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Transcript
INTERACTION OF FIRMS IN THE MARKET COMPETITION WHY firms compete with each other ? 1] Attain their goals ( e.g.; Profit maximisation, Sales maximisation, satisficing etc) 2] Increase Market share MARKET SHARE: “The part of the total sales met by an individual firm” MARKETING: “Marketing involves identifying and then satisfying consumer needs and wants” The 4 P’s that govern marketing are: a) PRODUCT b) PLACE c) PROMOTION d) PRICE HOW do firms compete against each other? 1) PRICE COMPETITION 2) NON- PRICE COMPETITION PRICE COMPETITION - EXAMPLES: • a) Sale price • b) Discounts • c) Buy-one-get-one-free • d) Interest free terms • e) Loss leader: an item sold deliberately at such a low price that the firms make a loss on it. This is done in the hope of attracting customers into the shop, hoping they will buy other items as well. They expect the loss to be recovered from the sale of the additional items! NON - PRICE COMPETITION 1) PRODUCT DIFFERENTIATION 2) PRODUCT VARIATION PRODUCT DIFFERENTIATION a) Advertising b) Packaging c) Branding d) Services e) f) Location Sponsorship g) Loyalty schemes h) Competitions Producers make their products ‘appear different’ and superior to their competitors’ products. Producers give their products some ‘real’ modifications and make it actually different to other products PRODUCT VARIATION Production Modification New features added to a product e.g Airbags in car Vertical Product Variation Same product designed for different income levels e.g Toyota car models. PRICE COMPETITION - SIZE OF FIRMS INDUSTRIES COULD COMPRISE OF…... MANY SMALL FIRMS SOME DOMINANT LARGE FIRMS FEW LARGE FIRMS Price competition acceptable Price leadership by dominant firm Price competition avoided No firm greatly disadvantaged Dominant firm gains advantage over small firms Price competition could lead to ‘Price war’ E.g., competition between dairies E.g., competition between supermarkets & dairies E.g., competition between car manufacturers NON-PRICE COMPETITION ADVANTAGES & DISADVANTAGES CONSUMERS ADVANTAGES: • More choice / Variety • Better Quality • Better service • Opportunities to win Competitions • Increase in Knowledge of the product DISADVANTAGES: • Prices increased • Unwanted purchases • Non –existing demand generated PRODUCERS ADVANTAGES: • Increases demand • Greater Sales & Profits • Avoids Price Wars DISADVANTAGES: • Increased costs of production • Reduced profit