Product differentiation and non-price competition should be of great importance for all companies that would like to stay competitive in industries with a large number of rival companies. Product differentiation means that the firm should create a product that is “considered unique in some aspect that the customer values because the customer’s needs are satisfied” (Dirisu et al., 2013, p.260). In turn, non-price competition is concerned with “any activity by firms that shifts the demand for producers without directly affecting their prices” (Turino, 2009, p. 4). In this paper, these two popular notions will be discussed in detail in order to show how they may contribute to managing rivalry and increase industry’s profitability.
Chenhall and Langfield-Smith (1998) state that product differentiation may rely on five variables: product quality, quickness of delivery, making changes in design, launching new products and offering unique features (cited in Dirisu et al, 2013, p. 262). So there should be plenty of alternatives that companies may apply in order to differentiate their products or services. Taking into account the technological progress and technology-driven competition, one may presume that companies will have to work more actively in the next years in order to make sure that their product differentiation strategy corresponds to the customer needs that have tendency to quickly change. Thus companies have to develop more complex products or services in order to stay competitive.
The latest example is acquisition of LinkedIn by Microsoft that will help both companies to have a competitive advantage by offering unique features to users. Microsoft will receive access to more than 430 million users of LinkedIn and make LinkedIn accessible via Microsoft software. Consequently, LinkedIn’s monetization will improve thanks to targeted advertising and subscriptions (Warren, 2016). This example shows that to “outbid competitors for customers, the organization must create total value that is greater than or at least as great as that of its customers” (Dirisu et al, 2013, p. 263). Microsoft and LinkedIn possess enough resources in order to improve all five variables of product differentiation. Other companies in IT and other industries will probably have fewer financial capabilities. Nevertheless, there are always options that could lead to product differentiation.
In terms of non-price competition, companies usually avoid reduction in price and use various marketing techniques in order to win customers (Vashisht, p.176). Non-price competition is very important for the companies, because it allows companies not to depend too much on the price factor and have enough resources for marketing, R&D, enhancement of supply chain management, etc. Price wars are very harmful for most companies in any industry. Therefore, it is better to focus on building up a strong and distinctive brand entity if there are many rivals. Extensive promotions, PR, customer relationship marketing, etc. may help a company to attract and retain customers. One can see that nowadays the non-price competition is fierce, but it contributes to increase in industries’ overall profitability, because consumers learn the value of products/services and thus make their buying decisions not only because of a good price.
For example, in electronics industry Apple pays a lot of attention to non-price competition. Advertisements and image are crucial for this company and therefore Apple had to spent $1.8 billion on advertising in 2015 (Spanier, 2015). The rest of the companies must not stay behind and therefore the whole industry looks innovative and attractive for customers. Proper product differentiation and non-pricing competition lead to better supply of products. Nevertheless, if advertising expenses are too high, companies will not have enough resources for designing new products. Therefore, companies should set up priorities and implement complex business strategies that will help to align advertising and marketing with product differentiation.
References
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competitive advantage and optimal organizational performance (a study of Unilever
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Turino, F. (2009). Non-price competition, real rigidities and inflation dynamics. Serie AD.
Instituto Valenciano de Investigaciones Económicas, S.A. Retrieved from http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-17.pdf
Spanier, G. (30 October 2015). Apple ad spend rises 50% to record $1.8 billion. Campaign.
Retrieved from http://www.campaignlive.com/article/apple-ad-spend-rises-50-record-
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Vashisht, K. (2005). A Practical Approach to Marketing Management. Atlantic Publishers &
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Warren, T. (June 13, 2016). Why is Microsoft buying LinkedIn? The Verge. Retrieved from
http://www.theverge.com/2016/6/13/11920938/microsoft-linkedin-
acquisition-why-report
