learning the shampoo segment in the market we surely got to understand that the shampoo market offers a monopolistic market framework. Monopolistic is one market where there are many sellers and hence entry of a company is relatively easier. Since it's a monopolistic market hence these are engaging in both price and non-price tournaments trying to differentiate the product. For instance regarding price competition - Chik arrived to market at the price tag on Re. 1 and even came up with shampoo sachets for 50p. And advertising are also examples of non-price contests. And as far as non-price competition can be involved Loreal and Sunsilk are classic instances. But to be frank brands like Sunsilk, Pantene, Loreal compete both in cost and non-price tournaments. But so far as low range shampoos are worried, such as Chik, Halo, Ayur etc. compete only in prices.

Hair care and attention is one particular division where consumers are incredibly careful while moving over brands. Generally they do not as it impacts the hair. And therefore retaining a good quality of product regarding this section is a basic element to draw in clients.

PANTENE and DOVE has stood on that part as there is a very less deviation of customers from these brands. It offers that attraction power that its place in the display shelf has remained unaffected.

However in a monopolistic organization the marginal earnings should be equal to marginal cost in order to increase its earnings.

Oligopoly- It is a market dominated by a relatively few large firms.

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