Competitors
→ Competitors are businesses that offer similar or substitute products and compete for the same customers.
→ Competition can influence a business’s:
→ Prices
→ Product quality
→ Marketing
→ Customer service
→ Innovation
→ Costs
→ Investment
→ Business decisions
Impact of Competitors on Business
Pricing
→ When competitors offer similar products at lower prices, a business may face pressure to reduce its price.
→ Competitor price ↓ → customers may switch → demand for the business’s product ↓.
→ The business may respond by:
→ Reducing its price
→ Improving the product
→ Offering discounts
→ Increasing promotional activity
→ Providing additional services
→ However, reducing prices may reduce profit per unit.
Product Quality
→ Strong competition may encourage businesses to improve quality.
→ Competitors introduce better products → customer expectations ↑ → business may need to improve its products.
→ Higher quality may:
→ Increase customer satisfaction
→ Encourage repeat purchases
→ Improve brand reputation
→ But improving quality may increase production costs.
Product Innovation
→ Businesses may introduce new products or features to remain competitive.
Competitor innovation → threat of losing customers → investment in R&D ↑ → new/improved products
→ Innovation can help a business differentiate itself from competitors.
Marketing
→ Competitors’ advertising and promotional campaigns may force a business to increase its own marketing activity.
→ Competitor promotion ↑ → customer awareness of competitor ↑ → business may increase advertising or promotions.
→ This can increase marketing costs.
Customer Service
→ Businesses may compete through:
→ Faster delivery
→ Longer opening hours
→ Better after-sales service
→ Loyalty programmes
→ Online support
→ Personalised service
→ Good customer service can help a business retain customers even when competitors offer similar products.
Market Share
→ Market share is the percentage of total market sales accounted for by a business.
→ Strong competition may reduce a business’s market share.
→ A business may attempt to increase market share through:
→ Lower prices
→ Advertising
→ Product innovation
→ Better customer service
→ Wider distribution
→ New products
→ Acquiring competitors
Competitive Advantage
→ A business has a competitive advantage when it can attract customers more effectively than competitors.
Possible sources include:
→ Lower costs
→ Higher quality
→ Strong brand image
→ Unique products
→ Better customer service
→ Technology
→ Convenient location
→ Faster delivery
→ Businesses need to protect and develop their competitive advantage as competitors may copy successful strategies.
Changes in the Number of Competitors
→ More businesses entering a market → competition ↑ → businesses may face:
→ Greater pressure on prices
→ Higher advertising costs
→ Greater need for innovation
→ Lower market share
→ Reduced profit margins
→ Fewer competitors may reduce competitive pressure.
→ However, reduced competition can sometimes allow remaining businesses to increase prices or margins.
Competitor Information
→ Businesses monitor competitors to understand:
→ Prices
→ Products
→ Quality
→ Advertising
→ Distribution
→ Customer service
→ New investments
→ Market expansion
→ This information can influence business decisions.
Example
→ A competitor launches a cheaper product with similar features.
→ Business studies the competitor → identifies customer preferences → changes its product or pricing strategy.
Suppliers
→ Suppliers provide businesses with the resources they need to operate.
Examples:
→ Raw materials
→ Components
→ Packaging
→ Energy
→ Equipment
→ Services
→ Reliable suppliers are important because production may depend on regular deliveries.
Impact of Suppliers on Business
Supplier Prices
→ Supplier prices affect business costs.
→ Supplier price ↑ → production costs ↑ → profit margin ↓.
→ The business may:
→ Increase its selling price
→ Find a cheaper supplier
→ Reduce other costs
→ Accept a lower profit margin
→ Change the product
Quality of Supplies
→ The quality of raw materials and components can affect the quality of the final product.
→ Poor-quality inputs → defective products ↑ → customer dissatisfaction ↑ → reputation may suffer.
→ Reliable, high-quality suppliers can help maintain consistent product quality.
Reliability of Supply
→ Delayed deliveries can interrupt production.
Supplier delay → inputs unavailable → production delayed → output ↓ → sales may be lost
→ Businesses may therefore choose reliable suppliers even if they are not the cheapest.
Delivery Times
→ Faster deliveries can reduce the amount of inventory a business needs to hold.
→ Reliable short delivery times → lower need for safety stock → working capital requirement may ↓.
→ However, depending heavily on rapid deliveries can increase the risk from supply disruptions.
Supplier Bargaining Power
→ Suppliers have greater bargaining power when:
→ There are few suppliers
→ Their product is highly specialised
→ It is difficult to find substitutes
→ Switching suppliers is expensive
→ The business is heavily dependent on them
→ A powerful supplier may be able to:
→ Increase prices
→ Reduce discounts
→ Demand stricter payment terms
→ Set minimum order quantities
→ A business may try to reduce supplier power by developing alternative suppliers.
Number of Suppliers
Few Suppliers
→ Dependence on individual suppliers ↑.
→ A supplier failure can seriously disrupt production.
→ Businesses may face higher prices if there are few alternatives.
Many Suppliers
→ Businesses have greater choice.
→ They may negotiate better prices and conditions.
→ Dependence on one supplier ↓.
→ However, managing many suppliers can increase administrative complexity.
Supplier Relationships
→ Long-term relationships with suppliers can provide:
→ Reliable supply
→ Consistent quality
→ Better communication
→ Negotiated prices
→ Flexible payment terms
→ Priority during shortages
→ However, relying too heavily on one supplier can create risk.
Purchasing Decisions
Businesses may choose suppliers based on:
→ Price
→ Quality
→ Reliability
→ Delivery time
→ Payment terms
→ Location
→ Reputation
→ Sustainability
→ Financial stability
→ The cheapest supplier is not necessarily the best choice.
Example
→ Supplier A has a lower price but frequent delivery delays.
→ Supplier B charges more but delivers reliably.
→ If production stoppages are very costly, the business may choose Supplier B.
Global Suppliers
→ International suppliers can provide:
→ Lower-cost materials
→ Greater choice
→ Access to specialised components
→ However, businesses may face:
→ Exchange-rate changes
→ Import restrictions
→ Transport costs
→ Longer delivery times
→ Political or economic disruption
→ Supply-chain disruption
Example
→ Currency depreciation → imported raw materials become more expensive → business costs ↑ → profit margins may ↓.
Supplier Disruption
→ Natural disasters, wars, strikes, transport problems or supplier bankruptcy can interrupt supply.
→ Disruption can lead to:
→ Production delays
→ Higher costs
→ Stock shortages
→ Lost sales
→ Customer dissatisfaction
→ Businesses can reduce this risk by:
→ Using several suppliers
→ Holding safety stock
→ Using local suppliers
→ Signing long-term contracts
→ Developing contingency plans