Difference between Price and Non Price Competition

In the case of salaried people when the company offers higher salary then also employee is happy and if the company offers perks like a foreign assignment, car and house then also employee is happy. In the same way in case of products if a customer is offered a discount then also customer is happy and if the customer is offered a product with extra features at the same price then also customer is happy. This is called price and non-price competition in business parlance. In order to understand both terms, lets look at some of the differences between price and non-price competition –

  1. The first and foremost difference is that while price based competition is dependent on the price of product whereas non-price competition is based on the features of the product. Hence companies offering price discounts is price-based competition whereas companies offering something extra and other than price discount is non-price competition.
  2. An example of price-based competition is suppose there are two soft drink manufacturers both of them are selling the cold drink at $2, now suppose one soft drink manufacturer reduces the price of soft drink to $1.8 and other manufacturer also reduces the price to $1.75 then this is called price based competition, while example of non-price based competition is car sellers so if the car sellers keep the price of car unchanged and in order to attract customers they give other benefits to customers like free insurance, accessories, free service for 3 or 5 years and so on. This practice by the car makers is an example of non-price based competition.
  3. In a case of price-based competition, the consumer shifts immediately to lower priced product provided that quality is same for both products whereas in the case of non-price based competition consumer does not shift that quickly.
  4. In short term price based competition is beneficial for the company because of shift in demand from consumers is sudden and companies earn more profits in short term but in the long term it may not be viable as there is limit beyond which companies cannot reduce the price for a product whereas in case of non-price based competition in short term it may not provide the company desired results but in the long term it is more beneficial for the company as compared to price based competition because scope of adding features to product is more than reducing the price of the product.
  5. There is only one dimension in the case of price-based competition and that is a price cut by the company whereas in a case of non-price based completion there are many dimensions like an addition of extra features by the company or providing better after sales service, loyalty discounts and so on. So, for example, a car dealer can offer either cash discount or it can offer the wide range of deals to the customer in the form of free insurance, providing chocolates and bouquet when the customer comes to take delivery of the car, free accessories like seat cover, cushions, perfume for the interior of the car and so on.

As one can see from the above that both price and non-price base competition are important as far as company is concerned and before deciding its strategy company should take into account benefits and limitations of both the strategy and then decide which is the best strategy for the company’s products

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