HOW COMPETITION AFFECTS THE MARKET

Competition and the market Very competitive markets puts businesses under pressure – it means they have to encourage customers to buy their products over their rivals They do this through; – Lowering prices – Making their products appear different to their rivals – Offering better quality products – Using more powerful advertising – Offering ‘extras’ such as excellent customer service

Competition and businesses All the methods on the previous slide cost money and generally reduce profit. However they have to be done in order to survive Because competition makes running a business more challenging and could result in less profit, businesses try to reduce the amount of competition they face and may try to take over rivals in order to do this

Competition and the market Very competitive markets benefit the consumer in a number of ways: – More competition means a business needs to be very efficient – More competition means the business needs to listen to consumer needs and wants and constantly strive to meet those needs rather than being product orientated – More competition means a business must be less wasteful – More competition means a business must produce a good quality product or service – More competition in homogenous markets means that businesses must complete on non-price factors, meaning lots of exciting promotions to persuade consumers to switch supplier or product With so much competition comparison websites have become essential to help customers navigate the promotional deals

Competition and the market In 2006 Wrigley, had a 94% share of the UK market for chewing gum. Cadbury then launched Trident gum through a range of TV adverts. Trident quickly achieved sales of £25million and Wrigley’s market share decreased Wrigley fought back and eventually recovered their market share to 92%. – Although they recovered, they wont forget the competition that they faced and how hard they fought to recover. – Potential competition can keep companies on their toes as much as actual competition.

Competition Competition is the pressure that keeps businesses from getting careless and complacent For most companies, competition is the norm. this makes it hard to charge high prices, unless the customers perceive the business as offering an outstanding product or service This encourages companies to try their best to be innovative and creative about how to improve their product range or service – For customers this leads to greater reliability and wider consumer choice

THE DIFFERENCE BETWEEN RISK AND UNCERTAINTY

Frank Knight 1921: Risk Uncertainty and profit Risk: – When the potential outcomes of a decision are known. Knowing these odds forms the basis of all games that are played. E.g card games, dice rolls, lottery, etc Uncertainty – None of the outcomes are known in advance, found in complex systems such as a country’s economy – Knight suggests that real opportunity for profit is found in uncertainty – He suggests that to have a great idea, you should have lots of ideas, innovation is taking advantage of uncertainty

Risk Owners take risks when running a business. This means that the outcome of their actions is often unknown Initially they take a risk when setting up their business – this is because they risk their own money when getting the business ‘up and running’ if the business fails, they could lose everything 23,000 businesses each year are expected to fail. 90% of all new businesses do not last longer than 5 years!

Risk Even when a business is established, it is not risk free They may invest in new ideas/products/services that might not prove successful – An example is Amazon, who launched the Amazon Fire Phone, it did not take off and was quickly reduced from $199 to 99 cents. Amazon reportedly lost $170 million as a result

Uncertainty External influences can have an impact on businesses and are often beyond their control Such as; – New competitor entering the market – Consumer tastes may change – Government may bring in new legislation – New technology may be invented – Natural disasters – flood – Economy may go into recession Some of these influences are difficult to predict and businesses have to cope with this uncertainty

Five whys and a how QuestionsAnswers Why might a mass market producer struggle to make a profit Why might it be beneficial to target an older customer niche? Why might a large firm benefit from targeting smaller niches? Why might a brand-new firm benefit from developing a brand-new niche? Why might it be hard for an established business to adapt to disruptive change? How difficult would it be to switch from a niche market to a mass market positioning?

Five whys and a how QuestionsAnswers Why might a mass market producer struggle to make a profit If competition is fierce, the battle may have to be on price = lower profits Why might it be beneficial to target an older customer niche? Demographic trends are boosting over 60s. Saga markets v.popular Why might a large firm benefit from targeting smaller niches? Possible to produce small batches for different customer groups – at a low £ Why might a brand-new firm benefit from developing a brand-new niche? First in a market can develop an image for authenticity = added value Why might it be hard for an established business to adapt to disruptive change? ‘established’ products may be making good profits = hard to justify risks that might reduce profits temporarily How difficult would it be to switch from a niche market to a mass market positioning? Would require a complete rethink of their whole marketing mix – very expensive and not always successful

Key terms Create key term cards for all the following key terms 1.Brand name 2.E-commerce 3.Online retailing 4.Market 5.Marketing 6.Market share 7.Mass market 8.Niche market

Task Complete the winter melon tea task sheet

Knowledge check 1.What is the difference between a mass and a niche market? 2.What is a key advantage of selling in a mass market? 3.State two disadvantages of selling in a niche market 4.How is market share calculated 5.State three advantages of giving products a brand name 6.State two advantages to customers of online retailing 7.What is meant by a dynamic market? 8.How might the nature of a market change over time? 9.State three reasons why a market might grow 10.Describe two ways a business might adapt to changes in markets?

Task Complete the case study task on Hybrid and Electric cars