The Competitive Environment (Edexcel GCSE Business)
Revision Note
Written by: Steve Vorster
Reviewed by: Jenna Quinn
Understanding the Competitive Environment
Competition occurs when at least two businesses are providing goods/services to the same target market
The more businesses in the market, the more intense the competition
Competition can be direct or indirect
Direct competition occurs when the business is targeting customers with exactly the same product as a competitor
Indirect competition occurs when firms sell different products but compete with each other for the customers disposable income e.g. cinema's and theatre companies are in indirect competition
Competition results in many benefits for the customer, such as
Businesses offer lower prices
Businesses produce better quality products
Businesses provide better customer service
However, the absence of competition reduces incentives for businesses to innovate, be efficient or offer consumers lower prices
When judging the strength and weaknesses of competitors, businesses often assess their price, quality, location, product range and customer service
Assessing the Competition
Factor | Strengths | Weaknesses |
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Price |
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Quality |
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Location |
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Product range |
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Customer service |
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How Competition Impacts Business Decision Making
In a competitive market, businesses must constantly evaluate their strategies and make decisions that will enable them to stay ahead of their competitors
Competition can impact decision making across all areas of the business
Pricing decisions
In a competitive market, pricing is a critical factor in determining a business's success. Businesses must consider their competitors' prices when setting their own prices, as they need to remain competitive while also ensuring they are profitableProduct development decisions
Competitors' products and services can influence a business's product development decisions. It may increase the speed of development of new features - or entirely new productsMarketing decisions
Businesses must develop effective marketing strategies that will differentiate them from their competitors. Making decisions about advertising, promotions, and other marketing activities has to include an analysis of their competitors actionsOperational decisions
Competitors can also impact a business's operational decisions e.g. deciding on the best method of production (job, batch or flow production)
Examiner Tip
It's important to recognise that the competitive environment is changing all the time but change is unpredictable in many cases.
Competitive businesses can never stand still - they need to be constantly investigating and responding to changes in the market or risk losing their competitive advantage.
When you're weighing up choices for a business, try to include a 'maybe' - for example, that further change is likely to happen or even that a change in the competitive environment could be short-lived.
Including 'ifs' and 'buts', especially in your judgements, demonstrates deeper understanding of how the competitive environment works.
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