Firms in the textile industry can compete using pricing or non-pricing strategies. Pricing strategies involves the use and manipulation of prices to increase market share and reduce potential and existing competition in the textile industry. Non pricing strategies on the other hand refer to all the alternatives, excluding price, that a firm uses to achieve the same objectives. One of the most common pricing strategies used in the textile industry is the use of limit pricing.
This involves a firm setting a low enough price to deter new entrants from coming into the textile industry. For example, a firm would set the price of their products below the estimated average cost of the new entrant thus making the new entrant encounter a loss if they enter hence discouraging them from entering the industry. This means that the existing firms will maintain their market shares and competition is ensured in the textile industry. Limit pricing also acts as a barrier to entry hence promoting competition in the industry.
For example, in the U. K. , sales at clothes shops are very common. The prices of clothes in some shops are set at a very cheap price so as to increase their customers and to prevent entry of new firms into the industry However, if limit pricing is considered anti-competitive, the firm risks investigations and possible penalties from the competition authorities. This is because the authorities seek to promote competition in such industries so as to ensure consumers are protected and are not exploited through high prices in the future.
Penalties could exceed up to 10% of the firms annual turnover or the managers risk imprisonment. This discourages firms from engaging in anti-competitive behavior and hence will be discouraged from using limit pricing as a strategy to compete with other firms. Firms in the textile industry usually adopt non-pricing strategies. For example, advertising. Firms in this industry advertise very heavily in order to get the attention of the consumers. They advertise in newspapers, magazines (especially fashion magazines) or on billboards.
Successful adverts would mean that the consumers will buy products from the firm that had advertised and this will increase their customer base and possibly profits. Other firms will also advertise heavily and the success will depend on which advert caught the attention of the consumer. Furthermore, advertising may increase the demand for a good and may make the demand for that good inelastic. The inelastic nature of the good will then allow firms to raise price in order to cover the costs of the advertising. However, advertising can be very expensive and deciding on the right methods of advertising may be very difficult.
Furthermore, the success of the advert depends on the action of the other firms. If the other firms also decide to increase their advertising expenditure, then the firms may not be able to catch the attention of as many consumers as they intended. This would mean that the advertising was unsuccessful hence not promoting competition. Another non-pricing strategy that a firm may adopt is developing their products so that their products are unique compared to rival firms products and customers would rather buy the unique products than the ordinary ones.
For example, in the textile industry, people usually look for a particular type of fashion E. G. collared or non-collared, tight T-shirts or maybe even short-sleeved shirts as compared to long sleeve shirts. Firm in the textile industry can change their products to suite the tastes and fashions of the consumers at that time. Furthermore, the fashions change according to the seasons. For example, warmer clothes are worn during the winter as compared to the summer. Firms can develop their products in order to meet the needs of the consumers.
This would increase competition in the textile industry. However, product development can be very expensive as it may involve the purchase of different specialized machinery or employing specialized workers. This means that the firm will have to sacrifice short run supernormal profits in the hope of recovering them in the long run however the risk of not being able to recover them is there because other firms may also decide to develop their products hence not successfully promoting competition.
Another way in which firms in the textile industry may compete is by use of loyalty cards which will ensure that consumers will be loyal to that firm and not go anywhere else to shop for clothes. Loyalty card schemes involves the use of a card in which the consumer accumulates points whenever a purchase is made in the particular shop. The points can then be redeemed in the future in exchange for money or for other clothing items from that shop.
This encourages consumers to shop at such shops which offer loyalty cards. This is very common in the UK where firms such as the famous “next” or “nike” have adopted the loyalty card system. In addition to the loyalty card system, many firms offer discount cards for their shops which means that on purchase of the discount card, a consumer receives a certain discount on their shopping when the card is presented at the shop. This further encourages consumers to shop at such shops which offer discount cards.