Business & The Competitive Environment Lesson Objectives: Discuss the impact that the level of competition in an industry will have on firm behaviour Analyse firms reactions to changes in the competitive environment

What order would you put the following businesses in? (UK Sales) Tesco 28% Sainsbury 16% Asda 16% Morrisons 11% Other 29%

A. exists where there is only one firm in the market A ................. exists where there is only one firm in the market. However, the Government refer to any company that has at least 25% market share as having ................. powers. ................. can exploit consumers by charging high prices. Therefore, ................. are regulated in order to protect the customer. Barriers to entry exist in ................. markets that stop firms from entering the market. These include: high costs to enter the market, especially high capital costs economies of scale experienced by large firms e.g. bulk buying legal barriers e.g. only pharmacies can sell prescription drugs

An ................. exists where there are only a few firms in the market. Like ................. and duopolies, ................. can exploit consumers by charging high prices. Barriers to entry exist in ................. markets, particularly through advertising. ................. tend to compete on non-price competition such as promotion and there may also be an element of collusion. It is important for ................. to take into account the reaction of competitors when making decisions regarding the marketing mix. For example, if one firm cuts price, then others are likely to follow suit, resulting in a lower income for the market as a whole. Therefore, ................. are unlikely to lower price as a long term strategy.

................. exists where there are a large number of firms in the market selling differentiated products. This leads to a small degree of monopoly power as each firm offers something different to the others. In this type of market barriers to entry are very low. Therefore, it is easy for firms to enter the market. This creates strong competition. This mix between monopoly power and competition leads to the term .................. Firms within this market will try to brand their product. This might be through the building up of a reputation. There are numerous examples of this type of competition such as hairdressing, restaurants and the health and beauty industry.

Some firms in the farming industry show elements of .................. ................. exists where there are a large number of firms in the market each selling homogenous products (products that are the same). Firms in this type of market have no influence on price and are therefore price takers. In this type of market there are no barriers to entry. Therefore, it is easy for firms to enter the market. Consumers have perfect knowledge i.e. they are aware of the price of products sold in these markets. In this type of market firms will not raise price as consumers will simply go to other firms. If a firm lowers price then all other firms will have to follow suit. Some firms in the farming industry show elements of ..................

Dominant Businesses A dominant firm can: Reduce choice Increase prices Be inefficient without competition Create barriers to entry to stop new firms entering the market However, it can: Invest heavily in new technology Gain economies of scale

The Competition and markets authority investigating mergers which could restrict competition conducting market studies and investigations in markets where there may be competition and consumer problems investigating where there may be breaches of UK or EU prohibitions against anti-competitive agreements and abuses of dominant positions

Porter’s Five Forces Analysis The Intensity of Competitive Rivalry Bargaining Power of Customers Threat of Substitute Products Bargaining Power of Suppliers Threat of New Entrants Competition Buyers & Suppliers

Buyers and Suppliers You are an asparagus farmer. Tesco is your main buyer. Tesco purchases 90% of your asparagus harvest, the other 10% goes to a combination of local independent grocers. Analyse the impact of this buyer on your firm by working in pairs to discuss the conversation between yourself and the Tesco head Grocery Buyer.

Buyers and Suppliers You are a jeweller. You make personalised hand made jewellery using Cornish silver and fresh water pearls. There is only one supplier of the fresh water pearls and the silver. As this is your Unique Selling Point, there is no real substitute for these products. Analyse the impact of this supplier on your firm by working in pairs discuss the conversation between yourself and the fresh water pears supplier.

Responding to changes in the competitive market: choosing a strategy Welcome to Beaconsfield

Task 1 – Where would Porter put you? Draw Porters Generic Strategies model (fully labelled) and place your business on it…

Task 2 – Changes afoot… The balance has been upset. Consider the extent to which the new entrant is a threat (consider the 4p’s and TMG). Rank each factor 1-10 – 10 being very significant)

Task 3 – Where would you put them? Draw a market map to show the local coffee market placing all four businesses on the map

Task 4 – “What are you going to do?” said Igor Ansoff Would it make a difference to your tactics if you were also a large chain, i.e. Costa? Draw Ansoff’s Matrix (fully labelled) and identify the various actions you could take. Rank these in terms of suitability/practicality.

Section B Question (June 2010) The UK bottled water market has been dominated by firms such as Nestlé and Danone for many years. Coca-Cola, the soft drinks producer, recently entered the bottled water market in a number of countries, including the UK, with brands such as Malvern and Glacéau. What do you think is the best strategy for existing businesses to adopt in response to the entry of a new large competitor? Justify your answer with reference to the UK bottled water market and/or other markets that you know. (40 marks)