1.3.6 The competition Flashcards
Why might market mapping be useful for a business
Allows for gaps to be identified in a market and they can benefit from this by using the information and supplying what the customer really wants.
How can market mapping be useful for firms?
They may gain a competitive edge as exploiting gaps in the market means they are the only firm supplying that specific good/service in the market. This is usually done through product differentiation.
Explain how product differentiation can give firms a competitive advantage
When a firm has differentiated products from its competitors it means they have a USP and if they effectively advertise this than customers may be drawn to this. If the differentiated products are of higher quality then its likely customers will remain demanding their product and so they do not have to compete on price with competitors.
How may a business decide its price level?
Competitive pricing, penetration pricing, cost plus pricing, premium pricing and price skimming.
Explain competitive pricing
Ads/disads
Firms compete with each other in terms of price, if the business in the market is a price setter they may benefit from this as they decide price level in a market. However if a business is a price taker then there’s no competitive advantage and have to focus on other methods in gaining competitive advantage such as product differentiation.
Explain cost-plus pricing
Ads/disads
A business will calculate its costs then price their goods above their levels of costs in order to ensure price is covering costs avoiding loss. Although this doesn’t take into account price sensitivity. e.g elasticity of demand.
Explain price penetration
Firms will put their prices as low as possible in order to gain greater market share quickly. In the short run its likely to lea to a fall in profits however can benefit in the long run. Also will gain competitive advantage.
Explain premium pricing
A business will price their goods substantially high. This can create the illusion of high quality too influencing customers to buy the products however they lose competitive in terms of price. Also doesn’t take into account price sensitivity and PED.
Explain price skimming
This is where a business sets its price high before any rivals enter the market. This means they can reep the rewards of super normal profits whilst they are a monopoly however as competition increases in the market they will lower prices to remain competitive.
