A price maker is a company or an individual in a market that has the power to influence the price of a certain good due to monopoly or the high quality of their product. Price makers usually do not have competitors, and if they have their products are more valued.
A price taker is usually a company or an individual who does not have any influence in the market price of the goods. Most investors are usually price takers, as they have to accept the price set in the market in order to sell their products. Price takers contrasts with price makers.
Roles of competitive dynamics within the context of strategic business planning
Competitive dynamics is the study of how companies take actions in a market in order to gain profits or improve their products or services. These actions usually affect the industry in different ways, as companies tend to compete. One of the most pivotal roles in competitive dynamics is usually to gain profits. Companies in a monopolistic market tend to strategize to make profits just like the market leader. Profits made by the market leader usually motivate the other companies to take action, which can be termed as creative destruction.
Secondly, companies will usually want to introduce a new product in a firm in order to keep the competition. When one company tends to be running the market, the others may have to introduce a new product to create competition. This new product will create curiosity among the buyers who will want to try it thus creating competition for the old product.
Considerations to be made in a highly competitive environment where firms are price takers
Firstly, the supply and demand of a product should be considered in a market environment, which has many price takers. Supply and demand usually determine the profit that the firm would make at the long run. An individual or a firm should not risk joining a price takers business environment that has low demand.
Inflation entails the general rising of price of products in a business environment. A rise in price will always affect the purchasing power of products by the buyers. In a price takers business environment, this may be tricky and; thus, should be genuinely considered.
Lastly, market policy should also be put into consideration. It is somewhat risky businesswise being a price taker. Considering this, a person should study the policies put into place before venturing into a price taker market.
Considerations to be made in a highly competitive market environment where firms are price makers
Firstly, the demand of the product should be considered. In a market that has price takers, it is usually hard to convince the buyers why they should buy your product on whatever price you have set. The price makers should have the persuasive power in order to gain more customers in the market.
Secondly, branding is usually an essential thing to be considered. The high competition calls for a unique branding so that you can appeal to a larger audience. In addition to branding, price maker’s environment needs a firm to consider high marketing of a product and create product features.
Furthermore, an individual or a firm has to learn about the market needs. At some point, some market environments can be certainly resistant to change or introduction of a new product. Price makers should always consider if the buyers may need a change or not.
Lastly, factoring the gross profit is essential. Gross comprises of the resulting money excluding the production cost. In a highly competitive market with price makers, one may also experience high losses due to lack of consideration of the gross margin.
In conclusion, it is more advised to be your own price maker rather than the price so that you can set price anywhere on the demand curve. Various points should be considered in environments that comprise of price makers and price takers. Such include the market policy, inflation, and branding.