When a company is trying to outsell its industry rivals, it makes sense to undercut the rival companies’ prices. After all, the lesser the price, the higher the demand, right? However, this is not always the case. After all, to what extent can a company reduce its prices before it starts suffering losses? Therefore, companies in an oligopoly market or a monopolistic competition market engage in non-price competition. This is a scenario where companies focus more on product differentiation and advertising rather than competing on prices with their industry rivals.
One of the biggest examples of non-price competition is the Cola Wars. Pepsi and Coca Cola have been battling it out for decades to see who can control the soda market. In this case, both their products are almost identically priced, with neither company lowering their prices. Instead, they try to win over customers through heavy advertising. They sponsor various global events to catch the eyes of as many people as possible and run marketing campaigns to directly subvert the other company. This was evident when Pepsi launched the Pepsi Challenge in 1975. They made regular people do a blind taste test between a glass filled with Pepsi and a glass filled with Coke, and say which one they liked better. The results showed that more than half the tasters preferred Pepsi. This marketing campaign played a huge role in taking away Coca-Cola’s market share.
Coke felt the need to do something different to win back their declining market share, and therefore launched New Coke. However, New Coke was not well received, and Pepsi took full advantage of this. They launched ads that took digs at Coke, with one particular ad showing a girl wondering why Coke changed their drink, drinking Pepsi and then declaring that she understood why Coke changed their formula.
In the current day, they still compete fiercely, and sponsor various events, especially sporting events, to catch the public eye. Coca Cola sponsors the Olympics and NASCAR and Pepsi sponsors the NBA and the UEFA Champions League.
Many such companies engage in non-price competition, from Nike and Adidas to Samsung and Apple. After all, it isn’t just the price which results in the bottom line.