Importance Of Competitive Behavior

Competitive Behavior

Competitive behavior plays an essential role in the process of making pricing decision for global marketer. Merriam-Webster (2015) defines competition in business as the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms. Meanwhile, according to Richards L., pricing strategies must be devised to represent the value of the product, the perceptions of customers and a relative position against other competitive alternatives available in the market. The results of the pricing strategy will not only depend on consumer response, but also on the reaction of competitors. For example, if competitors do not adjust their prices in response to rising costs

Competitive response behavior can be examined in several ways. One of them is by competitive response profiles. Major deviations from competitors’ price levels are possible through significant competitive advantages. The most important advantages of competitive pricing are associated to costs and unique product values. Cost advantages exist when the product can be produced or distributed at a lower unit cost than competitors which resulted from better skills or resources. Unique product value results from mostly tangible or intangible product characteristics that are appreciated by consumers and distinguish the product from its substitutes. Unique product value can reduces of price sensitivity of consumers, thus enabling the firm to set prices above the competitors’

There are 5C: Conflict, Competition, Coexistence, Co-operation and Collusion. For conflict, the company will faced aggressive competitor which intended to force out the company from the market. In this form, mostly the market are control by a company where have high stake in the market. So, when there is new competitor, the company becomes aggressive by cutting prices in order to protect their business since they have invested a huge amount of assets. This will affect the growth of market when it comes to stiff competition.

The second C which takes the competition form is regarding how to perform better in terms of sales, profit and market share. In this form, a company will study competitor reaction when setting its strategy to destroy the market structure which can affect the overall profitability. For example, the price wars can be avoided if competitors believe that their long term effect will be to reduce industry profitability.

The third C which takes the coexistence form may arise due to several reasons. The first reason is when a company may not able to recognize other companies in the same market segments. The second reason is when a company permits their competitors’ territories in terms of geographical area, market segment, or product technology, and stay away from them to avoid direct competition with