The Competitive Environment

Question 1

Markets

Answer 1

Exist where there are buyers and sellers. There can be specific markets for any products or services.

Question 2

Marketshare

Answer 2

Percentage of sales in a market that are from one business. Can be measured in volume (number of units) or value (£).

Question 3

Monopoly

Answer 3

When one business owns 100% of the marketshare. Can charge any price they like as customers have no other business to buy from. The CMA defines it as a firm with 25% or more because thats enough power to affect average prices in the market.

Question 4

Patent

Answer 4

When the Government gives a company the right to be the only producer of a product(generally drugs) for a certain amount if time. This gives them a monopoly on this product and they can charge any price they want.

Question 5

Brand loyalty

Answer 5

When customers tend to buy from a certain business over others.

Question 6

Small number of competitors: price competition

Answer 6

Firms may avoid competing too strongly on price to avoid a price war (where firms agressively lower prices) because the outcome would be lower profit for all businesses.

Question 7

Small number of competitors: developing new products

Answer 7

Businesses can regularly introduce new products to win customers. Very common in markets based on technology or where fashions are important.

Question 8

Small number of competitors: advertising

Answer 8

Most effective in markets where customers change brands or suppliers frequently. Suppliers of gas and electricty make use of advertising and special offers to attract customers

Question 9

Competing in markets with many competitors

Answer 9

Lowering prices if many similar products are sold, heavy on advertising, offer good service and convenient location

Question 10

Uncertainty

Answer 10

Occurs when there is a lack of information about a situation. This means the consequences or outcome are difficult to predict. A business may be uncertain about upcoming events and how they’d affect a business, for example, brexit.

Question 11

Risk

Answer 11

The possibility of something going wrong. A business could take a risk in hope of making a profit, for example, investing in a new factory.

Question 12

Internal Risks

Answer 12

Fire or theft(possibly of data)
Employees refusing to work
Bad publicity
Loss of ‘best’ employees to competitors

Question 13

External risks

Answer 13

New competitors
Natural disasters
Laws

Question 14

How to reduce risk in a business

Answer 14

Thourough business planning, investing in suitiable training for staff, using experts and consultants, diversification.

Question 15

Diversification

Answer 15

Selling products in multiple markets to reduce risk of a dramatic fall in sales

Question 16

Recession

Answer 16

When the value of an economy’s output of goods and services falls for six months or longer. This happened in the UK in 2008 which was difficult to predict and affected most businesses.

Question 17

Competitors create uncertainty by…

Answer 17

Cutting prices significantly; bringing out new, popular products; attempting to by rivals

Question 18

Social changes

Answer 18

Social changes and changes in tastes/fashions are difficult to predict and can impact a business’s sales.