Topic: Price Positioning in a competitive

Market, A case study on Tile Company

(Nitco)
Case Study Statement
 A Tile company (Nitco) is selected and their prices along with their
competitors prices are collected on field (Current Prices).
 A case in point is devised whether the prices are competitive or not?
 If some product X is expensive then their average competitors, what is
the customer opinion about that : Real Customer Survey
was done and data is recorded

Note: All collected data is attached in the form of

cloud links for ready reference.
Competition (economics)

In economics, competition is a scenario where different economic firms are in contention to obtain goods
that are limited by varying the elements of the marketing mix: price, product, promotion and place. In
classical economic thought, competition causes commercial firms to develop new products, services and
technologies, which would give consumers greater selection and better products. The greater the selection
of a good is in the market, prices are typically lower for the products, compared to what the price would be
if there was no competition (monopoly) or little competition (oligopoly). This is because there is now no
rivalry between firms to obtain the product as there is enough for everyone. The level of competition that
exists within the market is dependent on a variety of factors both on the firm/ seller side; the number of
firms, barriers to entry, information availability, availability/ accessibility of resources. The number of
buyers within the market also factors into competition with each buyer having a willingness to pay,
influencing overall demand for the product in the market.

Adjacent advertisements in an 1885 newspaper for the makers

of two competing ore concentrators (machines that separate
out valuable ores from undesired minerals). The lower ad touts
that their price is lower, and that their machine's quality and
efficiency was demonstrated to be higher, both of which are
general means of economic competition.

Firm competition
Empirical observation confirms that resources (capital, labour, technology) and talent tend to concentrate
geographically (Easterly and Levine 2002). This result reflects the fact that firms are embedded in inter-
firm relationships with networks of suppliers, buyers and even competitors that help them to gain
competitive advantages in the sale of its products and services. While arms-length market relationships do
provide these benefits, at times there are externalities that arise from linkages among firms in a geographic
area or in a specific industry (textiles, leather goods, silicon chips) that cannot be captured or fostered by
markets alone. The process of "cauterization", the creation of "value chains", or "industrial districts" are
models that highlight the advantages of networks.
Perfect competition
Neoclassical economic theory places importance in a theoretical market state, in which the firms and
market are considered to be in perfect competition. Perfect competition exists when all criteria are met,
which is rarely (if ever) observed in the real world. These criteria include; all firms contribute
insignificantly to the market,[3] all firms sell an identical product, all firms are price takers, market share has
no influence on price, both buyers and sellers have complete or "perfect" information, resources are
perfectly mobile and firms can enter or exit the market without cost.[4] Under perfect competition, there are
many buyers and sellers within the market and prices reflect the overall supply and demand. Another key
feature of a perfectly competitive market is the variation in products being sold by firms. The firms within
a perfectly competitive market are small, with no larger firms controlling a significant proportion of
market share.[4] These firms sell almost identical products with minimal differences or in-cases perfect
substitutes to another firms product.

Imperfect competition[]
Imperfectly competitive markets are the realistic markets that exist in the economy. Imperfect competition
exist when; buyers might not have the complete information on the products sold, companies sell different
products and services, set their own individual prices, fight for market share and are often protected by
barriers to entry and exit, making it harder for new firms to challenge them.[6] An important differentiation
from perfect competition is, in markets with imperfect competition, individual buyers and sellers have the
ability to influence prices and production.[7] Under these circumstances, markets move away from the
neoclassical economic definition of a perfectly competitive market, as the market fails the criteria and this
inevitably leads to opportunities to generate more profit, unlike in a perfect competition environment,
where firms earn zero economic profit in the long run.[6] These markets are also defined by the presence of
monopolies, oligopolies and externalities within the market.

Types of imperfect competition

Monopoly
Monopoly is the opposite to perfect competition. Where perfect competition is defined by many small
firms competition for market share in the economy, Monopolies are where one firm holds the entire market
share. Instead of industry or market defining the firms, monopolies are the single firm that defines and
dictates the entire market.[8] Monopolies exist where one of more of the criteria fail and make it difficult for
new firms to enter the market with minimal costs. Monopoly companies use high barriers to entry to
prevent and discourage other firms from entering the market to ensure they continue to be the single
supplier within the market. A natural monopoly is a type of monopoly that exists due to the high start-up
costs or powerful economies of scale of conducting a business in a specific industry

Oligopoly[]
Oligopolies are another form of imperfect competition market structures. An oligopoly is when a small
number of firms collude, either explicitly or tacitly, to restrict output and/or fix prices, in order to achieve
above normal market returns.[11] Oligopoly can be made up of two or more firms, however, it is a market
structure that is very highly concentrated. Only a few firms dominate, for example, major airline
companies like Delta and American Airlines operate with a few close competitors, but there are other
smaller airlines that are competing in this industry too.[12] Similar factors that allow monopolies to exist also
facilitate the formation of oligopolies

Monopolistic competition[]
Monopolistic competition characterises an industry in which many firms offer products or services that are
similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are
low, and the decisions of any one firm do not directly affect those of its competitors. [14] Monopolistic
competition exists in-between monopoly and perfect competition, as it combines elements of both market
structures.

Dominant firms[]
In several highly concentrated industries, a dominant firm serves a majority of the market. Dominant firms
have a market share of 50% to over 90%, with no close rival. Similar to a monopoly market, it uses high
entry barrier to prevent other firms from entering the market and competing with them. They have the
ability to control pricing, to set systematic discriminatory prices, to influence innovation, and (usually) to
earn rates of return well above the competitive rate of return.[13] This is similar to a monopoly, however
there are other smaller firms present within the market that make up competition and restrict the ability of
the dominant firm to control the entire market and choose their own prices. As there are other smaller firms
present in the market, dominant firms must be careful not to raise prices too high as it will induce
customers to begin to buy from firms in the fringe of small competitors

Competitive equilibrium[]
Competitive equilibrium is a concept in which profit-maximising producers and utility-maximising
consumers in competitive markets with freely determined prices arrive at an equilibrium price. At this
equilibrium price, the quantity supplied is equal to the quantity demanded.[17] This implies that a fair deal
has been reached between supplier and buyer, in-which all suppliers have been matched with a buyer that
is willing to purchase the exact quantity the supplier is looking to sell and therefore, the market is
in equilibrium.
The competitive equilibrium in economic theory is considered to be a part of game theory which deals with
decision making of firms in large markets. The overall concept acts as a benchmark for evaluating
efficiency in the market and how far off the market is from equilibrium

Role in market success[]

Competition is generally accepted as an essential component of markets, and results from scarcity—there
is never enough to satisfy all conceivable human wants—and occurs "when people strive to meet the
criteria that are being used to determine who gets what." In offering goods for exchange, buyers
competitively bid to purchase specific quantities of specific goods which are available, or might be
available if sellers were to choose to offer such goods. Similarly, sellers bid against other sellers in offering
goods on the market, competing for the attention and exchange resources of buyers
National competition
Economic competition between countries (nations, states) as a political-economic concept emerged in trade
and policy discussions in the last decades of the 20th century. Competition theory posits that while
protectionist measures may provide short-term remedies to economic problems caused by imports, firms
and nations must adapt their production processes in the long term to produce the best products at the
lowest price. In this way, even without protectionism, their manufactured goods are able to compete
successfully against foreign products both in domestic markets and in foreign markets

Positioning (marketing)
Positioning refers to the place that a brand occupies in the minds of the customers and how it is
distinguished from the products of the competitors and different from the concept of brand awareness. In
order to position products or brands, companies may emphasize the distinguishing features of their brand
(what it is, what it does and how, etc.) or they may try to create a suitable image (inexpensive or premium,
utilitarian or luxurious, entry-level or high-end, etc.) through the marketing mix. Once a brand has
achieved a strong position, it can become difficult to reposition it.

Developing the positioning statement[]

The STP approach highlights the three areas of decision-making

Positioning is part of the broader marketing strategy which includes three basic decision levels, namely
segmentation, targeting and positioning, sometimes known as the S-T-P approach:
Segmentation: refers to the process of dividing a broad consumer or business market, normally
consisting of existing and potential customers, into sub-groups of consumers (known as segments)
[25]

Targeting: refers to the selection of a segment or segments that will become the focus of special
attention (known as target markets).[26]
Positioning: refers to an overall strategy that "aims to make a brand occupy a distinct position,
relative to competing brands, in the mind of the customer".[27]
In general terms, there are three broad types of positioning: functional, symbolic, and
experiential position. Functional positions resolve problems, provide benefits to customers,
or get favorable perception by investors (stock profile) and lenders. Symbolic positions
address self-image enhancement, ego identification, belongingness and social
meaningfulness, and affective fulfillment. Experiential positions provide sensory and
cognitive stimulation

Differentiation vs positioning
Differentiation is closely related to the concept of positioning. Differentiation is how a company's product
is unique, by being the first, least expensive, or some other distinguishing factor. A product or brand may
have many points of difference, but they may not all be meaningful or relevant to the target market.
Positioning is something (a perception) that happens in the minds of the target market whereas
differentiation is something that marketers do, whether through product design, pricing or promotional
activity

Approaches Example

Preemptive positioning
Smith's Chips – the original and still the best
(Being the first to claim a benefit or feature)

Superlative positioning
(Being the best or exhibiting some type of The burgers are better at Hungry Jack's
superiority)

Exclusive positioning
XYZ Ltd – a Fortune 500 company
(Being a member of an exclusive club or group)

Positioning within a category

Within the prestige car category, Volvo is the safe
(Strong registration of both category and brand) alternative

Positioning by competitor strategy

Avis – we're number two, so we try harder
(Use competitor's strategy as a reference point)

Positioning according to product benefit(s)

Toothpaste with whitening, tartar control or enamel
(Emphasize a problem, need or benefit where
protection
the firm
(or multiple benefits)
can offer superior satisfaction)

Positioning according to product attribute Dove is one-quarter moisturiser

Pricing strategies
Contribution margin-based pricing
Contribution margin-based pricing maximizes the profit derived from an individual product, based on the
difference between the product's price and variable costs (the product's contribution margin per unit), and
on one's assumptions regarding the relationship between the product's price and the number of units that
can be sold at that price. The product's contribution to total firm profit (i.e. to operating income) is
maximized when a price is chosen that maximizes the following:

Cost plus pricing

Cost plus pricing is a cost-based method for setting the prices of goods and services. Under this approach,
the direct material cost, direct labor cost, and overhead costs for a product are added up and added to a
markup percentage (to create a profit margin) in order to derive the price of the product.
Creaming or skimming
Price skimming occurs when goods are priced higher so that fewer sales are needed to break even. Selling
a product at a high price, sacrificing high sales to gain a high profit is therefore "skimming" the market.
Skimming is usually employed to reimburse the cost of investment of the original research into the
product: commonly used in electronic markets when a new range, such as DVD players, are firstly sold at
a high price. This strategy is often used to target "early adopters" of a product or service. Early adopters
generally have a relatively lower price sensitivity—this can be attributed to: their need for the product
outweighing their need to economize; a greater understanding of the product's value; or simply having a
higher disposable income.

Decoy pricing
Method of pricing where the seller offers at least three products, and where two of them have a similar or
equal price. The two products with the similar prices should be the most expensive ones, and one of the
two should be less attractive than the other. This strategy will make people compare the options with
similar prices; as a result, sales of the more attractive high-priced item will increase.

Differential pricing
Differential pricing occurs when firms set various prices for the same product depending on their
consumer's portfolio, geographic areas, demographic segments and the intensity of competition in the
region.[5]

Double ticketing
A form of deceptive pricing strategy that sells a product at the higher of two prices communicated to
the consumer on, accompanying, or promoting the product.[6]

Freemium
Freemium is a revenue model that works by offering a product or service free of charge (typically digital
offerings such as software) while charging a premium for advanced features, functionality, or related
products and services. The word "freemium" is a portmanteau combining the two aspects of the business
model: "free" and "premium". It has become a highly popular model, with notable successes.

High-low pricing
Methods of services offered by the organization are regularly priced higher than competitors, but through
promotions, advertisements, and or coupons, lower prices are offered on key items. The lower promotional
prices designed to bring customers to the organization where the customer is offered the promotional
product as well as the regular higher priced products.[7]

Keystone pricing
A retail pricing strategy where retail price is set at double the wholesale price. For example, if a cost of a
product for a retailer is £100, then the sale price would be £200. In a competitive industry, it is often not
recommended to use keystone pricing as a pricing strategy due to its relatively high profit margin and the
fact that other variables need to be taken into account.[8]

Limit pricing

A limit price is the price set by a monopolist to discourage economic entry into a market. The limit price is
the price that the entrant would face upon entering as long as the incumbent firm did not decrease output.
The limit price is often lower than the average cost of production or just low enough to make entering not
profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than
would be optimal for a monopolist, but might still produce higher economic profits than would be earned
under perfect competition.
The problem with limit pricing as a strategy is that once the entrant has entered the market, the quantity
used as a threat to deter entry is no longer the incumbent firm's best response. This means that for limit
pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to
achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs
or not. An example of this would be if the firm signed a union contract to employ a certain (high) level of
labor for a long period of time. In this strategy price of the product becomes the limit according to budget.

CASE STUDY ON TILE COMPANY (NITCO)

How to Price a Product – and what to consider 
 

1. Price Environment
Your price environment determines the level of control you have over competitive pricing.
Price environments are either market-controlled, company-controlled or government
controlled. A market-controlled environment shows a higher level of competition with similar
products and little price control by individual companies.

A company-controlled environment shows moderate competition because of unique goods

and services, and a lot of price control by individual firms. In a government-controlled
environment, the government takes input from related companies and then determines prices.

2. Competitive Product
Competitive pricing relies on three product styles: lasting distinctiveness, low cross elasticity
and perishable distinctiveness. Products with lasting distinctiveness are ones that will always
stand out from the crowd, such as pharmaceuticals protected by patent laws. Low cross
elasticity means the demand for the product will rise, such as with a software upgrade.

Products with perishable distinctiveness are unique in the beginning but fall to medium
distinctiveness after a period of time and would include popular technology products.

3. Price Range
Every product has a price range. To decide where you fit on the current price range of your
competitors or if you should choose something outside it, compare your product to those of
your competitors. Customers use the existing prices as a guide to what is normal or
considered a good deal, so be prepared to handle the consequences of pricing outside the
standard range by selling
4. Target Market
Consider adapting products to suit the needs of particular customer groups. This might
involve offering economy, standard and premium versions. This market segmentation
approach can build loyalty and see customers progress to higher price points as their
circumstances and needs change. Offer a free warranty or after-care service to differentiate
yourself from the competition.

5. General Strategies
Your price relationship to your competitor falls into one of four categories These are pure
parity, dynamic parity, premium pricing strategy or discount pricing strategy.

 With pure parity, your price always equals that of your competitor: they set the price
and you match it.

 Dynamic parity happens when you pick a competitor and keep the gap between their
price and yours the same.

 Premium pricing is pricing higher than the competitors, but you gain a position of
higher perceived benefits.

 With discount pricing, you always keep the price cheaper than competitors. Discount
pricing is most commonly used by generic or store brands.

6. Pricing Intelligence Software

Pricing intelligence tools help you gain pricing insights, identify comparative price
distributions and trends, your competitors’ terms of sale, pricing policies and how they
differentiate their products from yours. Pricing intelligence information is current and
available 24/7 to help you make critical, strategic short-term decisions, while also fulfilling
long-term goals. 

Achieving Pricing Success

A key component to pricing your product right is to continuously monitor your prices and
those of your competitors. In order to remain competitive you owe it to yourself and to your
business to be relentless in managing your prices. Remember, how you set the price of the
products in relation to your competitors could be the difference between the success - or
failure - of your business.

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