2.5.3 - The competitive environment

• Define competition:

  • competition in business is where more than one seller seeks to sell goods or services to a consumer (rivalry amongst sellers).
• impact of competition on market size:

  • nature of business ownership
  • nature of product or service provided
  • nature of the product range
• Nature of business ownership:

  • Competition from other businesses will have an impact on the decision to become a plt or ltd.
  • as a result, may find businesses within a market.
• Nature of product or service provided:

  • e.g. competition from Starbucks and costa has meant that many small cafes and coffee shops now serve lattes and cappuccinos than basic tea/coffee.
• Nature of the product range:

  • in response, to consumer demand and competition from independent bakeries, the larger bread manufacturers have had to produce a whole ‘free form‘ range of new product types.
• How competition affects pricing?

  • competition from other businesses means that different pricing strategies have to be used to attract customers and remain competitive.
  • instead of skimming in a very competitive market, business would use competitive pricing to make sure that customers have to differentiate on non-price factors.
• Marketing methods used:

  • means that marketing campaigns need to be exciting, up to date and eye catching.
  • this is going to have a cost implication, but important where there are many sellers with the same products, e.g. car insurance.
• The impact on business of being in a competitive market:

  • competition forces prices down resulting in falling profit margins.
  • in a highly competitive market, businesses may need to design new products to match what rivals are doing.
  • the business may need to increase spending on advertising and branding to retain their competitive advantage.