2.6 Competitive Environment Flashcards
Impacts of businesses operating in a competitive market
. Nobody is powerful enough to dictate prices therefore forces producers to be efficient when it comes to how much they charge customers or they will go elsewhere
. Costly marketing to show they are better than rivals
. Lots of money must be spent to develop new products to maintain their position or increase it
. Similar products being made therefore can bring firm revenue and profits down as they can only compete by price
What is a market
A market exists where there are buyers and sellers
Why might a business not have much competition
. When a business creates a new product initially wont have any competition and whoever wants that product will have to buy from that business
. Some businesses sell very specialist products that not many people buy e.g qualified thatchers
. Some markets are hard to start a business in e.g commercial planes as they require lots of space, money and equipment which is hard to get
Example of a market which is very competitive
Estate agents - compete on price
What is market share
Is the percentage of sales in a particular market recorded by a business
What is competiton
Competition exists when more than one business is attempting to attract the same customers
What is a monolopy
A monopoly exists when a business does not face any competition in a particular market
What is uncertainty
Uncertainty occurs where there is a lack of information about a situation meaning the outcome or consequences are difficult to predict
What is risk
Risk is the possibility of something going wrong
Internal risks a business may face
. Employees refuse to work
. Fire or theft
. Bad publicity
. Loss of ‘best employees’
External risks a business may face
. New competitors
. Natural disasters
. New laws
How can a business minimise risk
. Business plan
. Investing in training
. Using experts and consultants
. Selling in different markets
How can a business plan minimise risk
. As a business plan sets out what a business does and what it hopes to achieve in the future
. Market and customer research
. Allows the business to prepare for likely events
. Reduces the chance if something going wrong in the future
Why can investing in training help reduce risk
Various problems in the business can be fixed by employees e.g insecure IT systems and cybercrime, dealing with dissatisfied customers, manage crises such as flooding
Why can experts and consultants reduce risk
They can identify risks with their specialist knowledge reducing the chances if a business making major errors
What is diversification and how can it help avoid risk
. Diversification occurs when a business starts selling new products in new markets
. Attracts new customers reducing the chance of fall in sales if one competitor takes over one of the markets your business is in
How are businesses impacted by economic uncertainty
E.g in 2008 Uk experienced an unexpected financial crisis therefore caused a major recession and a fall in value of goods and services
What is a recession?
A recession occurs when the value of an economy’s output of goods and services falls for six months or longer
How are businesses impacted by competitors and uncertainty
Difficult for a business to predict what a competitor will do as they might:
. Cut their prices significantly
. Introduce a new and popular product
. Attempt to buy their rivals
How are businesses impacted by social changes and uncertainty
. Changes in society are hard to predict e.g fashion and tastes
. Difficult to estimate future sales
. E,g Coca-Cola have experienced a fall in sales as society realises the dangers of their sugary product
What is an entrepreneur
Is someone who is willing to take risks involved in starting a new business
