Why firms compete? And how do they do it? (Guille F.)

Competing for the market

• Competition is mostly good for the consumer as it encourages firms to...
• Use their resources efficiently to reduce costs
• Lower their prices
• Innovate:  Develop new and better products and fearures for consumers to have a wide range of products
• Reasons to compete
1. To increase their customer base
•  Firms will compete on prices, product quality and through promotional strategies
• More revenue, if the costs of increased competition do not rise as fast...
•  + PROFIT
2. To increase sales
• Existing customers can buy more and provide repeat custom, make the consumption of this product a habit
• Cutting prices for price elastic products
•  Promotional stratagies like free gifts can also create a brand image and encourage customer loyalty
3. To expand market share
• Proportion of total market volume
• More capacity to withstand new competition
4. To achieve product superiority
1. Making a product completely better than the rest
2. Outsell all other competitors
5. To enhance image
• Improve its organizational image
• The opinion customers have on the company will be reflected in their demand for that product
6. To maximize profits
• All of the above will contribute to an increase in the total profits of the firm

Types of competition:

• Price competition
• Offer customers the lowest or most similar prices to rival products
• Boost sales and market share
• Will attract more competitors
• Highly limited by the market and the costs of production
• For price inelastic products, a cut in prices will not boost sales and the margin between the market price and the average cost per product will reduced. (Loss of profit)
• Non-price competition 
• Competing on all other product features
• New product development
• Product placement in retailers
• After-sales care
• Promotional campaigns
• Advertising
• In-store displays and decoration
• Competition
• Loyalty cards
• Encourages product quality to increase as customers are not just looking for the cheapest product or service
• They are looking for the one with the best quality-price characteristics
•  Ease of purchase
• Levels of customer service
• After-sales care
• Insurance
• Support
• Refund, etc.