What Is a Non-Price Competition in Economics: Definition, Types, Methods, Examples

Non-price competition is carried out by improving the quality of products and the conditions of their sale.

In this article, you will learn:

What Is a Non-Price Competition: Definition

Non-price competition is a method of competing not by price, but by the product itself: its quality, technical characteristics, packaging, and advertising.

In conditions of non-price competition, the firm fights to increase the consumer value of the product, and not to reduce consumer costs.

Purpose of Non-Price Competition

The purpose of non-price competition is to organize the production of new types of products, expand the range, improve and update products, find ways to improve product quality and reliability, and its appearance, change payment terms, and improve marketing techniques.

Non-price competition minimizes price as a consumer demand factor by highlighting goods and services through promotion, packaging, delivery, service, availability, and other marketing factors.

The more unique the product (from the consumer perspective), the more freedom marketers have to set prices higher than competing products. Each of the firms in the market strives to maintain its market share.

Two Main Types of Non-Price Competition: Product Differentiation and Promotion

One of the methods of non-price competition, namely the improvement of the quality of goods, can be carried out in two main directions:

1. Improvement of technical characteristics of goods.
2. Improving the adaptability of the product to the needs of the consumer.

Product Differentiation

Non-price competition, which is based on the improvement of product quality, is called product competition. In other words, it is product differentiation.

Product differentiation is based on the desire to capture a part of the market by releasing new products that are fundamentally different from the old model or represent its modernized version.

Competition based on quality improvement is controversial. On the one hand, improving the quality of the goods serves as a way to covertly reduce prices and expand sales. On the other hand, “quality” is a subjective assessment that opens up opportunities for quality falsification through advertising and beautiful packaging.

Promotion and Advertising

Non-price competition by improving the sale of products we can call promotion and advertising. This type of competition is based on improving customer service.

Includes:

• impact on the consumer through advertising,
• trade improvement,
• discounts for regular customers,
• establishment of benefits for customer service after the purchase of the goods.

Non-Price Competition Methods and Examples

Non-price competition is competition between market entities to obtain additional profit. It is realized by influencing the consumer through various methods, such as:

1. Improvement of the technical level and quality of products and services.
2. Increasing reliability.
3. Improvement of the product appearance (design, packaging).
4. Product compliance with international and national standards.
5. Improved payment terms (discounts, credits).
6. Improvement of warranty and post-warranty service (installation, repair).
7. Improving customer service: courtesy and competence of staff, development of consulting and engineering, home delivery, children’s rooms in shopping centers, etc.
8. Improvement of sales methods: distribution, territorial approximation of outlets to consumers, and the corporate identity of outlets.
9. Minimizing the delivery time of goods with minimal transportation costs.
10. Sales promotion measures: advertising, promotions, sweepstakes, coupons, sales, bonuses, games, contests, prizes, souvenirs, trade brochures, or the creation of a consumer club.

Illegal Methods of Non-Price Competition in Economics

In addition, there are also illegal methods of non-price competition that violate generally accepted norms and laws. These methods include:

• industrial espionage,
• exchange rate manipulation
• poaching of specialists
• stolen trademarks,
• spreading false rumors about competitors,
• computer viruses,
• various forms of terrorism.

What Affects the Competitiveness of the Organization: Non-Price Determinants of Demand and Supply

Non-price factors of the competitiveness of the organization can be divided into determinants of demand and determinants of supply. These are factors that are not directly dependent on the organization, and which it cannot influence.

Non-Price Determinants of Demand

Demand determinants are factors that affect demand at constant prices for a product:

1. Consumer preferences.
2. Consumer income. The higher the income, the higher the demand for higher-quality goods.
3. Number of consumers: the more consumers, the higher the demand.
4. Prices of other goods. For example, substitute or complementary goods.
5. Economic expectations of consumers. For example, the expectation of rising inflation or a change in the exchange rate.

Non-Price Determinants of Supply

The non-price determinants of supply include:

1. Technical progress.
2. Economic expectations.
3. Changes in tax policy.
4. Change in costs due to the use of advanced technologies, new equipment, and alternative sources of resources.
5. The emergence of new companies on the market.
6. Changes in the prices of goods may lead to the exit of the organization from the market.
7. Natural disasters.
8. Political actions, wars.

Read also posts:

• What Is Microeconomics and What Does It Study: Main Topics, and Theories.
• Macroeconomics: Topics, Components, Main Goals and Macroeconomic Agents.

Non-Price Competition in the Market of Monopolistic Competition and Oligopoly

In oligopoly and monopolistic competition, sellers in the same market often provide similar products. But the question arises, do these markets provide a proper variety of products? Or the firm’s desire to somehow distinguish its products from competitors’ products is excessive and leads to waste?

Non-price competition with a wide range of products is the most promising type of competition. The company competes with the unique quality, not the low price of products. This means that only this enterprise can produce certain products and, without reducing prices, competes with quality. An example would be the global shipbuilding industry. For example, Japan is the only country that builds large-tonnage tankers with a displacement of more than 100,000 tons and a unique degree of automation.

As the economy develops and wealth grows, the variety of goods and services becomes more efficient, as the demand for all goods increases. In addition, opportunities for the influx of large numbers of firms open up, and market structures evolve towards monopolistic competition, providing consumers with the benefits of diversity.

In a poor country, however, it may be sufficient for many markets to meet the demand of just one firm.

Conclusion: non-price competition is suitable only for large firms with great scientific and technical potential.

Now let’s take a closer look at the most common methods of non-price competition: product differentiation and improvement, as well as advertising and product packaging.

Product Differentiation

Product differentiation means that at any given moment the consumer will be offered a wide range of types, styles, brands, and quality levels of a given product.

It is important to keep in mind that too rapid an increase in the range of goods can reach a level where the consumer starts to get confused, and it will be very difficult to choose favor of one or another product: the purchase will take a lot of time.

A variety of choices can spice up a consumer’s life, but only up to a point. For example, a woman shopping for lipstick may be overwhelmed by the sheer mass of the same product type. Only Revlon offers 157 lipstick shades, of which 41 are pink.

Some of the critics of product differentiation fear that the consumer, faced with a myriad of similar products, will judge their quality only by price. Buyers may assume that price is necessarily an indicator of product quality.

Product Improvement: Advantages and Disadvantages

The advantages of product improvement

Product competition is an important vehicle for technical innovation and product improvement over time.

First, the successful improvement of one firm’s product obliges competitors to imitate or, if they have the necessary resources, even surpass that firm’s temporary market advantage.

Second, the profits made from successful product improvements can be used to fund further improvements.

Disadvantages

However, there are significant criticisms of product changes that may occur, for example, in a monopolistic competition environment. They are minor temporary changes to a product that do not increase its durability, effectiveness, or usefulness. More unusual packaging, flashy packaging, or beautification are often the main directions for product change.

Advertising as One of the Main Methods of Non-Price Competition

According to scientists, products from the producer to the consumer make a path that can be represented by the following formula:

Thus, we see that advertising completes the sales process.

Advertising of any product plays a leading role in the formation of consumer demand. When a firm has produced a new product, addition, or modification of an old one, advertising helps it in finding and attracting new customers.

At the same time, advertising influences existing customers to keep buying the firm’s products. Advertising should also be aimed at attracting customers to replace those whom the firm has lost in the process of competition.

How Ads Work

Ads cause customer activity in three ways:

1. Can induce direct action, i.e. the customer is asked to immediately come and buy, order, etc.
2. Indirect action: constantly reminding the brand and inducing them to buy only this product.
3. A combination of these two types, that is, asking the buyer to take a step towards the purchase, but not requiring it to be done immediately.

Several fixed means are used in advertising: television, radio, newspapers, magazines, websites, and social media, as well as outdoor advertising: signs, stands, shop windows, and neon advertising.

The goal of advertising for a firm operating under monopolistic competition is that the firm hopes to increase its market share and increase consumer loyalty to its differentiated product.

The Advantages of Advertising

1. Advertising provides information that helps consumers make smart choices. In a changing, complex economy, there is an urgent need for the consumer to get up close and personal with new firms, new products, and improvements to existing products. So advertising is a means of disseminating such information.
2. Advertising supports the national communication system. Radio, television, magazines, and newspapers are financed in part by advertising.
3. Successful advertising is often based on the exceptional and useful properties of the product. Therefore, to compete successfully in advertising, a firm must improve its product to provide a “basis for selling.” Therefore, advertising is considered to stimulate product change.
4. Thanks to successful advertising, the company can expand its production and thereby get a great effect.
5. Advertising is the force that keeps the competition going. By providing information about a wide variety of substitute products, advertising tends to weaken monopoly power. Heavy advertising is often associated with the introduction of new products designed to compete with existing brands. It is unlikely that Japanese cars would be in demand in the US market without advertising.
6. Advertising reduces marketing costs for two reasons: first, advertising makes goods turn around quickly so that they can be served profitably at lower margins; secondly, advertising gives the product a distinctive identity, which allows the public, in the face of product differentiation, to compare prices in different stores and thus limit the freedom of the retailer to set a markup. Products that are both highly advertised and sell quickly will pass through distribution channels with the lowest markups.
7. Advertising provides full employment by stimulating high levels of consumer spending. Proponents of advertising believe that this is critical in a wealthy society, one where most of the total output takes the form of luxury or non-essential goods. Advertising is not needed to sell food to a hungry person, but advertising and promotions are needed to convince families that they need a second car, phone, or refrigerator. Stability in an affluent society requires needs-creating activities, in particular advertising, otherwise high levels of production and employment will not be maintained.

The Disadvantages of Advertising

1. Critics of advertising argue that its main purpose is to convince, not to inform. Competitive advertising is often based on misleading and ridiculous claims that confuse consumers rather than enlighten them. Indeed, advertising may well, in some cases, persuade consumers to pay high prices for much-touted but inferior products by rejecting better-quality but unadvertised products sold at lower prices.
2. Most advertising tends to self-neutralize. The results of a million-dollar advertising campaign by one detergent manufacturer are largely offset by equally expensive campaigns by its competitors. In fact, few additional detergents are used. Each firm, after such an advertising campaign, has almost the same market share as it had originally. But the cost and price of detergents are rising.
3. It is argued that advertising contributes to the growth of the monopoly. On the one hand, extensive advertising creates financial barriers to entry and thereby reinforces the bargaining power that firms already wield. This is believed to be the case in the tobacco industry, where all manufacturers collectively can spend over $600 million annually on advertising and related promotional activities. The three major car manufacturers in the US, General Motors, Ford, and Chrysler, currently spend almost $2 billion annually on advertising. Moreover, by developing brand loyalty, consumers become less sensitive to price cuts by their competitors, thereby reinforcing the monopoly power held by the firm that advertises its product.

The Impact of Advertising on Product Sales

Advertising is one of the main elements of a market economy and non-price competition. It performs the following tasks:

1. Informs the consumer about the availability of the product, and the costs of it are economically beneficial to the advertiser.
2. It increases the demand for a product and encourages an increase in its production, which in turn regulates prices. Situations are typical when a manufacturer, content with a minimum profit, with the help of advertising, significantly increases the sold products, thereby accelerating the turnover of its capital and making a big profit.
3. Stimulates competition by setting standards for product characteristics that are most attractive to the consumer.
4. Helps the media to remain independent by generating some income for them.

All this shows that advertising is an integral part of the market process.

Packaging as One of the Non-Price Competition Methods

Experts believe that packaging can and should say a lot about a product. Good packaging makes selling easier.

Packaging should attract attention, stimulate interest, create desire, and encourage customers to buy. It must “sell” not only to the consumer, but also to the merchant, so that the goods are attractive, can be beautifully placed on the shelves, have a place for indicating the price, and withstand transportation, storage, and long-term use well.

Good packaging informs. After all, this is the main means of conveying information about the product. It should give the customer at least the information he needs to use the product correctly.

The packaging should be easily recognizable, creating such a strong impression of the brand that customers almost automatically choose the product.

In some highly competitive industries, the packaging is specifically designed to grab the attention of customers more than the product itself. In the food industry, for example, manufacturers often use dual-use packaging. They place their goods in containers that can then be used for other purposes in the household. For example, a housewife buys honey of a certain variety not only because of the contents but because of the attractive jar in which it is sold.

If a new product appears on the market, then for its effective marketing, its packaging must stand out, and reflect novelty, in other words, emphasize the peculiarity of this product.

Thus, packaging drives the sale of goods and is an advertisement that attracts buyers.

Briefly About the Problems Caused by Non-Price Competition

Non-price competition generates a whole range of the most important market problems. Among them are the intersectoral mechanism of profits in the form of the problem of entry-exit, excess capacity, the impact on sales of non-price factors, preferences and choices, competitiveness, and consumption costs.

P. S.: If you liked the post, please, share it with your friends, thank you! Have a nice day!

Image: freepik.com