2.1.4

Competition & The Market

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How Competition Affects the Market

The external environment covers the range of factors which may affect a business, but are outside of the business' control. Competition is a critical part of the external environment.

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Impact of competition

  • Competition can affect a business’ costs and demands as the presence of competitors may reduce demand for a business' product or service.
  • Competition can force businesses to reduce their prices or increase their sales & marketing spend.
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Rising costs

  • The presence of a competitor can also increase business costs as a business may increase its spending on promotion and advertising or may invest in research and development to improve the products offered for sale.
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Example of competition

  • For example, from 2012, Tesco experienced falling demand as competition from Aldi and Lidl rose in the food retail industry.
  • This competition increased Tesco’s costs as it increased its promotional activity and increases its investment in developing its new range of food items, known as Stockwell & Co, which replaced its Tesco Value range.

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1Exploring Business

2Marketing Campaigns

3Business Finance

4International Business

5Principles of Management

6Business Decision Making

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