2.5.3 : Competitve Environment Flashcards
(17 cards)
What is competitiveness ?
The ability of a business to deliver better value to customers than competitors
The competition environment is the degree of competition in the market and he buying and selling power of customers and suppliers within that market
What is a competitive advantage ?
A competitive advantage is a feature of business that allows it to perform more successfully than others in the market
What tactics do businesses employ in order to compete in the market ?
New product development
Changing/improving existing products
Promotions
Changing prices
Improving distribution networks including online sales
Quality assurance
Improved customer service - staff training
What is market size ?
Market size is the total sales value or sales volume in a given market.
It can be calculated by :
Number of units sold x price
As a market grows in size this might attract increased competition as new firms see it as an attractive market to enter
What is perfect competition ?
Many firms exist , sell an identical product , no entry restrictions , firms in the industry not perceived as having advantages over new entrants , firms and buyers well informed regarding competitors prices
What is monopolistic competition ?
Relatively late number of small firms , small entry , all sell similar but not identical products
What is an oligopoly ?
Competition between the few , interdependence , branding is very important , prices normally well above average (skimming) , high barriers to entry , initial capital may be prohibitive
What is a monopoly ?
Businesses with more than 25% do exist because it is extremely difficult for a new firm to enter the market of a monopolist owing to high barriers to entry for example :
High capital costs required for a new business to set up
Patents that allow existing firms to ‘monopolise’ the market legally
The loyalty of customers to existing firms
The need to achieve large cost of savings quickly in order to be able to charge a competitive price
What is a monopsony ?
This exist when there is one buyer in the market.
Sellers ‘cannot’ sell their products to other firms outside the market - only to the monopsonies
They are profit maximisers , who aim to minimise their costs , by paying their suppliers the lowest price possible
What are porters five forces ?
Competitive rivalry
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitutes
Summarise threat of new entrants :
Threat of new entry - time and cost of new entry , specialist knowledge , economies of scale , cost advantages , technology protection , barriers to entry for entering the market - if the market has high barriers of entry it will cost ew entrants lots but if they are low new entrants can enter with ease and increase the competition in the market
Summarise competitive rivalry :
Competitive rivalry : number of competitors , quality differences , other differences , switching costs , customer loyalty
Summarise power of suppliers :
Supplier power - number of suppliers , size of suppliers , uniqueness of service , your ability to to substitute , cost of changing
Summarise threat of substitutes :
Threat of substitution - substitute performance , cost of change
Summarise buyer power :
Buyer power - number of customers , size of each order , differences between competitors , price sensitivity , ability to substitute , cost of changing
What can be done to maintain market forces ?
Customer reliance - reduce over-reliance on customers , focus marketing efforts on most profitable customers
Supplier reliance - build relationships , have an alternative source of supply
Barriers to entry - build a brand , capture a fair share of distribution , operate efficiently to compete at low cost
What impacts does this have on businesses decision making ?
Must focus more on marketing, innovation, and customer loyalty.
Likely to spend more on promotions, lower prices, or improve product/service quality.
Greater need to monitor competitors’ actions and adapt quickly.
