T43- Competitive environment

• How do you determine competitiveness?

  • number and size of business in market
  • having advantages over competitors by offering better quality/ service or price
• what are threats of new market entrants?

  • possibility of newcomers entering the market
  • high profits will tempt newcomers to drive down prices and profits
• what are barriers to entry?

  • finance (cost of starting a business e.g. barbers is cheaper to set up than a gym)
  • amount of knowledge required
  • advertising (advertising can cost up to millions)
  • USP ( some products can be homogenous where competition is based on price)
  • legal factors
• what is an example of perfect competition?

  • many firms all producing or selling homogenous goods
  • e.g. CDRs
• what is an example of monopolistic competition?


  competition between many firms producing differentiated good

  e.g. restaurants, fast food outlets
• what is an oligopoly?

  • competition between a small number of suppliers
  • e.g. banking, chocolate bars, tour operators
• what is a monopoly?


  single supplier

  e.g. water & gas
• what are the 3 competitive advantages?

  • USP
  • lower unit cost
  • customer service
• how does price impact business in a competitive environment?

  in a highly competitive environment,

  • businesses have less control over the prices they charge.
  • a business that charges higher prices has a risk of losing sales, as consumers switch suppliers.
  • if the business has a USP higher prices can be charged
• How does profit impact a business in a competitive environment?

  • profit margins are likely to decrease as prices are forced down
  • for a business to retain the same amount of profit they can make manufacturing more efficient this reduces unit cost meaning higher profits
• how does customer service impact a business in a competitive environment?

  • business will be under pressure to meet customer needs, business that meet those customer needs are likely to survive in the market
  • good customer service is effective communication with customers
• how does innovation impact a business in a competitive environment?

  in a highly competitive markets:

  • innovation will be encouraged.
  • if a business can design new products they may be more interest to consumers and allow business to gain a competitive advantage
  • developing a USP survives a competitive advantage
• how does product range impact a business in a competitive environment?

  • the range of products sold by a business is likely to be strongly influenced competition
  • if a business extends its range with a new product usually puts pressure on rivals to do the same
• how does marketing impact a business in a competitive environment?

  • the quality of marketing and the amount of money invested in marketing strategies is very important, if a business enjoys the use of an advertising campaign rivals are put under pressure to match success
• what is a global market?

  International trade and exchange of goods and services across borders. (even small business can access global markets with the use of e-commerce)
• what are national markets?

  markets confined to national borders

  e.g. the UK is a national market
• what is a regional market?

  these serve regional areas

  e.g. south east
• what is a local market?

  much smaller, they serve limited area for instance in towns and villages
• how do you operate in a large market?

  • they are likely to be more challenging, competition can be fierce
  • vital to monitor activities of competitors
  • be aware of rival pricing strategies,
  • changes in their products
  • promotional and production methods
  • sometimes businesses may copy their rivals actions
• How do you operate in a small market?

  a business needs to decide whether a volume of sales will be sufficient to generate desired returns.

  • a problem is the fear that a larger stronger competitor will enter the market and take all customers
  • small businesses will find it difficult to compete with these large businesses as larger businesses can get advertising budgets and exploit economies of scale