The difference between price and non-price competition is when the price competition is present, the firm accepts the given demand curve while in the non-price competition, the firm attempts to change the shape and location of the demand curve.
What is price competition?
The price competition adopts different price strategies to outrun the competition. In order to claim the market share, competitive firms choose either to remain at the same price of fellow firms or to set a low price. Competitors in this market are sensitive and overtly responsive to price changes.
Firms attempt to expand their share in the market, by aggressively responding to price changes. Hence, price competition prevails when the marketers complete on the basis of price. The reason why prices change is the need of covering the cost of production arising out of increasing demand.
In price competition, the success of effective competition depends on the ability of the producer to produce at a lower cost. To obtain that level, firms are required to be willing and able to change the price frequently whenever necessary. Therefore, firms need to be vigilant and keen on the changing market behavior patterns according to which they can adjust their prices.
When price competition contains the above-mentioned characteristics, consumers make their decisions with the intention of maximizing utility. Thus, they tend to adopt brand switching as a method to choose the lowest-priced brand. As a result, producers move upward and downward along the demand curve so as to meet consumer needs.
What is meant by non price competition?
The term non-price competition refers to a method that firms use other than price, in order to increase sales. This particular method which is distinct from price strategy includes quality and quantity differences, unique selling points, and after-sale service, etc.
Non-price competition does not offer simple and easy means of attracting consumers as seen in price competition. Here, the role played by price is very limited. Instead, various other factors including quality, promotion, and commendable service act as potential drivers affecting the market share.
Therefore, non-price competitors rely on market strategies other than price changes.
Price Competition Examples
An ideal example for the difference between price competition and no-price competition can be traced from real-world situations.
Coca-Cola and Pepsi are two well-known brands of soft drinks. Both of the brands produce a similar product with slight price changes. Pepsi has set its prices slightly cheaper than the average prices of Coca-Cola.
The competition between these two brands is visible in pricing, quality, and other features. As mentioned above, the difference between price competition and non-price competition occurs mainly due to the market device used for competition.
Obviously, in price competition, consumers change their decisions based on the price variations of goods and services. Rational consumers prefer low-cost and high utility goods. In non-price competition factors like quality, after service and brand are decisive factors for a consumer to make decisions.
Non-price Competition Examples
When it comes to sales and consumer behavior, some people base their purchasing decisions not on the price, but on other factors.
These behavior patterns may not tally with the rational behavior expected from a buyer when dealing with a normal good. That is why people tend to buy luxury goods no matter how expensive they are. Their utility for luxury goods arises for gaining social status. As a result, marketers pay attention to such other factors to increase the sale of products.
In doing so, they try to emphasize prominent features and maintain the non-price competition at a better level. Although the difference between price competition and non-price competition provides distinguishing benefits to each, even the non-price competition cannot neglect the influence of price which is undoubtedly a significant marketing factor.
Advantages of price competition and non-price competition
As a whole, price competition and non-price competition has specific advantages and disadvantages.
In the price competition, the target group comprises the complete market area, unlike non-price competition where there is a specific target number of buyers. Hence, the price competition considers only geographic and demographic segmentation while non-price competition pays much attention to factors like benefit, psychographic, or lifestyle segmentation in order to make a difference in the market.
In their own ways, both competitions are the important pursuit of study. Non-price competition needs to make a distinguishing effect between brands through specific features.
Further, customer reliance over the brand can be maintained by emphasizing quality, service, and product features. Unlike in price competition, in non-price competition, firms are unable to easily emulate the differences due to the difficulties in gaining patents, etc.
Disadvantages of price competition and non-price competition
However, there are instances where non-price competition seems better than price competition. In such situations, firms adopt non-price competition considering profitability.
For example, people tend to rely on brand names. As a result, brand name goods sell more units of goods than their fellow competitors irrespective of the higher price.
Price competition allows a higher number of sellers to enter the market while the non-price competition often offers the first-mover advantage. Therefore, the market share owned by a seller in price competition is lower than that of the non-price competition. Because the entry barriers in non-price competition is more complex and prominent than the easier access provided in price competition.
As a result, the number of competitors in the market is higher than the limited number of sellers in non-price competition. For the firms in price competition, most competitive advantage arises from price while such advantage arises from technology and design for non-price competition.
Sales volumes for price competition are high and the margins remain low. In contrast, non-price competition sales volume is low, and margins are high.
In non-price competition, market communication mainly focuses on how the product differs from each other while price competition values the price tag of the product.
Let’s look at another important difference between price competition and non-price competition. It is that the quality of goods may either be high or low in price competition while it is always high in non-price competition.