Competitive Environment

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    Competitive Environment

    Determinants of competitiveness: Not all markets are the same, different markets have different market structures which are comprised of behaviour and characteristics of which are listed below

    • The number and relevant size of business in the market – Some large markets may have many small firms which compete such as farmers, where the market share of each participant is small. Some markets there maybe a few large firms or a single large firm – monopoly such as British Gas before it was nationalised
    • The extent of barriers to entry – In some markets its easy for firms to setup and operate, the barriers to entry for opening shops is quite low due to low costs and the amount of knowledge required about the market is fairly low, however some markets such as the drug industry patents and licenses may provide a barrier to entry for other firms, in some markets the cost of starting are extremely large such as car manufacturing
    • The extent to which products can be differentiated – Some markets goods are homogeneous where standards are to be conformed to, this the case for raw materials and commodities such as steel and gold where there’s limited variation between firms for the same goods. Some markets differentiation is as essential in branding where differentiation is high the focus on non-price elements of the design mix are emphasised
    • The knowledge that buyers and sellers possess – Perfect knowledge is where buyers know where to buy the best products for the best price and supplies know how to maximise production and efficiency which is the case for some markets. Some markets on the other hand there is some markets with imperfect knowledge which can provide some firms with a competitive advantage, where knowledge is imperfect business will put greater emphasis on the non-price elements of the design mix.
    • Degree of interrelationship- Some markets the behaviour, success and failure of other firms has no effect on other market participants for example farming. Other markets where there’s a decline in sales for one firm it can usually be attributed to an increase in sales for another firm in that market
    • Legal Factors- Monopolies – Cartels and Collusion may limit the competitiveness of other firms in that market.

     

    Impact on business of a competitive environment:

    • Price – Competitive markets mean firms have limited control over prices and will often be passed down from leaders. If a firm can differentiate their products enough, they may have the ability to charge higher prices due to superior quality – Moncler Genius, Burberry, Prada.
    • Profit – The profit available in the market must be shared across a great number of participants. Profit margins are also likely to be squeezed, firms might be able to reduce costs which may allow them to indulge in larger profit margins.
    • Communication with Customers – Business will be under pressure to meet customer needs in order to survive firms must successfully meet and adapt to the needs of the consumers which will mean increased consumer communication and market research for firms – Twitter, Reddit, Facebook.
    • Innovation – Firms are forced to innovate in order to steal market share and survive in the market, failure to innovate will likely lead to stagnating/falling sales in the market – essential for branding that firms innovate to differentiate their products from consumers,
    • Product range – Firms expanding their product range will likely force other participants to do the same for example Magners Cider which lead to Carling and Stella opening their own cider line
    • Marketing – The greater the competition in the market the more which will need to be invested into marketing and advertising and the methods of promotion will likely be shaped by other market participants and their relevant success to such.

     

    Competition and Market Size:

     

    • Global Markets
      • Largest markets – large potential for sales and profits
      • Accessible due to the internet
      • Large amounts of competition
      • Have grown with the growth of globalisation and reduced barriers to trade
      • Can allow for international branding and increased consumer confidence
      • High amount of organisational and communication skills required
      • Can exploit large scale Economies of Scale

     

    • National Markets
      • Confined to national borders
      • Limited consumer base
      • Usually extremely high competition – UK car market

     

    • Regional Markets
      • Can host monopoly – train services
      • Able to more accurately meet needs and desires of consumers

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