competitive environment

• What is the competitive environment?

  the nature of the market a business operates in, in terms of the dynamic relationship between consumers and suppliers
• What is Porters 5 forces?


  A framework that can be used to analyse the nature of the competition in a market
• What are Porters 5 forces?

  -Entry threat (barriers to entry)

  -Buyer power

  -Supplier power

  -Rivalry

  -Substitute threat
• What is entry threat?

  A barrier to entry is a physical and technological factor that makes it difficult for a rival business to enter the market
• What are some barriers to entry?

  -Existence of large companies dominating resources

  -Brand loyalty to existing businesses

  -Capital expenditure to enter the market is high

  -Specialist knowledge
• What are strategies businesses can make to create high barriers to entry?

  -Growth e.g. economies of scale can keep prices low and make it difficult for small business to enter the market.

  -Create a USP and price inelastic products

  -Build strong relationship with buyers, making it difficult for new entrants

  -Innovation of new products can help businesses stay ahead of competition.
• What is buyer power?

  The power buyers have to negotiate prices.
• When is buyer power high?

  -There is little difference between products offered by competitors

  -Products are price sensitive

  -Easy for buyers to switch between competitors
• What is the impact of buyer power on functional/strategic decisions?

  Marketing : advertising campaign

  Finance : offer favourable terms to new customers

  Operations : mass customisation to appeal to more customers

  HR: increase training for sales team

  
  

  -Lowering prices to attract customers

  -Forward vertical integration
• What is supplier power?

  The power the suppliers have to negotiate terms and prices. This power may change if the supply of a commodity fluctuates
• When is supplier power high?

  -Few supplies

  -Suppliers product is essential for production

  -The supplier is able to integrate vertically forward and sell direct to the businesses customers

  -Low availability of substitutes
• What is the impact of supplier power on strategic/functional decisions ?

  Marketing : diversify product range

  Finance : increasing gearing to reduce need to buy on credit

  Operations : build relationships with suppliers

  
  

  Backward vertical integration
• Rivalry within the market


  This is the level of competition and aggressive rivalry between businesses within the market. As markets grow, new businesses enter the market which increases competition.
• When is competition in a market fierce?

  -Easy entry to market

  -Easy for customers to switch

  -Little differentiation of products
• What is the impact of rivalry on functional/strategic decision making?

  Marketing : R&D, product development, creating strong brand image through investment in promotional activities

  Finance : reinvesting profits into new products

  Operations : mass customisation to increase USP

  HR: recruit and train staff to develop creativity

  Other options...

  -Takeover, merger or strategic alliance

  -Lower costs of production and prices to compete
• What is the threat of substitutes?


  An alternative product that may deliver the same benefits to the customer. This may change with social trends
• When is the threat of substitutes high?

  -alternative products exist

  -alternative prices fall

  -customers can easily switch to a substitute.
• What are the options for businesses to consider about threat of substitutes?

  Develop a USP

  Lower prices to attract/keep customers

  Promote benefits in comparison to substitute product

  Invest in R&D to create unique features

  Establishing a strong brand identity
• How might the 5 forces shape competitive strategy ?

  -the five forces can be used as an analytic tool along with SWOT analysis to assess internal and external factors.
• how is porters 5 forces criticised?

  it ignores whether the market size is expanding or declining
• What is the competitive environment?

  the nature of the market a business operates in, in terms of the dynamic relationship between consumers and suppliers
• What is Porters 5 forces?

  A framework that can be used to analyse the nature of the competition in a market
• What are Porters 5 forces?

  -Entry threat (barriers to entry)

  -Buyer power

  -Supplier power

  -Rivalry

  -Substitute threat
• What is entry threat?

  A barrier to entry is a physical and technological factor that makes it difficult for a rival business to enter the market
• What are some barriers to entry?

  -Existence of large companies dominating resources

  -Brand loyalty to existing businesses

  -Capital expenditure to enter the market is high

  -Specialist knowledge
• What are strategies businesses can make to create high barriers to entry?

  -Growth e.g. economies of scale can keep prices low and make it difficult for small business to enter the market.

  -Create a USP and price inelastic products

  -Build strong relationship with buyers, making it difficult for new entrants

  -Innovation of new products can help businesses stay ahead of competition.
• What is buyer power?

  The power buyers have to negotiate prices.
• When is buyer power high?

  -There is little difference between products offered by competitors

  -Products are price sensitive

  -Easy for buyers to switch between competitors
• What is the impact of buyer power on functional/strategic decisions?

  Marketing : advertising campaign

  Finance : offer favourable terms to new customers

  Operations : mass customisation to appeal to more customers

  HR: increase training for sales team

  
  

  -Lowering prices to attract customers

  -Forward vertical integration
• What is supplier power?

  The power the suppliers have to negotiate terms and prices. This power may change if the supply of a commodity fluctuates
• When is supplier power high?

  -Few supplies

  -Suppliers product is essential for production

  -The supplier is able to integrate vertically forward and sell direct to the businesses customers

  -Low availability of substitutes
• What is the impact of supplier power on strategic/functional decisions ?

  Marketing : diversify product range

  Finance : increasing gearing to reduce need to buy on credit

  Operations : build relationships with suppliers

  
  

  Backward vertical integration
• Rivalry within the market


  This is the level of competition and aggressive rivalry between businesses within the market. As markets grow, new businesses enter the market which increases competition.
• When is competition in a market fierce?

  -Easy entry to market

  -Easy for customers to switch

  -Little differentiation of products
• What is the impact of rivalry on functional/strategic decision making?

  Marketing : R&D, product development, creating strong brand image through investment in promotional activities

  Finance : reinvesting profits into new products

  Operations : mass customisation to increase USP

  HR: recruit and train staff to develop creativity

  Other options...

  -Takeover, merger or strategic alliance

  -Lower costs of production and prices to compete
• What is the threat of substitutes?


  An alternative product that may deliver the same benefits to the customer. This may change with social trends
• When is the threat of substitutes high?

  -alternative products exist

  -alternative prices fall

  -customers can easily switch to a substitute.
• What are the options for businesses to consider about threat of substitutes?

  Develop a USP

  Lower prices to attract/keep customers

  Promote benefits in comparison to substitute product

  Invest in R&D to create unique features

  Establishing a strong brand identity
• How might the 5 forces shape competitive strategy ?

  -the five forces can be used as an analytic tool along with SWOT analysis to assess internal and external factors.
• how is porters 5 forces criticised?

  it ignores whether the market size is expanding or declining