Q. Clarify the difference between price and non-price competition and elasticity and the contexts which bring about it. Visit a local ultra market or departmental store. Focus on the section where shampoos are viewed for sale. Observe and analyze the space allocated, brands, different brands under the same company, costs, etc. Elaborate on the monetary concepts predicated on your observation and learning. (50)
In economics, market is thought as any place where the vendors of certain particular goods and services meet the buyers of the same goods and services and a deal may take place amongst the two.
Any market has two principal aspects, that are demand and offer. Demand and offer are the most crucial concepts of market economy.
Demand is thought as the quantity of goods or services that consumers will quickly buy at different prices within a given time period, where factors other than the price are placed constant.
Whereas supply is thought as the amount of goods or services that makers will be ready to sell at different prices within a given time period, during which factors apart from price are kept constant.
In this answer we are looking at both the demand as well as the supply side of the market. Hence we will consider both the manufacturer and the consumers' viewpoint. From your consumers perspective we are looking at the idea of elasticity while from the suppliers' viewpoint we will consider the market composition as well as the price and non-price competition that is available in it.
Interconnected characteristics of market, like the number and comparative strength of potential buyers and vendors and degree of collusion included in this, level and varieties of competition, level of product differentiation and ease of entry into and leave from the market. Four basic types of market structure are (1) Perfect Competition-Many purchasers and sellers, none having the ability to influence prices (2) Monopoly-Single seller with extensive control over supply and prices (3) Oligopoly-Several large retailers who've some control over the costs and(4) Monopolistic-Large volume of vendors sell differentiated products which are close substitutes for one another.
Perfect Competition- A properly competitive market is one where there is a large number of potential buyers and sellers of the homogenous product and neither a owner nor a buyer has any control on the price of the merchandise. A correctly competitive market is assumed to really have the following quality -
Large quantity of buyers and sellers- The number of vendors is assumed to be so large that the talk about of each retailer in the full total supply of a product is very small. Thus the companies are price-takers not price-makers.
Monopoly- It is market situation in which there's a single seller of an commodity of 'enduring variation' without close substitutes. A monopoly company enjoys a complete power to produce and sell a commodity. Monopoly organizations too have to handle indirect competition; there are at least two main resources of indirect competition.
One way to obtain indirect competition is rivalry between monopoly goods and other goods made by other monopolies and competitive businesses for claiming a considerable talk about in consumers' budget.
And the second way to obtain indirect competition is from the supply and price of inferior substitutes.
Oligopoly- It is a market dominated by a comparatively few large firms. The merchandise they sell may be either standardized or differentiated. Part of the control that companies in oligopoly marketplaces exercise over price and output stems from their capacity to identify their products. But market power also originates from their sheer size and market dominance.
Whether the retailers in an oligopolistic market compete keenly against the other person by differentiating their product, dominating market talk about, or both, the actual fact that there are relatively few retailers creates a situation where each is carefully observing the other as it pieces its price. In economics we make reference to this pricing habit as shared interdependence. Which means that each retailer is setting its price while explicitly considering the reaction by its opponents to the purchase price which it establishes.
Monopolistic- It is a market in which there are many firms and not too difficult entry. These two characteristics are very a lot like those of perfect completion. What enables organizations to set their prices (that is usually to be monopolistic) is product differentiation. By somehow convincing their customers that what they are available is different then the offerings of other businesses in the market, a monopolistic rival is able to arranged its price at a level that is higher than the price founded by the pushes of resource and demand under conditions of perfect competition.
Elasticity is defined as a percentage romantic relationship between two factors, that is, the ratio change in one variable relative to a share change in another.
Co-efficient of elasticity = Ratio change in A
Percentage change in B
The way of measuring of sensitivity of the change in amount demanded is to an alteration in price in percentage terms is called the purchase price elasticity of demand. Demand price elasticity is thought as a share change in number demanded induced by 1percent change in cost.
1. Comparative Elasticity of Demand
Ep > 1
This occurs whenever a 1percent change in cost causes a change in volume demanded higher than 1percent.
2. Comparative Inelasticity of Demand
0 < Ep < 1
Here the percentage change in cost is higher than the related change in amount.
3. Unitary Elasticity of Demand
Ep = 1
A 1percent change in price results in a 1percent change in volume in the opposite direction.
There are two restricting instances at the extremes of the elasticity scale -
1. Perfect Elasticity
In this circumstance there is only one possible price with that price an unrestricted amount can be sold.
2. Perfect Inelasticity
Ep = 0
Under this condition the number demanded remains the same irrespective of price.
Cross elasticity or cross-price elasticity handles the impact in ratio on the number demanded of a specific product created by a cost change in a related product while the rest remains constant. In economics, there are two types of marriage - replace good and complementary good.
Substitutes will be the same products but can be purchased by different suppliers and one supplier can be viewed as an alternative for the other.
Complements are the products that are used or used together along with one product.
The combination elasticity(EA, B) is a measure of the ratio change in quantity demanded of product A resulting from a 1 percent change in the price tag on product B. The overall formula can be written as -
Quantity of deal is a function of or will get influenced by the consumers' income. According to economists, income elasticity(EY) is a way of measuring the ratio change in number consumed caused by a 1percent change in income. The general equation can be written as -
EY = % change in variety consumed
% change in income
Some products will be demanded by consumers whose earnings are low, but as earnings go up and consumers' feel " better off " they will shift consumption to goods more commensurate with their new economic position. Commodities of the type are usually referred to as inferior goods.
So, in the concept of income elasticity there are three categories -
Income elasticity > 1 :- Superior goods
Income elasticity > 0 and 1 :- Normal goods
Income elasticity < 0 :- Inferior goods
Price competition entails competing firms aiming to beat one another in conditions of the prices they sell their product at. Businesses competing in prices react quickly and aggressively with their competition' prices. These companies try to record a larger talk about of the market by selling the merchandise at the cheapest price.
Match and defeat the price of your competition. To be competitive effectively, need to be the cheapest cost producer.
Must be ready and able to change the purchase price frequently.
Need to react quickly and aggressively.
Competitors can also answer quickly to your initiatives.
Customers take up brand switching to utilize the cheapest priced brand.
Sellers move across the demand curve by nurturing and reducing prices.
Non Price Competition
- Emphasize product features, service, quality etc. Can build customer commitment on the brand.
- Must have the ability to distinguish brand through unique product features.
- Customer must have the ability to perceive the differences in brands and view them as attractive.
- Should be difficult / impossible for competitors to emulate the dissimilarities (Patents).
- Must promote the distinguishing features to set-up customer recognition.
- Price variations must be offset by the recognized benefits.
- Sellers shift the demand curve out to the right by stressing distinctive attributes.
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 accepts its demand curve as given and manipulates its price in order to try and attain its goals, while in non price competition it seeks to change the positioning and shape of its demand curve.
The non price competition is a marketing strategy where one firm tries to distinguish its service or product from competing products based on traits like design and workmanship. The firm can also recognize its product offering through quality of service, considerable distribution, customer focus, or any apart from price.
In circumstance of price competition the organization tries to tell apart its product or service from rivalling product based on low price.
Non Price competition includes promotional expenses, marketing research, new product development and brand management cost. The promotional expenditures includes advertising, adding staff, the positioning convenience, sales promotion, coupons, special requests or free present. Firm's prefer non-price competition, inspite of additional costs engaged it is usually more profitable than advertising at cheap and avoids the risks of price war.
Although any company may use non price competition, it is most common among Oligopolies and Monopolistically competitive firms, because firms can be hugely competitive. To be able to identify themselves they use non-price means.
Major Factors influencing Charges Decisions -
Organisational and Marketing Objectives
Types of costs Objective
Supply and Demand can be an economic model of price determination on the market. In the competitive market the machine price of the particular good will vary until it settles at the stage where the number demanded by the consumer( at the current price) will equal the quantity supplied by the producer(at the current price), leading to an financial equilibrium price and amount.
Store Visited - Big Bazaar, Vasant Square Mall
Details of Display - The shampoo portion was mainly divided amongst 3 racks
The screen was as follows -
1st Rack - Head and Shoulders, Clinic All Clear, Garnier Fructis, Medical center 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 enough to state that the higher priced shampoos protected a larger as well as more particular position to be visible to the consumers. It had been also noticed that mainly shampoo brands of similar companies were placed togethar.
The main leaders in the shampoo segment of the marketplace were ITC, Hindustan Unilever, Loreal and Procter and Gamble.
All these companies had several brand on the market such as Hindustan Unilever - Dove, Sunsilk etc. Procter and Gamble - Pantene, Brain & Shoulder etc. Loreal - Loreal, Garnier etc.
Not just various brands of different companies but each brand too acquired various categories of shampoos such as beauty shampoo, anti-dandruff shampoo, shampoo for greasy head of hair, shampoo for dry out mane, shampoo for glow, shampoo for colored scalp, shampoos for kids etc.
There were three main segments for the differences in the group of shampoos but all the three segments were mainly differentiated on the basis of prices more than quality because it was not a lot of a concern for the consumers to pay more for better quality.
After studying the shampoo portion in the market we surely got to understand that the shampoo market has got a monopolistic market structure. Monopolistic is one market in which there a wide range of sellers and hence entry of a company is relatively much easier. Since it's a monopolistic market hence they are engaging in both price and non-price contests trying to identify the product. For example regarding price competition - Chik arrived to market at the price of Re. 1 and even came up with shampoo sachets for 50p. And adverts are also examples of non-price contests. And as far as non-price competition can be involved Loreal and Sunsilk are classic illustrations. But to be frank brands like Sunsilk, Pantene, Loreal remain competitive both in price and non-price tournaments. But so far as low range shampoos are worried, such as Chik, Halo, Ayur etc. contend only in prices.
Hair health care is one such division in which consumers are incredibly careful while switching brands. Generally they don't as it impacts the hair. And therefore maintaining a good quality of product regarding this portion 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. They have that attraction vitality that its place in the display shelf has remained unaffected.
However in a monopolistic company the marginal revenue should be add up to marginal cost in order to maximize its revenue.
Oligopoly- It really is market dominated by a relatively small number of large firms.
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