Types of Non-Price Competition

What Non-Price Competition Is

Non-price competition: winning customers through anything other than a lower price, such as quality, branding, advertising or where the product is sold.

A price cut is easy for rivals to copy and lowers the margin on every unit. Non-price competition is harder to copy, and if it works the firm can keep its price, or raise it.

The Impact of Marketing on the Demand Curve

Marketing: finding out what customers want and persuading them to buy the firm's product.

Successful marketing changes the demand curve in two ways:

• It shifts demand to the right: more customers know about the product and want it → more is demanded at every price → higher sales without a price cut.
• It makes demand less price elastic: customers come to see the product as different from, and better than, its rivals → fewer close substitutes in their eyes → the demand curve becomes steeper → the firm can raise its price and lose few sales.

Together they mean higher sales at a higher price, so revenue rises (see unit 2.2.1). The spec names three ways to get there.

Product Differentiation

Product differentiation: making a product different from rival products in ways that customers value (unit 1.3.6).

A firm can differentiate through quality, design, features, packaging or after-sales service. A café that roasts its own beans and bakes its cakes on site gives regulars a reason to walk past the chain. Something rivals do not offer → demand shifts right, and customers are less tempted by a cheaper café → higher sales at a higher price.

Advertising and Other Promotional Methods

Promotion: communicating with customers to make them aware of a product and persuade them to buy it.

Advertising is promotion the firm pays for, on television, online, on social media or in print. It works on both parts of the demand curve:

• Informative advertising: tells customers the product exists, what it does and where to get it → more buyers → demand shifts right.
• Persuasive advertising: builds a brand image customers identify with → brand loyalty → buyers stick with the product when its price rises → demand becomes less price elastic.

Other promotional methods include:

• Sales promotions: free samples, competitions and loyalty schemes get customers to try the product or come back. Money-off offers are really short-term price cuts.
• Sponsorship: putting the brand on a sports team or event links it with something customers already like.
• Social media and influencers: cheap to start, easy to target at one group of customers, and fast to spread if a post is shared widely.
• Public relations: free coverage in news stories and reviews, which customers often trust more than an advert.

Whether promotion pays depends on:

• Cost against extra revenue: a television campaign can cost more than the extra sales bring in, especially for a small firm.
• Rivals' response: if every firm in the market advertises, each may just hold on to its share while all of them pay higher costs.

Distribution Methods

Distribution: how a product gets from the producer to the customer, and where customers can buy it.

A firm can sell direct, through its own shops or website, or through intermediaries, such as wholesalers and retailers that stock its products.

• Wider distribution: a drinks brand wins a listing in a national supermarket chain → customers find it on every shopping trip → demand shifts right. The supermarket takes a share of the price, so the margin on each bottle falls.
• Selling direct online: no retailer's cut → a higher margin, and the firm sees exactly who its customers are → it can target them with offers. It pays for delivery and returns instead.
• Selective distribution: a luxury brand sells only through its own stores and a few chosen retailers → the product looks exclusive → demand becomes less price elastic → a premium price.

Devising Appropriate Marketing Approaches

There is no single best approach. Compare a crisp brand sold in every supermarket with a small craft gin distillery. The crisp brand needs national advertising and the widest possible distribution. The distillery relies on its story, social media and a few specialist shops, and charges a premium.

The right approach depends on:

• The target market: who the customers are, what they value and where they shop, found through market research and segmentation (unit 1.3.5).
• The product: a complex product, such as a laptop, needs advertising that explains what it does. A low-priced impulse buy needs to be on as many shelves as possible.
• The budget: a small firm cannot match a large rival's advertising, so it leans on differentiation, service and social media.
• Stage in the product life cycle: informative advertising at launch, persuasive advertising and brand building in maturity, and extension strategies as sales fall (unit 2.1.3).