(PAPER 3) 2.5.3 competitive environment * Flashcards
Competitive environment
how fiercely business compete with the products that another business makes
4 market structures
perfect competition
Monopolistic competition
Oligopoly
Monopoly
Perfect competition definition
a theoretical type of competition where all firms compete on an equal basis e.g. currency exchange, loo roll, fruit and veg
perfect competition
> many firms > products are homogenouse- they are the same whichever business produces them > prices are the same > marketing is not important > low market share > low profits > high freedom of entry > the best strategy is to keep costs as low as possible in the hope of maintaining profit margin.
monopolistic competition definition
a market in which many firms offer goods or services that are similar, but not perfect substitutes e.g. estate agent, hair dresser, fast food
monopolistic competition
> many firms > similar products but slightly different > similar prices > marketing is important > low market share > low profits > high freedom of entry
oligopoly definition
a market dominated by a few large companies e.g. supermarkets, phones, cars
oligopoly
> few firms > differentiated products > competitive prices > marketing is very important > high market share > more profits > lower freedom of entry
monopoly definition
a single business that dominates supply in a given market e.g. Thames water, utility
monopoly
> 1 firm > very differentiated products > high prices > high marketing > high market share > high profits > freedom of entry is low to impossible
larger markets=
more potential customers- more businesses attracted to these markets. This means that larger markets tend to have higher levels of competition than smaller markets because more businesses or suppliers operating in the market. large markets attract other new entrants, resulting in increased competition over time = even dominant producers recognise they need to offer a good service to avoid opening an opportunity to rivals.
smaller markets=
fewer customers and lower total sales- may be easier to build up barriers to entry.
businesses often try to leave small/shrinking markets and move into growing/larger ones- larger market size = more potential growth = increase in profits
the level of competition in a market and the size of the market determines…
a businesses strategy for launching a new product into the market
e.g. lots of competition = business needs to make sure they have enough stock of the new products so it cam meet initial customer demand OTHERWISE it could loose customers to competitors who were able to copy the product quickly following the launch.
the competitive environment evaluation
carrying out MR before entering a market is vital. worst thing that could happen- a business is forced out and might be forced to close cause of competition.
market research helps business determine market size , how many consumers would actually be prepared to buy their product and level of competition in a market.
therefore, a business can comprehend whether entry into certain markets would be advisable or even possible!!
6 determinants of
6 determinants of
6 determinants of
6 determinants of competitiveness
- number and size of businesses in the market
- extent of barriers to entry
- extent to which products can be differentiated
- knowledge that buyers and sellers posses
- degree of interrelationships
- legal factors
how is price impacted by a competitive environment
prices likely to be forced down, need to find a USP to differentiate from competitors
how is profit impacted by a competitive environment
lower profit margins as prices have to be forced down- businesses need to operate more efficiently to cut cost- to improve profit margin
how is communication with customers impacted by a competitive environment
businesses under pressure to meet customer needs, so may carry out more market research or use social media
how is innovation impacted by a competitive environment
will be encouraged to gain interest from customers and gain competitive advantage
how is product range impacted by a competitive environment
need to keep up with what competitors are doing to offer the same choice to customers and meet their needs
how is marketing impacted by a competitive environment
quality and amount of money invested in marketing will be important to stand out from competitors
4 types of market
- global markets
- national markets
- regional markets
- local markets
reasons why operating in a large market would be chalenging
- constant need to watch what competitors are doing and better it
- constant review of strategy/ future direction to survive
reasons why operating in a small market is likely to be challenging
- insufficient volume of sales
2. fear of larger rivals joining the market
