Types of competition: price and non-price competition. Price competition
Have you noticed that in different stores the prices for the same goods, albeit slightly, are still different? This is price competition. This move is used by almost all sellers: from single ones in markets to reputable stores and companies.
Of course, price competition today is significantly limited, since its size is minimal and sometimes amounts to a fraction of a percent. But not taking it into account would still be a mistake. In world practice, there are a lot of examples of cheapening goods, quickly and even on a large scale (electronic household equipment, semiconductors, ceramics, food, etc.).
Usually, a quick and cascading “reset” of prices is a rare, forced and economically damaging (unprofitable) event. It is more preferable, of course, to fix prices, i.e. keeping them unchanged. Significant price reductions are only possible in two cases: either the seller immediately “increases” the price (involves the product at a price significantly higher than the manufacturer’s price) and therefore can afford discounts on purchases (especially wholesale), or laws come into force. As for the second option, then this is understandable: obsolete products (especially electronic household equipment), not being sold cheaper today, will not be sold at all tomorrow, since demand for them will fall.
The emergence of new, more complex products leads to a transformation of the very concept of price as such. Here we are talking about a multi-element consumer price, reflecting the possible amount of expenses of the main buyer, which sellers are guided by and which is an indicator of the demand and full consumption of the product.
Prices with a basis that lie outside of value become the object of competition, which can be directly attributed to price.
As a result, the understanding of price as the basis (or as the center) around which consumer preferences should fluctuate is in some way transformed, giving way to a seemingly non-price concepts such as quality, novelty, progressiveness, compliance with standards, design, efficiency in maintenance etc. Today it is these parameters that form new system values for the consumer and it is on them that price competition is primarily based. This applies to individual exporting firms and entire countries acting as exporters.
The expansion of the range of consumer requirements dictates more stringent requirements for the exporter and its competitiveness. This is a regularity: only a competitive company can produce, which, in turn, requires certain conditions characterized by the country’s competitiveness. As you can see, it’s an unbroken chain, a vicious circle.
This pattern has been noticed for a long time and has been studied for a long time. The European Forum on Problems in Management regularly conducts studies to assess the competitiveness of Western countries, and the concept of “competitiveness” includes the ability to design, manufacture and, of course, sell goods that, in terms of characteristics (both price and non-price), are most attractive to the average consumer.
In the fight for the consumer (and therefore for profit), the main methods of competition are used - non-price competition and price.
Price competition- This is a natural struggle of sellers, based on reducing prices to a level lower than that of competitors. The result, by the way, is not always predictable (a decrease in profitability, or “pulling away” some consumers to their product and an increase in profits) and depends on the actions of competitors, who will either respond by lowering prices or leaving prices the same.
Competitors do not always respond by lowering their prices. Often it is non-price competition that wins, based on more high quality, higher reliability, more attractive design (agree, if you have enough money, you will give preference to a good Japanese car without even looking at the domestic one).
Price competition is based on the fulfillment of two conditions:
1) if price for the buyer is a decisive factor;
2) if the company has become a leader, has “earned a name” and can afford to reduce prices, sometimes even to its detriment.
Only then is it possible to make a profit, even though other companies at the same prices suffer losses.
Federal Agency for Education Russian Federation
Kazan State Technological University
Coursework in the discipline "Marketing"
"Price and non-price competition"
Kazan 2007
Introduction
Chapter I The essence and significance of price and non-price competition.
Basics of Competition
Concept and types of competition
Competition methods
Application of marketing in competition
Use of marketing in different conditions competition
Three strategies without which you cannot win the competition
Ways to win customers
Pricing Strategies
Non-price promotion methods
Chapter II. A research program to determine the influence of price and non-price competition methods on consumer choice.
Determining the influence of price on consumer choice using the example of the dairy market
Determining the influence of non-price competition methods on customer choice using the example of the men's clothing market
Conclusion
Bibliography
Introduction
The relevance of research.
Currently, competition, mainly price, is being used more and more often, since more and more new products are appearing in the markets, and mainly price competition is used to penetrate the market with a new product. Competition is also used to strengthen positions in the event of a sudden aggravation of the sales problem.
But methods of price competition are sometimes impossible to apply, and they are replaced in the market by non-price competition. This type of competition is most often used in the car market and the furniture market. IN in this case leading positions can be maintained not by reducing prices, but by improving the quality of service, quality of goods, and reducing metal consumption.
It can be concluded that competition provides consumers with choice and a huge number of products nowadays. Competition is currently the most pressing issue in any market for goods and services.
Coverage of the problem.
The topic of competition has become widespread in both economic and marketing literature. Almost any book covers all the basic concepts and types of competition, as well as its methods and ways to win customers. Also, the practical application of competition is very often used nowadays. Almost all markets for goods and services involve one or another type of competition. Competition is well discussed in the books by F. Kotler, E.P. Golubkov, and Tim Ambler provides practical research on competition. Except scientific literature competition has become widespread in periodical literature, where marketing research in various markets is presented and the degree of competition of a particular product is assessed.
Goals and objectives.
Purpose my course work is a more accurate consideration of price and non-price competition, both in its theoretical use and in practical application in the market of goods and services.
Tasks my coursework are:
1. Give more precise definition competition;
2. Consider the types and methods of competition;
3. Consider the use of marketing in competition;
4. Consider pricing methods of competition;
5. Non-price methods of competition;
6. Methods of winning customers;
7. Conduct marketing research on competition in the market for goods and services and draw conclusions.
Work structure.
The topic of my course work is “Price and non-price competition.” In my work I will consider:
·Concept, types, methods of competition;
·Use of marketing in competition;
·Methods of winning over consumers;
All these questions will be considered by me within the framework of " Theoretical part", In addition, there will be marketing research within the framework of Chapter II, which is called "Practical part". At the end of my work I will draw conclusions that will be discussed in Conclusion. All my work will be completed list of literature I used.
I chapter. The essence and significance of price and non-price competition.
Concept and types of competition
Competition is understood as rivalry between individuals, economic units in any field, interested in achieving the same goal.
Soviet foreign trade organizations and enterprises are forced by force of circumstances to compete in foreign markets with companies selling the same (and not only the same!) goods. This competition inevitably arises from the fact that both our company and its competitors strive to capture the attention of customers and induce them to purchase the product. As K. Marx noted, people acquire goods not because it (the product) “has value, but because it is” “use value” [No. 2 p. 144] and is used for certain purposes, then it goes without saying :
1. that use values are “assessed,” that is, their quality is examined (in the same way as their quantity is measured and weighed);
2. what when various varieties goods can replace each other for the same consumption purposes, one or another variety is preferred......;
And, therefore, since we want preference to be given to our product, we are obliged to compete (compete!) with producers of other similar products in achieving this goal.
In commodity production, competition, as F. Engels noted, forces industrialists “to reduce the prices of goods that do not correspond in kind or quantity to this moment social need,” and the need for such a reduction is a signal that they have produced items “that are either not needed at all or are needed in themselves, but were produced in unnecessary, excessive quantities.” Finally, it is competition that leads to the fact that the improvement of machines turns into a “compulsory law”, the neglect of which is extremely expensive for the manufacturer of the goods.
Since competitors can greatly influence a firm's choice of the market in which it will try to operate, it should be noted that competition in the field of marketing can be of three types.
Functional competition arises because any need, generally speaking, can be satisfied in very diverse ways. And accordingly, all products that provide such satisfaction are functional competitors: the products found in a sports equipment store, for example, are just that. Functional competition must be taken into account even if the firm is a manufacturer of a truly unique product.
Species competition – a consequence of the fact that there are goods intended for the same purpose, but differing in some fundamentally important parameter. These are, for example, 5-seater cars of the same class with engines of different power.
Subject competition – the result of the fact that firms produce essentially identical goods, differing only in the quality of workmanship or even the same in quality. This kind of competition is sometimes called intercompany competition, which is true in some cases, but it should be kept in mind that two other types of competition are usually intercompany.
Competition methods
In economic literature, it is customary to divide competition according to its methods into price And non-price, or competition based on price and competition based on quality (use value).
Price competition goes back to those distant times of free market competition, when even homogeneous goods were offered on the market at a wide variety of prices. Reducing prices was the basis by which the industrialist (merchant) highlighted his product, attracted attention to it and, ultimately, won the desired market share.
IN modern world, when markets are monopolized, divided between a small number of large firms that have captured key positions (the IBM company, for example, in the USA owns 70% of the computer market), manufacturers strive, perhaps, to keep prices constant longer, so that, by purposefully reducing costs and marketing expenses, ensure an increase in profits (maximization). In monopolized markets, prices, as economists say, become less elastic.
This does not mean, of course, that “price war” is not used in the modern market [No. 2 p. 145] - it exists, but not always in an explicit form. "Price war" in open form is possible only until the moment the company exhausts its reserves for reducing mass production and a corresponding increase in the mass of profits. When equilibrium has been established, any attempt to reduce the price leads to competitors reacting in the same way: the positions of firms in the market do not undergo changes, but the rate of profit falls, the financial condition of firms in most cases worsens, and this leads to a decrease in investment in renovation and expansion of fixed assets, as a result, the decline in production intensifies, instead of the expected victories and ousting of competitors, unexpected ruins and bankruptcies occur.
That is why nowadays we often observe not a decrease in prices as scientific and technological progress develops, but an increase in them: the increase in prices is often not adequate to the improvement in the consumer properties of goods, which, of course, cannot be denied.
Price competition is used mainly by outsider firms in their fight against monopolies, to compete with which outsiders do not have the strength and capabilities in the field of non-price competition. In addition, pricing methods are used to penetrate markets with new products (this is not neglected by monopolies where they do not have an absolute advantage), as well as to strengthen positions in the event of a sudden aggravation of the sales problem. With direct price competition, firms widely announce price reductions for manufactured and marketed goods (usually by 20-60%).
The influence of competition on prices.
Thanks to competition, contradictions between supply and demand are temporarily eliminated, the relationship between which at any given moment affects the level of market prices.
In the conditions of the scientific and technological revolution, the competition between firms for super-profits takes on various forms.
Changes in forms and methods are influenced by both macroeconomic factors, in particular shifts in the structure of the total social product, as well as the actions of the companies themselves, for example, improving the policy of struggle for sales markets.
Inter-firm rivalry develops primarily in two main directions: inter-industry and intra-industry competition. What they have in common is the geographic scope of the company’s activities (global or regional), as well as the use of legal and illegal methods of competition in order to obtain excess profits.
At the same time, depending on the nature of the product, there may be differences in the forms of competition (price and non-price).
Manifests itself in the following forms:
1) Competition between sellers of homogeneous products, trying to sell goods at the lowest price to displace other sellers and secure the largest sales for themselves; this competition lowers the price of goods offered.
2) Competition between buyers in the same industry, which leads to increased prices for the goods offered. A comparison of the available price option with the losses that the buyer may incur as a result of unsatisfied needs, and the magnitude of this loss, determine the buyer’s willingness to increase the price for the desired product.
3) Competition between buyers and sellers; The former want to buy cheaper, the latter want to sell for more. The result of this competition depends on the balance of power of the competing parties.
4) Inter-industry competition - the creation of competing industries that produce goods - substitutes that cover the same needs of buyers. The development of such competition can cause both a decrease and an increase in prices in the market. The regulating element in this case is the price of the substitute product.
IN modern conditions Timely updating of the production range plays a major role in competition. Mastering the production of new products contributes to sales growth and an increase in the company’s profit margin.
An important aspect Both inter-industry and intra-industry competition in the market is not only the ability of a company to master the production of new goods, but also to cease production activities in markets that are considered, for one reason or another, unprofitable and unpromising.
Monopolistic competition begins already at the stage of capital mobilization. The second stage - the search for areas of application of capital is carried out by deploying scientific research, obtaining new scientific and technical information, market research. The third stage is the implementation of the idea, the production of goods, where production volume, product quality and costs are adjusted to the profit maximization program. At the same time, the monopoly is guided not only by the tasks of the current day, but also by long-term goals. The fourth stage is the sale of goods on the market, the struggle unfolds in conditions of price stability around the volume of products sold, the level of their quality, and services. The fifth stage is the use of accumulated profits. The flow of capital encounters obstacles created by the monopoly itself, but its movement nevertheless exists. It takes the form of the creation of competing industries, reconstruction and restructuring of consumer industries, the movement of excess capital accumulated by monopolies in search of more profitable uses, the movement of capital, rival monopolistic groups and, finally, the never-ending movement of medium and small capital. Rapid updating of the product range causes an increase in the cost of developing new products.
Important role In the mechanism for updating industrial products, the price plays a role, which should not only justify the costs of creating a new product, provide the company with an acceptable profit, but also form a certain reserve in case of possible losses during the transition to the next cycle of product renewal. Each monopoly has no confidence that by the time a new product appears on the market, its competitors will not release the same or similar product. Therefore, pricing policy, the purpose of which is to adapt to constantly changing demand, continues to be an important weapon in the struggle for sales markets.
The basic principle of the pricing policy for new goods is to maintain, even during the period of product and market development, profit at a certain level (principle of 2 costs plus a fixed markup percentage). The size of the premium (rate of profit) depends on the degree of concentration of production or the power of the company, as well as on the state of market conditions. For non-monopolized firms - from 8 to 15%, for large monopolies from 15 to 34%.
The pricing policy at various stages of production of a product of one generation changes mainly depending on the degree of market penetration by this product and its operational efficiency. When first-generation products appear on the market, companies have some free time in setting prices. This freedom is determined by the degree of “quality monopoly”, patent protection, the price of substitute products, the purchasing power of the consumer and the possibility of competitors acquiring the secret of design and production.
Thus, price dynamics are closely dependent not only on the degree of novelty, but also on the number of generations through which a given product has passed, from the appearance of a fundamentally new product in production to its withdrawal from production and its replacement with other fundamentally new products.
After a certain period, the product partially wears out, which allows for further price reductions.
1.6.2. “Non-price competition.”
Or quality competition. In the competition for markets, the winner is not the one who offers lower prices, but the one who offers higher quality.
Better quality product, despite its high price, is much more efficient in operation or consumption than a lower quality one. But this does not mean that the role of price in determining the competitiveness of a product is small. These two factors are as inseparable as the two sides of labor, goods, obsolescence, price and all other phenomena and processes of commodity production.
Price is the factor that ensures profit.
In order to maximize profits, one important psychodogic canon is used, according to which market price does not increase in proportion to the quality of the product, but as if ahead of the level and quality of the product relative to the generally accepted level, the price decreases more progressively compared to this level. This, however, does not fit into the classical system pricing factors, but is the result of many years of market pricing practice.
Manufacturers producing products whose quality is above the world level receive monopoly high profits.
In an effort to survive the competition, firms are forced to constantly improve the consumer properties of the goods they produce and expand the range of terms of delivery and services, although all this in one form or another is taken into account in the price and is ultimately paid for by the consumer.
Therefore, it cannot be argued that at present, in the context of the rapid development of scientific and technological revolution, “price” competition has lost its importance.
If during the period of free competition with relative stability of prices, competition was expressed in discounts on prices, that is, in its reduction, then during the period of scientific and technological revolution in conditions of inflation, price competition is expressed in varying degrees of increase in prices for similar products of different quality.
There is a simultaneous and, as a rule, unequal increase in quality and prices (the increase in quality outpaces the increase in prices).
Thus, quality competition is just one form of price competition.
Price competition
Price competition is competition by reducing prices to a lower level relative to competitors. At the same time, by improving the price/quality ratio from the consumer's point of view, the competitiveness of the product in the market increases. Depending on the reaction of other market participants (whether they respond with an adequate price reduction or not), either the company increases its sales, attracting part of their consumers to its product, or decreases average profitability(and hence the investment attractiveness) of the industry.
Competitors do not necessarily have to respond with similar price cuts. Each competitor's ability to reduce its price is limited by its total unit costs. Selling products at a price below them full cost called dumping. A commercial company may long time sell their products at a price below their full cost only if additional external financing is available. But since any commercial company is focused on making a profit, when dumping it either expects to recoup these losses in the future, or low prices for the product allow it to receive other benefits that are not obvious or inaccessible to other market participants now.
It is advisable to resort to price competition if two conditions are met. Firstly, if you are sure that price is the deciding factor for your potential consumer when choosing between competing products. Secondly, companies that have achieved industry leadership in costs usually resort to price competition - in this case, it is possible to make a profit even at such prices when all other players are already operating at a loss.
There are:
direct price competition with broad notice of price reductions;
hidden price competition when a new product with improved consumer properties with a relatively small increase in price.
Price competition is realized in the desire of competing business entities to attract consumers by setting prices lower than those of their rivals. At the same time, they race to reduce the consumer's costs for purchasing goods, thereby increasing his profit from the purchase and increasing the margin of competitiveness of their products. As a result of such competition, prices are set that correspond to the real costs of production, and the efficiency of resource allocation on the market increases by removing from it inefficient producers with high production costs. Downside price competition among commodity producers is the process of price competition among consumers, who, by their decisions, influence the behavior of commodity producers. The price choice of consumers determines the level of demand, changes in which affect the volume of supply of competitive producers.
The motives for price competition are ensuring survival, maximizing current profits, maintaining and ensuring liquidity, gaining a large market share, and gaining market leadership. Foreign large and super-large corporations in most cases are content with about 10% return on equity capital, which ensures their survival. Ensuring survival is the main motive of an economic entity in cases where there are too many producers on the market and there is intense competition or the needs of customers change dramatically. Pricing for the purpose of survival is determined by the attempt of the commodity producer to withstand or slightly reduce price competition. In this case, prices are set at a level that ensures break-even business. This policy is short-term in nature and is an attempt to “buy” time until the producer is able to reduce costs sufficiently to make a profit, or the market situation leads to higher prices. Maximizing current profits leads to an increase in profitability and expansion of the reproductive capabilities of an economic entity. In market conditions, maintaining and ensuring liquidity is always important, since persistent insolvency threatens the entrepreneur with bankruptcy. Therefore, he seeks to determine the conditions and prerequisites that ensure stable solvency.
Expanding market share involves striving for market leadership, which makes it possible to have the lowest costs and the highest long-term profits. To achieve this goal, the business entity goes to the maximum possible price reduction. Price leadership reflects the position of an economic entity in the market as one of the most active in establishing general price levels for certain types products. Achieving this goal presupposes that the business entity has sufficient potential.
Price competition develops in the market in close connection with the conditions and practice of non-price competition, and acts in relation to the latter depending on the circumstances, the market situation and the policies pursued, both subordinate and dominant. This is a price based method. Price competition “goes back to the times of free market competition, when even homogeneous goods were offered on the market at a wide variety of prices. Reducing prices was the basis with which the seller distinguished his product..., won the desired market share” Rumyantseva E.E. New Economic Encyclopedia. - M.: INFRA-M, 2005. - P. 219.
In conditions modern market“price war” is one of the types of competitive struggle with a rival, and such price confrontation often becomes hidden. An open price war is possible only until the company exhausts its product cost reserves. In general, open price competition leads to a decrease in profit margins and a deterioration in the financial condition of companies. Therefore, companies avoid conducting price competition in an open form. It is currently commonly used in following cases: by outsider firms in their fight against monopolies, with which outsiders have neither the strength nor the ability to compete with them in the sphere of non-price competition; to penetrate markets with new products; to strengthen positions in the event of a sudden aggravation of the sales problem. With hidden price competition, firms introduce a new product with significantly improved consumer properties, and raise prices disproportionately little. It should be noted that in the operating conditions of different markets, the degree of significance of price competition can vary significantly. As a general definition of price competition, the following can be given: “Competition based on attracting buyers by selling at more low prices goods similar in quality to competitors' goods" Large Economic Dictionary / Edited by A.N. Azriliyan. - 5th ed. additional and revised. - M.: Institute of New Economics, 2002. Quoted from: http: // yas.yuna.ru/.
The framework limiting the possibilities of price competition is, on the one hand, the cost of production, and on the other hand, the institutional features of the market that determine the specific structure of sellers and buyers and, accordingly, supply and demand.
The selling price consists of the cost of production, indirect taxes included in the price, and the profit that the seller expects to receive. At the same time, the price level is set in the market by the ratio of supply and demand, which determines a particular level of profitability of assets and profitability of products produced by the enterprise.
Today, the most common pricing strategy, chosen by about 80% of companies, is “following the market.” Enterprises that use it set prices for their products based on a certain average price list. However, it is difficult to call this a conscious choice. Most often, it is simply impossible to act differently. As a rule, those who work in mass markets, where competition is very high, have to “be like everyone else.” This provision fully applies to the meat market. In the current situation, buyers react very painfully to any noticeable increase in the price of goods, which does not allow them to inflate prices, and competitors harshly respond to any attempt to change the existing proportions of sales, which makes another pricing strategy - “market introduction” - dangerous.
To understand the mechanism of competition great importance has the correct identification of the reasons due to which it is possible to circumvent. In business practice, it is customary to single out price and non-price factors, as well as the corresponding types of competition, as such reasons.
Price competition is a form of competition based on lower (cost) products or services offered. In practice it is used large companies, focused on mass demand, firms that do not have sufficient strength and capabilities in the field of non-price competition, as well as during penetration into markets with new products, while strengthening positions in the event of a sudden exacerbation of the problem. With direct price competition, firms widely announce price reductions for products produced and available on the market. With hidden price competition, a new product with significantly improved consumer properties is introduced to the market, but the price increases slightly. An extreme form of price competition is “price wars” - ousting competitors by consistently reducing prices in anticipation of the financial difficulties of competitors offering similar products, the cost of which is higher.
Non-price competition is widespread where decisive role play by quality, its novelty, design, packaging, corporate identity, subsequent service, non-market methods of influencing the consumer, i.e. factors indirectly related or completely independent of price. In the 80-90s, reduced energy consumption and low metal consumption, complete absence or low pollution, took the leading place in the list of non-price factors. environment, crediting of returned goods as a down payment for a new one, advertising, high level of warranty and post-warranty service, level of related services.
Sony on initial stages mass marketing of its products on the Russian market faced the problem of non-price competition. The problem was that, according to existing internal warranty rules for products sold in Russia, consumers can return faulty equipment only after five attempts to repair it. Russian rules trade, however, allow the consumer to return goods as soon as defects are discovered. Everyone obeys these rules trading companies on Russian territory. In order to confidently increase sales volumes, Sony not only brought warranty rules in line with regional requirements, but also significantly reduced the warranty period for the most popular products. As a result, the company strengthened its position in the non-price area of competition.
Illegal methods of non-price competition include industrial espionage; poaching specialists who know production secrets; release of counterfeit goods.
In general, unfair competition can be classified as one of the types of non-price competition, since it creates advantages in the non-price spectrum through actions that are contrary to fair customs in industrial and commercial affairs. In accordance with Art. 1Obis of the “Paris Conference for the Protection of Industrial Property” this includes all actions capable in any way of causing confusion regarding the enterprise, goods, industrial or commercial activities of a competitor; false statements during implementation commercial activities capable of discrediting an enterprise, goods, industrial or trading activities competitor; indications or statements, the use of which in the conduct of business may mislead the public regarding the nature and method of manufacture, properties, suitability for use or quality of the product. At the same time, ignorance, delusion and other similar reasons are not justifying circumstances. Russian “Law on Competition. ..” similarly interprets unscrupulous .
Typically, the presence of powerful non-price competition is associated with a high level of development market relations. In most stable markets, economically developed countries non-price competition is the most common form of competition. Against, Russian market are more often characterized by the predominant development of price competition. The low solvency of consumers makes it possible to compete effectively through lower prices.
