2-5-3-the-competitive-environment

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Competition and market size

The degree and nature of competition

The competitive environment concerns the degree to which a business is affected by rivals that operate in the same market (more fully discussed in 1.1.1 The Market)
The threat competition presents to businesses operating in a market will determine how quickly a business responds
- The greater the threat, the quicker the response required — and vice versa
Operating in a competitive market can have significant impacts on the marketing and operational strategy (see “Marketing Strategy in Different Types of Markets” in 1.3.5 Marketing Strategy)

Example: How a small grocer may adapt to supermarket competition

Response	Explanation
Focus on their unique selling points	Independent grocers often have unique selling points that larger supermarkets may not be able to match, which can help them differentiate themselves They can focus on local produce, speciality items or a personalised shopping experience
Adjust their pricing strategy	Independent grocers may not be able to compete on price with larger supermarket chains due to their economies of scale They may choose to adjust their pricing strategy to focus on higher-end products
Enhance customer service	Independent grocers can differentiate themselves from larger supermarket chains by providing excellent customer service This can include offering personalised recommendations, remembering customers’ preferences and personally welcoming customers each time they visit
Expand product range	Independent grocers may choose to expand their product range to include items that customers may be unable to find in larger supermarkets This could include speciality items or local produce
Collaborate with other local businesses	Independent grocers can work with other local businesses to create a sense of community and promote local shopping

Market size

Market size is essentially the number of customers and sellers in a particular market
Businesses entering niche markets may struggle to support the sale of a high volume of goods due to limited demand, as the market size is small
- For these businesses, the specialised knowledge or skills required may well limit the competition, and the higher costs of production may well put off new businesses from launching
Businesses entering large markets may face more competition from established businesses, higher costs of promotion and challenges in deciding their pricing strategy

Examiner Tips and Tricks

Whatever the market conditions a business faces, its best chance of success lies in determining and working to its strengths. A business with a clear competitive advantage, such as outstanding customer service, a great product or technical expertise, will be in an excellent position to stand out against even the most intense competition.

Look for these specific strengths in case study evidence and emphasise their importance when recommending solutions or strategies — and be sure to consider how the strengths may be protected or extended to ensure future success. Each suggestion you make should clearly support and nurture these core strengths.

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