7.7 The Competitive Environment

Question 1

What is the competitive environment made up of?

Answer 1

Power of rivals and potential rivals
Customers - influence
Suppliers - influence

Question 2

What are Porters five forces?

Answer 2

Bargaining power of suppliers 
Bargaining power of buyers
Competitive rivalry 
Threat of substitute products 
Threat of new entrants

Question 3

How can buyers assert power?

Answer 3

The products sold by businesses are similar and it is therefore easy for buyers to find substitutes
Products have a high PED
Switching to another supplier’s product is cheap and straightforward and there are many other businesses offering supplies
Customers buy a large quantity of products and place these orders regularly

Question 4

When is the threat of substitutes high?

Answer 4

The price of that substitute product falls, making it more attractive to customers
It is easy for customers to switch from one substitute product to another
Customers are willing and able to substitute the supplier’s products for those of another supplier

Question 5

When will competitive rivalry be bigger?

Answer 5

Entry to an industry is straightforward
It is easy for customers to move to substitute products
There is little differentiation between the products
Competitors are approximately the same size
The competitors all have similar corporate strategies
It is costly to leave the industry
The market is not growing

Question 6

What will firms do if an industry has a rivalry?

Answer 6

Engaging in competitive pricing in an attempt to win customers from rivals
Use of promotional offers and special deals
Innovation - developing and launching new products