2.5 Competitive Environment

• PESTLE

  1. Political
  2. Economic
  3. Social
  4. Technological
  5. Legal
  6. Environmental/Ethical
• Example of Political Factors

  • Competition Policy
  • Industry regulation
  • Government spending and tax policies
  • Business policy
• Examples of Economic Factors

  • Interest rates
  • Consumer spending and income
  • Exchange rates
  • Business cycle (GDP)
• Examples of Social Factors

  • Demographic change
  • Impact of pressure groups
  • Consumer tastes and fashions
  • Changing lifestyles
• Examples of Technological factors

  • Disruptive technologies
  • Adoption of mobile tech
  • New production processes
  • Big data and dynamic pricing
• Examples of Legal Factors

  • Employment Law
  • Minimum/Living Wage
  • Health and Safety Laws
  • Environmental Legislation
• Examples of Ethical/Environmental Factors

  • Sustainability
  • Tax practices
  • Ethical sourcing (supply chain)
  • Pollution and carbon emissions
• Business Cycle aka Economic Cycle

  The sequence of slump, recovery, boom and recession

  Measured by changes in GDP from one quarter to the next
• Stages in the Business Cycle

  
• Main Causes of the Cycle

  • Changes in level of business/consumer confidence (spending)
  • Alternating periods of stocking an de-stocking
  • Changes in value of consumer spending and business investment
  • Changes in government policy which can cause changes to economy
• Real Income

  • measures the amount of disposable income available to consumers (households and individuals)
• Key Factors that affect Real Income

  • Price inflation
  • Wage growth
  • Employment levels
  • Interest rates
  • Government tax policy
  • Location
• Interest Rate

  The reward for saving

  The cost of borrowing

  Expressed as a percentage of money saved/borrowed
• What happens when Interest Rates fall?

  1. costs of servicing loans/debt reduced
  2. consumer confidence increase - more spending
  3. disposable incomes rise - mortgage lowers
  4. more demand - higher property prices
  5. exchange rates and exports are cheaper
  6. currency increases exports
• What happens when Interest Rates rise?

  1. cost of borrowing increases
  2. higher mortgage payments
  3. repayments on debt increases
  4. higher IR causes pound to get stronger
  5. UK exports more expensive in overseas markets
  6. slowdown in housing market
• Exchange Rate

  • price of one currency expressed in terms of another currency
  • SPICED - Stronger Pound Imports Cheaper Exports Dearer
• Factors determining effect of changing exchange rates on businesses

  
• Government Spending - Fiscal Policy

  • Involves the use of government spending, taxation and borrowing to afford the growth of demand
• Why does the Government tax?

  1. Raise finance
  2. managing demand
  3. taxes may help market failures
  4. influence social behaviour
• Employment Law

  • Pay - Equality
  • Basic rule - men and women entitled to equal pay for work of equal value
  • Pay - National living wage
• Discrimination

  Illegal to discriminate against:

  • Disability
  • Race
  • Age
  • Sexual Orientation
  • Religion
  • Sex
  • Pregnancy
• Business to Consumer (B2C)

  • Any business that sells goods or provides services to consumers
• Consumer Protection Legislation

  • no misleading advertising
  • customers have the right to return
  • services must be:
  • must be done at reasonable price and by time started
  • customers have the right for a cooling off period
• Main Consumer Laws

  • Distance selling regulations
  • gives consumers protection when they buy goods online
  • Sales of Goods Act
  • as described, fit for purpose and satisfactory quality - if not, return.
  • Supply of Goods and Services Act
  • Trade Descriptions Act
• Environmental Legislation

  • Emissions into the air
  • Storage, disposal and recovery of business waste packaging
  • Storing and handling hazardous substances
  • Discharges of wastewater
• Aims of Competition Policy:

  • wider consumer choice in markets
  • effective price competition between suppliers
• Price fixing - what is not allowed.

  • Agreeing prices with competitors
  • Share markets or limit production to raise prices
  • cut prices below cost to force competitor out the market
• Abuses of dominant position:

  • imposing unfair trading terms
  • excessive, predatory pricing
• Penalties for getting caught abusing laws:

  • up to 10% off annual turnover
  • criminal prosecution
  • disqualification of directors
  • civil action by those affected
• Health and Safety Laws

  • preventing people from being harmed at work or becoming ill by taking the right precautions and providing a satisfactory working environment
• Health + Safety responsibilities

  • Employers have important responsibility
  • Health + Safety is to do with anybody who comes into contact with the business
  • Members of public
  • anyone affected by products and services
• Examples of Health + Safety Industry Issues

  • food processing (hygiene)
  • hotels (guest safety and hygiene)
• Competitiveness

  • ability of a business to deliver better value to customers than its competitors
• Key Issues to consider around Competition

  • Determinants of competitiveness
  • Methods of improving competitiveness
  • degree of competition
  • impacts of market conditions
• What is competitive advantage?

  • ability of business to add more value for its customers than its rivals, and attain position of relative advantage
• Determinants of competitiveness

  • number and size of business
  • extent of barriers to entry
  • extent to which products can be differentiated
  • legal factors
• Restrict Competition by:

  • product differentiation
  • access to raw materials and distribution channels
• Porters Five Forces

  1. Power of Customers
  2. Power of Suppliers
  3. Threat of Market Entry
  4. Threat from Substitutes
  5. Intensity of Rivalry
• Market Forces - what can be done:

  • customer reliance
  • focusing market efforts on most profitable customers
  • supplier reliance
  • build relationships
  • have alternative source of supply
• Barriers to Entry - what can be done

  • build a brand
  • operate efficiently to compete at low-cost
  • capture fair share of distribution