Types of Non-Price Competition (2.2.3)

Product Differentiation

1. Making product standout from rivals

2. Achieved through branding, unique packaging, advertising, product design, and product replacement

Succesful Product differentiation on demand curve

1. Shifts demand right

2. Makes demand more price inelastic (customers become brand loyal)

Strong brand loyalty

1. Increases firms profit margins

2. Because demand becomes price inelastic, firm can raise its prices without losing many customers, boosting total revenue and profit

Advertising

1. Successful advertising increases consumer awareness and shifts demand outwards

2. Leading to higher prices, more quantity supplied and more quantity demanded

Financial risk of advertising

1. Sunk costs, if it fails to boost sales, firm lose money permanently and average costs rise

3 example of promotional methods

1. Billboard

2. Business cards

3. Newspaper

Distribution methods and its impacts

1. By making a product more convenient to buy, (e.g widely available, fast delivery) or more exclusive (Rolex only sales in one shop)

2. Allowing firms to pass higher production costs onto consumers (e.g increased sugar tax)

Digital economy changing distribution methods

1. Firms can sell directly to consumer via their own websites

2. This cuts out retail middlemen

3. Increasing firms profit margins

4. And also lets firm use customer data for targeted advertising

Trade off for distributing to a large supermarket chain

1. Easy to get lots of sales, shifting demand outwards

2. But supermarket takes large cut of retail price, squeezing manufacturers profit margins per unit

   
   

3 factors that determine which marketing approach a firm chooses

1. Nature of product (luxury or necessity)

2. Target consumer (age income habits)

3. Type of market (niche marker, mass market or oligopoly)

   
   

Oligopoly

1. Markers dominated by a few big firms

Why firms in oligopoly prefer non price competition over competitive pricing

1. Cutting prices triggers price wars, where rivals immediately try to copy the price cut, and everyone’s profits collapse

2. Non competitive pricing (like branding or aesthetics) is harder for rivals to copy quickly, protecting profit margins

Niche market & Mass market

1. Niche market focuses on USP, targeted promotion, consumer feedback to justify premium price

2. Mass market uses broad expensive advertising and wide distribution with similar pricing to maximise sale volume