2.1.5 How small firms compete

Question 1

What strategies do small firms use to survive in competitive markets?

Answer 1

• Achieving relationships with customers
• Creating a USP or product differentiating
• targeting niche markets

Question 2

How can they use product differentiation to compete?

Answer 2

As these firms are small, they may decide to use product differentiation to survive in the market. Having an innovative product which differs to their competitors can give them a competitve advantage especially if done through economies of scale. They can differentiate their product though not to the level of larger firms thus differentiation may not be of a large scale yet can earn new customers through advertising and try and create consumer loyalty so repeat purchases can be made by consumer sin the long run. As firm is small often operate in niche markets so is difficult to benefit from economies of scale that larger firms can benefit from more concentrated markets.

Question 3

How can small firms comepte using niche marketing?

Answer 3

Niche marketing is where a firm targets a specific subsection of the market or tries to exploit gaps whcuh havent already been identified in the larger markets. If they are able to exploit the gap through identifying what the customers needs are and able to provide this they may be able to charge premium prices whilst having long term demand if provided with a good satisfactioray service to the customer. This will help achieve business objectives such as greater market share or profit maximisation.

Question 4

How can small firms having a relationship with their stakeholders give them a competitive advantage?

Answer 4

In order for firms to have a good relationship with their stakeholders they must keep them happy and they may do this through a stakeholder mapping. This helps show the level of power and interest of each stakeholder to the firm and is useful as they can use this mapping to make business decisions to keep ell satisfied. If they can keep their stkaholders satisfied then they can gain a competitive advantage to those firms who dont keep their stakholders happy.