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Unit 2 - The competitive enviroment :star: - Coggle Diagram
Unit 2 - The competitive enviroment
:star:
The effects on businesses of competition
( numbers, size and behaviour)
Numbers
= The number of rivals in a market is likely to have a number of implications for a business
Profits
Profit margins are likely to be squeezed because prices will be forced down.
Businesses that can operate more efficiently and reduce their costs may be able to enjoy higher profits than rivals that operate with a higher cost base.
Communication with customers
Those businesses that meet customer needs effectively are more likely to survive in the marker.
This competitive pressure may mean that businesses make more an effort to communicate with their customers
An important part of good customer service is effective communication with customers.
Price
In a highly competitive market, businesses have less control over the prices they charge, A businesses that charges a price that is significantly higher than those of its rivals risks losing sales. This is because consumers can switch easily from one supplier to another.
If a business can effectively differentiate its products there may be some scope for price increases
Innovation
If a businesses can design new products, they may be of more interest to customers and allow a businesses to gain a competitive edge in the market.
Ways for a small business to compete in a competitive marke
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Better communication
- since small firms have fewer employees communication tends to be informal and more rapid than in larger organizations. The owner will be in close contact with all staff and can exchange information.
Innovation
- although small firms often lack resources for research they may be innovative. This is because small firms face competitive pressure to innovate.
Personal service
- owners are far more accessible in small firms than larger ones. They are more likely yo take a personal interest in their customers and develop strong relationships, with them over time.
Behaviour
= businesses are likely to be directly affected by the behaviour of their rivals
Product differentiation
if they can do this effectively they may hold a more prominent position in the market and charge a higher price.
If they are not able to do so they are likely to lose market share.
Product development
new and improved products are often very attractive to consumers and businesses risk losing market shareif they fail to innovate.
in some industries, companies can gain a significant competitive edge by being a 'first-mover'.
Marketing
if a rival introduces a new and effective promotional strategy. This will affect the sales of others in ht market and is likely to illicit a response from them.
Businesses will adapt, copy or imitate the successful marketing campaigns of their rivals.
Collusion
might work together and they might form a cartel and fix prices or share out the marker.
this behaviour can have a very damaging effect on the remaining firms in the industry.
Pricing
Most consumers are sensitive to price changes and will buy the cheapest products on the market.
Large firms may follow small firms for example by offering cheap services of their own
This shows that businesses can be directly affected by the behaviour of a rival.
Size
= The size of rivals can have an important influence on the level of competition in the market
Profit
Larger firms will tend to enjoy higher levels of profits and higher profit margins
mallers firms may not be able to exploit economies of scale so their cost is higher and their margin is lower. This is because they will have.a much smaller share of the market compared to their much larger rivals.
Communication with customers
smaller firms can communicate more effectively with customers than their larger rivals.
very large companies often encounter problems communicating with customers
Price
Smaller businesses have less control over price.
the strongest will tend to set the price
if a business is able to differentiate its product there may be a scope for higher prices.
Innovation
small firms can be flexible and adaptable which often means they can respond to changed in customer demands quickly.