competitive environment (stephanie)

Competitive Environment :

Competitive Environment By stephanie Ratgers

Competitive structure :

Competitive structure the number and strength of competing firms in an industry and the ease of entry for new competitors There are different names given to different forms of competitive structure. - For example: hairdressing is classified as being monopolistically competitive, as it is highly competitive with many firms, yet they each try to give a different service, to ensure that they keep some control over prices. Petrol however is classified as oligopoly – which is an industry with competition amongst relatively few businesses Another competitive structure is monopoly – which in theory is an industry with just one supplier, however in the UK and the EU it is known as a firm with at least 25% market share

Why is competitive structure important?:

Why is competitive structure important? The number of firms in an industry, their strengths and the ease at which new businesses can enter the industry will have an effect on: the amount of choice for customers The level of competition in the firms prices, promotion and new product developments The profitability of the firm in the industry The likelihood of illegal collusive agreements – arrangements between firms to limit open competition between them

Changes in competitive structure:

Changes in competitive structure New Competitors The entry of new firms into the industry will increase competition - For example the airline industry has had a noticeable increase in competition. Some strategies adopted by airlines in response to increase competition include: Integration of Air France, KLM and Lufthansa with Swiss Air New routes and new services – Flat beds Cost cutting – BA has outsourced its ticketing administration to India Better branding – focusing on the service differences with the low cost carriers There are six changes New competitors Dominant businesses Changes in the buying power of customers Overall buying power of customers Changes in the selling power of suppliers Competition policy

Slide 5:

Dominant businesses Main and dominant businesses have a huge impact on the competitive nature of the industry. A lack of big competitors often means: There is less choice for customers The dominant firm may charge prices that would exist in a competitive market It will take any action it can to maintain its dominant position Microsoft is a good example, it owns 90% market share and is accused of exploiting consumers for putting pressure on computer manufacturers to install only its internet browser on new machines

Slide 6:

Changes in buying power of consumers If customers become more or less powerful then that will change the competitive nature of the market. For example, Tesco is a huge customer for its supplier, and have been accused of using excessive bargaining power over their supplier. Buying power of consumers These are the final purchasers and users of the product. Just like the power of supermarkets has increased, so has the buying power of consumers, which had changed the competitive nature of the industries in which they shop. Changes in the selling power of suppliers The number and power of suppliers can change over time. The more concentrated and controlled the supply of raw materials, components and important business services are, the more power supplier will have. This power is likely to be used to restrict supply and drive up prices.

Slide 7:

Competition policy the main objectives of the competition policy in the UK are now greatly influenced by the EU. The aims are: Protect consumers’ interests by encouraging free competition Investigate the behaviour of dominant, monopoly firms in an industry Collusion – firms working together to fix prices or agree on output levels to reduce competition Competition policy – aims to prevent the abuse of monopoly power so that competition in markets is not restricted

Evaluation of business strategies in response to changes in the competitive environment:

Evaluation of business strategies in response to changes in the competitive environment According to Micheal Porter – a management writer – there are 3 broad competitive strategies a firm can use. Cost leadership - put pressure on supplier - supervision of labour - low cost distribution 2. Differentiation from rivals - focus on product engineering and technical advances - creative market flair - investment in R&D 3. Focus - a combination of 1 and 2, but directed at a niche market

Make a poster on the Competitive Environment:

Make a poster on the Competitive Environment