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Why Do Firms Compete?

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Abdullah Omari

on 26 May 2014

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Transcript of Why Do Firms Compete?

Why Do Firms Compete?
2. To increase sales
Firms wish not only for more costumers, but for existing costumers to buy more products. Firms may cut prices to increase sale revenues on certain products (price-elastic ones). Firms may also use promotion (such as free gifts) to expand sales.
3. To expand market share
The market share of a firm is calculated as its proportion of the total market value of sales. Sales of the Google Android phone once accounted for 33% of smartphones sold in the world. Organizations will aim to increase their market share to widely establish its product, and to withstand new competition.
1. To increase costumer base
Firms will compete with each other in the same market on prices, product quality and through promotional strategies (advertisement). They does to increase the number of people/firms buying their products. More costumers = more revenue.
Price Competition
This involves competing to offer consumers the lowest and best prices for rival products. Cutting prices below that of rival products is one way a firm tries to boost it sales and market shares. This usually works for price-elastic products.
Non-price Competition
This involves competing on all product features other than price. This can involve new product development, product placement in different retail outlets. This can be done with promotion campaigns including advertisements, attractive in-door displays.
Non-price competition is important because consumers don't only compare prices, but also quality and ease of purchase of the good and service.
Why Do Firms Compete?
Firms advertise themselves, cut prices, evolve products to attract more consumers, make more revenue and get bigger than other firms. In this market/wilderness, the bigger the firm, the more it is likely to survive.
The market is just like the wilderness: you compete to survive. If you do not then you most likely won't survive.
4. To achieve product superiority
1. Refers to making a product that is clearly better than rival products. A superior product will help a product generate sales and expand market share.
2. This also refers to a product that dominates a market by outselling all others
5. To enhance image
Firms compete to improve its organizational image.
Poor image = reduced sales.
Good image = expand sales and market shares
The commercial promotion of goods, services, companies and ideas
Informative Advertising
provides information about a product to a consumer. it can increase product credibility and generate a good reputation for the business.also, is used to inform about a new agency or product.
Persuasive Advertising
Is designed to create a want within the consumer towards a particular product. This usually decreases the prices of rival products, and is known as "brand switching."
Advertising involves the creation of consumer wants
the main objective of persuasive advertising is to create positive consumer perception about a product, which makes the consumer have a want for that product and be loyal to the producer. this will cause the market price to increase, and cause consumers to believe that that this product is better than other similar products.
Advertising can create powerful brand images and customer loyalties
Product differentiation is when a firm differentiate its product from similar competing products to encourage consumers to buy it. Customer brand loyalty is when a customer finds a product good and he buys from it constantly and only that. This is good for the firm because the customers will be loyal and will buy from the firm even if they make the price higher.

Advertising can reduce competition
Paying too much for advertising campaign can create a barrier to the entry into that product market by new computing firms. Anyone thinking of making a firm will find it difficult to start because he will need to pay equal amounts on advertisements. This can make the firms dominant over the market
Is competition wasteful?
Advertising is a cost of production and it can use up lots of resources and unless they use this money on products, the profit will be reduced.
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