Non-price competition
About this video
When stores sell identical products, competing only on price makes it hard to earn a profit. The video shows how stores can use non-price competition, such as innovation and marketing or branding, to differentiate themselves so they can hold or raise prices and attract more customers and market share.
You'll be able to
- explain why competing only on price makes profit hard in near perfect competition.
- describe innovation and marketing as forms of non-price competition.
- explain how differentiation can help a business keep its price or gain market share.
Key words
- Non-price competition
- Competing for customers in ways other than lowering price, such as better products or marketing.
- Differentiation
- Making your product or store different from competitors so customers prefer it.
- Innovation
- Creating new or better products, or targeting a different kind of customer.
- Marketing
- Telling people why your product is better, for example through ads.
- Market share
- The portion of all customers or sales in a market that one business gets.
Transcript
- [Instructor] So we have a scenario here where you have three stores next to each other. They don't have to be next to each other, but let's say they're addressing the same consumers and they're all essentially selling the same things, the same type of jeans, the same brands of jeans.
Well, in this situation, you're going to have pretty close to perfect competition. If one of these boutiques charges just a little bit more, why would anyone go to it? And if one of the boutiques charges just a little bit less, well, there's a lot of reason for people to go to that boutique.
And so price is one way that when you have competition like this that you can compete on, but it doesn't seem to be a really great way to make a profit if you are a supplier in this situation. Let's just assume that everyone makes the jeans themselves and they retail it.
We don't have to go into the details of it. But what other things could you do that might be better at differentiating yourself so that you aren't competing purely on price? Maybe you can raise price a little bit, or when someone else lowers price, you don't feel the need to follow the price down.
Well, one thing that you'll often see as an effect of competition is innovation. Well, maybe the store next door or the supplier next door or the one around town, maybe I can make better clothes or different clothes or ones that target a different customer. So that's a pretty interesting thing to do.
And so we could imagine maybe these boutiques becoming a little bit more differentiated. Instead of only selling jeans or just jeans, we see this one over here saying, "Hey, we're gonna innovate. "We're gonna go into sporting goods." And these two, both sell seems like fairly similar types of clothing, but they're different types of clothing.
Another thing they might wanna do is market it. Put some ads. Tell people why their clothes are better, the craftsmanship, how cool you're going to look when you buy those clothes. And so once again, if people think that this brand or this style is just a little bit cooler, they might be willing to pay just a little bit more than what they see at this brand over here, even though maybe they're similar clothes in some way.
So you're starting to break away from pure price competition. And once again, this isn't just a way to retain price, but this is also a way to attract traffic. Maybe their prices are the same. But because the clothes are a little bit different, you're marketing it better.
You create a perception that these are more desirable clothes, or maybe you're just informing people why they are actually more desirable. You get more foot traffic in the door here. And so you might be winning out, getting a little bit more market share.
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