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GCSEBusinessEdexcelRevision Notes1. Investigating Small Business1.2 Spotting a Business OpportunityThe Competitive Environment

The Competitive Environment (Edexcel GCSE Business)

Revision Note

Steve Vorster

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

Price

  • Competitors who offer lower prices than their rivals can gain a competitive advantage by attracting price-sensitive customers who are looking for the best deal

  • They can also gain economies of scale by producing and selling their products at a lower cost, which can lead to higher profits

  • Competitors who rely solely on lower prices may struggle to maintain their profitability if customers do not perceive the quality of their products to be adequate

  • They may also struggle to differentiate themselves from other low-priced competitors in the market

Quality

  • Competitors who offer high-quality products can differentiate themselves from rivals and establish a strong brand

  • They can also command higher prices which can lead to greater profitability

  • Competitors who focus solely on quality may struggle to compete with lower-priced rivals if customers do not focus on the higher quality

Location

  • Competitors who have easily accessible locations can gain a competitive advantage over rivals who are located further away from customers

  • Competitors who rely solely on their location may struggle to compete with other businesses in the same location

Product range

  • Competitors who offer a wide range of products can attract a broader customer base and increase customer loyalty by meeting a variety of customer needs

  • Competitors who have a large product range may struggle to manage the complexity of their business and maintain consistent quality across all their products

Customer service

  • Competitors who provide excellent customer service can differentiate themselves from rivals and establish a loyal customer base

  • They can also generate positive word-of-mouth recommendations

  • Competitors who rely solely on customer service may struggle to compete with lower-priced rivals if customers do not recognise the additional costs of offering good customer service

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

1-2-4---how-competition-impacts-business-decision-making

Competition can impact decision making across all areas of the business

  1. 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 profitable

  2. Product 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 products

  3. Marketing 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 actions

  4. Operational 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 Tips and Tricks

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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    Author
    Reviewer
    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

    Jenna Quinn

    Author: Jenna Quinn

    Expertise: Head of New Subjects

    Jenna studied at Cardiff University before training to become a science teacher at the University of Bath specialising in Biology (although she loves teaching all three sciences at GCSE level!). Teaching is her passion, and with 10 years experience teaching across a wide range of specifications – from GCSE and A Level Biology in the UK to IGCSE and IB Biology internationally – she knows what is required to pass those Biology exams.