COMPETITION IN A FREE MARKET

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COMPETITION IN A FREE MARKET

• ENT 12

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FREE-MARKET SOCIETY

• Canadians live in a free-market society.
• Free market an economic system that permits
  profit, private property and competition

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PROFIT

• Profit is the reward a businessperson receives
  for risking time, energy, capital and reputation
• Profits may be re-invested, used to pay off debt,
  used to pay taxes, etc.

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PRIVATE PROPERTY

• A free-market society allows Canadians to hold
  private propertypeople can buy things and keep
  them, sell them, or give them away.

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COMPETITION

• Having a free market means that competition is
  allowed and encouraged.
• There are 4 major market structures
• Perfect competition
• Monopolistic competition
• Oligopoly
• Monopoly

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PERFECT COMPETITION

• A market characterized by a large number of small
  companies, none of whom have an opportunity for
  market control.
• It requires government legislation to restrict
  growth in order to prevent market dominance by
  any of the competitors.

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MONOPOLISTIC COMPETITION

• A market consisting of a large number of
  companies, each having an opportunity for a
  degree of market control.

OLIGOPOLY

• A market with a small number of large companies,
  each with a substantial amount of market control.

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MONOPOLY

• A market in which a single company has complete
  market control.
• The Canadian government regulates monopolies.

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BENEFITS OF COMPETITION

• Encourages creation of new businesses
• Wide selection of goods and services offered to
  consumers
• Increase in level of service offered by service
  businesses
• Better products at better prices
• New technology that improves our standard of
  living

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DIRECT COMPETITION

• Direct competition when companies with products
  that are very similar are competing for the same
  market
• ie. A movie theatre with stadium seating vs. the
  downtown movie theatre that makes great popcorn

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INDIRECT COMPETITION

• Indirect competition when companies with
  products that are not similar are in competition
  for a consumers discretionary income
• ie. You have 20do you spend it on pizza or a
  new DVD?

OR
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COMPETITIVE ADVANTAGES

• Businesses look for advantages over their
  competitionsome are temporary (development of a
  flavour of soft drink that is copied by a
  competitor) or sustainable or long term.

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SUSTAINABLE COMPETITIVE ADVANTAGES

• Methods by which a business holds on to its
  customers in spite of the competition by
• Developing a unique selling proposition
• Lowering production costs
• Serving a niche market
• Creating customer loyalty

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UNIQUE SELLING PROPOSITION

• Why would a target customer buy from me instead
  of from my competitor?
• I advertise more.
• I make that product in green.
• I deliver.
• This is a patented design.

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LOWERING PRODUCTION COSTS

• Using cost-efficient, high-tech systems to reduce
  costs
• Building a plant in a country with lower taxes or
  labour expenses

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SERVING A NICHE MARKET

• Providing a product or service for a small market
  and keeping competitors out of that market
• ie. Software packages for specific needs

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CREATING CUSTOMER LOYALTY

• The customer develops a strong relationship with
  the product or retailer and will not consider
  another unless the retailer makes a big mistake.

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NON-SUSTAINABLE COMPETITIVE ADVANTAGES

• Those which can be used by competitors to shift
  sales in their direction. They include
• Promotion
• Placement
• Quality
• Benefits of use
• Price
• Design features

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PROMOTION

• Achieving top-of-the-mind awareness for a brand
  (ie. Roll up the rim to win by Tim Hortons)

PLACEMENT

• To compete, a product must have a placement in
  the marketit must be there.
• ie. Seamans beverages (PEI) in Vancouver
• ie. Bottled water at a fitness centre

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QUALITY

• Businesses try to make their products stronger,
  faster, lighter, easier to open, add features to
  improve the product, etc.

BENEFITS OF USE

• The value is not in the product itself so much as
  in what that product will do for the person who
  buys it.

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PRICE

• All features being equal, price is only a
  competitive advantage if its product or service
  is less expensive than the competitors.

DESIGN FEATURES

• Consumers will buy one product rather than
  another because they like the style, the way it
  looks, or the way the product makes the consumer
  look.
• Package design also competes for customers
  attention.