The effect of competition on service delivery

In a free market economy such as Australia, it is considered beneficial for consumers to be able to choose among a number of service providers or to be able to select from a range of alternative products. The availability of alternative products or services in the market place creates competition among suppliers and this competition works in favour of the consumer via the two following mechanisms:

  1. In a competitive market place, suppliers are caused to improve their products for fear of losing customers to competitors
  2. In a competitive market place, suppliers are caused to maintain lower profit margins for fear of being undercut by competitors

These benefits for consumers underlie the reasons why governments in free market economies seek to reduce the occurences of monopolies (Collins dictionary defines a monopoly as occurring when an enterprise or person has exclusive control of the market supply of a product or service).

However despite the tendency for highly competitive markets to pressure suppliers into improving their products and pursuing cost minimization, there is a likelihood of this competition to have the following effects:

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The Convergence Phenomena

Competition between business or organisations can cause a phenomena known as "convergence".

Each supplier in the market place maintains a watch on what other competitors do. If one supplier improves their product or service, the innovation creates only a temporary advantage. Other competitor will move quickly to copy the innovation and thereby eliminate the advantage of that supplier. It therefore becomes increasingly harder for consumers to differentiate or distinguish between suppliers.

Price wars between businesses

In a highly competitive market it may be dangerous to compete on price alone. For example, a sport club may be tempted to cut its prices in the hope of increasing membership. However, this may cause other nearby clubs to retaliate and in such a situation, no club emerges the winner.

Now the situation is that clubs have even less revenue to provide services and so eventally the consumer loses also. Clubs will be forced to cut programs an the quality of service drops.

If the price-cutting continues, there is a risk that weaker organisations may go out of business. Thus the end consumer has less choice.

Effect of competition on level of service

There is a strong argument that, in a competitive marketplace, sport clubs must compete on the quality and complexity of services rather than price. Efforts to increase membership should concentrate on improving quality of programs and communicating the benefits of participation.

In the sport and recreation industry evnironment, organisation tend to compete on the success of programs i.e. which clubs have the most successful teams. However, there are many other factors that distinguish the level of service and make it more appealing to the consumer. For example, the attractiveness of the facilities, the friendliness of staff, availability of food, better parking, the effectiveness of communication systems and teh availability of social events will have a major impact on the majority of consumers.

The importance of service delivery is such that consumers are often prepared to pay a premium price for a better service. The view that consumers will, when products are exactly the same, choose the lower priced product is too simplistic. An example might be a consumer's choice of bank. A consumer may choose a bank knowing that the fees

Customer loyalty

In a competitive market place sporting organisations aim to create customer loyalty. This occurs when consumers continue to prefer a particular organisation even when there is evidence of attractive services and prices at other organisations.

Customers often continue to prefer a particular sport organisation so long as nothing breaks the customer loyalty. However, something as small as an argument with a staff members or member of the committee is all it takes to make the customer move to a new (competitor) organisation .

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