1.2.4 The Competitive Environment

Question 1

What is a competitive market?

Answer 1

• a market is competitive when there are a large number of business relative to the numbers of potential customers
• competition also high in markets where businesses sell very similar products and services that are difficult to differentiate

Question 2

Ways to compete with other businesses:

Answer 2

• better customer service
• stronger brand image
• more convenient location
• lower prices
• better design
• higher quality

Question 3

Product differentiation:

Answer 3

making a product different from others in some way

Question 4

How does product differentiation help businesses?

Answer 4

• to position their products and target different market segments
• to gain an advantage over rivals when faced with competition
• allows consumers yo see clearly that their needs are being met more effectively by one product than by another

Question 5

Decisions that a business may make in a highly competitive market:

Answer 5

• improving efficiency
• differentiating its products and services
• lowering its price - will seem more appealing to customers compared to other alternatives - as a result, customers may choose it over rivals and its sales revenue may increase
• cutting costs

Question 6

Drawbacks of highly competitive markets:

Answer 6

• lower prices in order to compete
• accept lower profit margins
• cut back on expenditure
• be careful about how and when it expands
• monitor its competition closely

Question 7

Competitors:

Answer 7

any business that sells the same or similar products or services

Question 8

Strengths of competitors:

Answer 8

• strengths of competitors are advantages or good qualities that other businesses selling similar products/services may have that may cause a customer to purchase products/services from that business instead
• areas your business rivals excel in

Question 9

Reasons why a small business may use price to understand its competitors strengths and weaknesses:

Answer 9

• the business can set their own prices to be lower than competitors - means that you can advertise this to customers and make them more likely to make purchases - leads to having more customers and more sales
• the business can set your their own prices to be the same/similar - means that they may want customers to think the product is of similar worth so that they are not put off by a cheaper price - leads to customers having positive view of the products as it has better features/customer services and not because it is cheap
• the business can set their prices to be higher than the competitors - means that customers will think it is better quality - leads to addition sales revenue per sale