Which of the following is an advantage for a business operating in a competitive environment?
Prices are likely to be higher
Costs are likely to be lower
Customers are more likely to be loyal
The business is more likely to be cost focused and productive
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Which of the following would be an advantage for a business operating in a non-competitive market?
Customers will switch to alternative brands quickly
There is likely to be price inelastic demand
There will be a large number of suppliers to choose from
Loyalty schemes are common
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Identify one internal risk facing an online bank.
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Which of the following is a disadvantage for a business operating in a competitive environment?
Price inelastic demand for products
Significant marketing costs to establish differentiation
High prices for supplies
Need for research and development to create new products
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Identify one way an entrepreneur can minimise risks when starting up a business.
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Which of the following is likely to be a disadvantage for a business operating in a non-competitive environment?
Price elastic demand
Requirement for constant reinvention of products
Risk of becoming stale in product offering
Risk of losing customers to substitute products
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Identify one impact for a business operating in a competitive environment.
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JCC Shoes is a manufacturer and retailer of shoes. The business has a reputation for making shoes that are strong, hard-wearing and comfortable. The business is facing increasing competition from other shops selling school shoes. Competitors’ shoes are regarded as more fashionable. In response to this competition, JCC Shoes has redesigned some of its shoes.
During the last year, there have been some newspaper reports of children being sent home from school for wearing JCC Shoes branded ‘Scope Shoes’. These shoes are sold as part of JCC Shoes’ new redesigned school range. Many schools are reporting that the shoes are too similar to trainers and do not meet their rules on uniform.
Using the case study, explain one risk for JCC Shoes as a business operating in the shoe market.
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Explain one way a business can minimise risk.
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Eve is a sole trader. She owns and runs Style the Chic (STC). STC is a fast fashion website aimed at females aged 16–24. Eve started the business five years ago. She invested her £5000 life savings. The business made a profit of £450 000 last year.
Fast fashion means producing cheap clothes as quickly and as frequently as possible. STC works with reality TV celebrities that have a large social media following. The celebrities help design and promote a collection (range of clothing items).
STC has 30 employees. However, Eve makes all the major decisions in the business. She decides which products to order from suppliers and the selling prices. The buying team works with suppliers. Recently staff turnover in the buying team has increased.
Table 1 – Information on STC
2020 | 2019 | 2018 | |
Average price that customers pay per item of clothing | £42 | £55 | £65 |
Market share | 14% | 15% | 19% |
Number of direct competitors | 12 | 8 | 6 |
Using the data in Table 1, explain one way in which competition affects STC.
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Eve is a sole trader. She owns and runs Style the Chic (STC). STC is a fast fashion website aimed at females aged 16–24. Eve started the business five years ago. She invested her £5000 life savings. The business made a profit of £450 000 last year.
Fast fashion means producing cheap clothes as quickly and as frequently as possible. STC works with reality TV celebrities that have a large social media following. The celebrities help design and promote a collection (range of clothing items).
STC has 30 employees. However, Eve makes all the major decisions in the business. She decides which products to order from suppliers and the selling prices. The buying team works with suppliers. Recently staff turnover in the buying team has increased.
State and explain two methods Eve may have used to reduce risk when she started up STC.
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Cakehead has been making and selling brownies and bakes since 2004. It specialises in making cake postal boxes that are easy to order and delivered the next working day. Customer enquiries are answered within 4 hours. Customers choose their cakes and brownies from a large selection on the website, making each order unique and personal. Customers can pay online. The cakes and brownies are then automatically selected and packaged by advanced robotics according to the customer's individual orders. The boxes are then automatically labelled and despatched to customers. Customers receive updates on their delivery by text.
Explain one way Cakehead is able to be successful in a competitive market.
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Suppliers of water and sewerage services to domestic homes are often companies that are a monopoly in their district. Customers have no choice over their supplier and must accept the prices charged by their supplier. In recent years, many water companies have been criticised for under-investment in the water distribution network. Furthermore they have recently been fined for pumping raw sewerage into rivers and the sea.
Explain one disadvantage of a business operating in a monopoly market.
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Scandimania is a coffee shop operating in a busy market town in Stamford. There are a number of chain coffee shops nearby as well as three other independent coffee shops.
Scandimania sells ethically-sourced coffee and Scandinavian-style bakes. The owner, Julia, offers a loyalty stamp scheme, offering the 10th cup of coffee for free, and free Wi-Fi for use by customers.
Explain one method Scandimania uses to reduce competition in a competitive market.
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Nadia Aslam is a wealthy entrepreneur. Two years ago, she bought a struggling airline and changed the name to Skyline plc. The airline offers low-price flights from the UK to popular European destinations. There are high levels of competition in this market.
The low-price flight market is very competitive and passenger numbers have fallen recently. Skyline plc’s marketing department has been working to develop a solution.
Option one – use a loss leader pricing method for off-peak midweek flights.
Skyline plc has fewer customers travelling to city destinations midweek. Most people work Monday to Friday and prefer to book a short break over a weekend. Skyline plc would aim to cover costs and make a profit by charging customers more for luggage and extras such as seat upgrades and meals and drinks during the flight. Skyline plc has found that once customers have flown with them they return again and again.
Option two – keep prices the same and improve sustainability.
Consumers are increasingly aware of the environmental impact of air travel and the marketing department thinks that this will attract a new market. No other low-price airlines are promoting themselves as sustainable. A more sustainable approach would include removing all single-use plastic from Skyline plc flights and only serving drinks to customers who bring reusable cups and bottles on board. Skyline plc would also donate 1% of the profit from each flight to environmental projects to make up for the pollution the airline produces.
Skyline plc wants to increase the profit of the business. It is considering two options to achieve this:
introduce loss leader pricing to increase customer numbers on midweek flights
improve sustainability to attract a new target market.
Analyse the effect of each of these two options on the business.
Evaluate which of these two options will have the biggest impact on the profit of the business.
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Forever Friends is a chain of high street costume jewellers that sells a variety of friendship bracelets in a niche market. Forever Friends operates a price skimming strategy, charging £20 to £30 per bracelet. The bracelets are made of high quality materials and will last many years.
In order to maintain market share, Forever Friends is considering two options:
Option one: improve social media marketing and offer a limited time price promotion to customers who buy three or more bracelets
Option two: reduce the quality of the raw materials, allowing them to reduce the price to £15 - £20 per bracelet
Recommend which option Forever Friends should use to maintain its market share. Give reasons for your choice.
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Doorsteps is a sandwich bar that sells take-away sandwiches and wraps. The manager is very careful to list all allergens in bold type on the price list and vegetarian and vegan items are listed separately. When serving customers, staff state the use-by date on each item purchased.
Doorsteps is aware that laws around selling food items can change quickly, for example how products must be displayed, or the temperature control rules used to store ingredients may change.
Analyse one method of reducing risk for Doorsteps.
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