Competition & The Market
Business: BTEC Level 3 National Extended Diploma, topic 2.1.4
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.
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.
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.
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.
Test yourself on Competition & The Market
Which 2 categories of business costs often increase during times of competition?