Non-price competition refers to competition between companies that focuses on benefits, extra services, good workmanship, product quality – plus all other features and measures that do not involve altering prices. It contrasts with price competition, in which rivals try to gain market share by reducing their prices. Non-price competition is often adopted by the competing players in a sector in order to prevent a price war, which can lead to a damaging spiral of price cuts.
Non-price competition is a marketing strategy that typically includes promotional expenditures such as sales staff, sales promotions, special orders, free gifts, coupons, and advertising.
Put simply, it means marketing a firm’s brand and quality of products, rather than lowering prices. Most companies across the world are involved in either non-price competition, price competition, or both.
Non-price competition: Oligopolies
Non-price competition is more common in markets where there is imperfect competition, such as those with very few competitors – oligopolies – maybe because it can give an impression of a very competitive market, when in fact the rivals are colluding to keep their prices high.
Non-price competition is an important strategy in marketplaces where sellers are offering their service as a product, such as AirBnB, Fiverr, oDesk, TaskRabbit, Mechanical Turk, etc. In these marketplaces, suppliers tend to distinguish themselves in terms of customer satisfaction, speed of delivery, quality, etc.
According to ft.com/lexicon, the Financial Times’ glossary of terms, non-price competition is:
“Competing not on the basis of price but by other means, such as the quality of the product, what is on offer, packaging, customer service, etc.”
Non-price competition: Pros & Cons
There are several advantages associated with this type of marketing campaign:
- Better sales tactics, including social media posts, efficient forms of online advertising, and direct sales through the manufacturer.
- Improved product quality.
- Different presentation of products for varied demographics. For example, sales may increase if the same product is presented differently for men and women.
- Superior brand perception. Brands provide guidance and clarity for choices made by firms, consumers, investors and other stakeholders.
The main drawback is that consumers are not likely to notice the changes straight away which is not the case when prices are lowered.
Non-Price Competition: Pharma Companies
The pharmaceutical industry is full of brand name products and generics, which become available when the active ingredient’s patent has expired
Companies face strong pricing competition from businesses that manufacture generic equivalents of their brand-name medications.
However, in virtually every case, the brand-name owner avoids reacting with pricing strategies, and instead uses a non-price competition marketing approach.
For example, the brand name Tylenol is owned by McNeil Consumer Healthcare, a subsidiary of Johnson & Johnson. Even though the active ingredients and dosages of Tylenol are exactly the same as its generic equivalents, marketing the brand name’s quality and superiority still works, and results in healthy profits.