2.5.3 The Competitve Environment

Question 1

Definition: Competition

Answer 1

• Competition in business is where more than one seller seeks to sell goods or services to a customer

Question 2

What are ways Competition impacts a business decision

Answer 2

1. Nature of business ownership
2. Nature of product or services produced
3. Nature of the product range
4. Pricing strategies used
5. Marketing methods used

Question 3

nature of business ownership

Answer 3

• Competition from other businesses will have an impact on the decision to become a Private Limited Company (Ltd) or a Public Limited Company (PLC)
• A business may wish to grow and to expand and to do this it will need a significant injection of finance and may need to become a Ltd or PLC to sell shares to raise to fund the expansion cash

Question 4

nature of product or services provided

Answer 4

• Competition from other businesses may change the nature of the product or the services provided
• Competition from Starbucks and Costa has meant that many smaller cafes and coffee shops now serve lattes and cappuccinos rather than just basic tea and coffee

Question 5

nature of the product range

Answer 5

• Competition from other businesses means that in some industries that whole nature of the product range has had to change
• In response to consumer demand and competition from independent bakeries, the larger bread manufacturers have had to produce a whole “free from” range of new types of bread e.g. sourdough

Question 6

pricing strategies used

Answer 6

• Competition from other businesses means that different pricing strategies have to be used to attract customers and remain competitive
• Instead of skimming a business in a very competitive market would use competitive pricing to make sure that customers have to differentiate on non-price factors e.g. Airlines, differentiate on routes and customer service rather than enter a price war

Question 7

marketing methods used

Answer 7

• Competition from other businesses 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 product e.g. car insurance

Question 8

The impact on business of being in a competitive market

Answer 8

• Competition forces prices down resulting in falling profit margins
• In a highly competitive market businesses may needs to design new products to match what rivals are doing
• The business may need to increase spending on advertising an branding to retain their competitive advantage

Question 9

What is a competitive environment

Answer 9

A competitive environment refers to the market conditions in which companies operate in a competitive environment, companies compete with one another to gain market share and increase profitability. The competitive environment is influenced by factors such as the number of competitors, the intensity of competition, the level of innovation, and the degree of regulation. Companies must be able to adapt to the competitive environment by developing strategies that enable them to differentiate themselves from their competitors and create value for their customers.