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Business · Spotting a business opportunity
The competitive environment
Every business has competitors. Understanding their strengths and weaknesses - on price, quality, location, product range and customer service - shapes almost every decision a business makes.
Last Lesson
Answer from memory before the answers appear.
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What is a market map?
A diagram that plots businesses against two features customers care about.
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What might an empty area on a market map show?
A possible gap in the market.
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Give one benefit of a market map.
Shows gaps, shows competitors, or helps a business position its product.
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Give one limitation of a market map.
A gap may have no demand, only two features, based on opinion, or goes out of date.
Learning Objectives
- 1Explain what is meant by the competitive environment.
- 2Identify the strengths and weaknesses of competitors based on price, quality, location, product range and customer service.
- 3Explain the impact of competition on business decision making.
- 4Explain how competition affects customers and businesses.
What Is the Competitive Environment?
The competitive environment is the strength and number of businesses competing in the same market.
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Competitors
Other businesses selling similar products to the same customers - such as two cafés on the same street.
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Direct competitors
Businesses selling the same kind of product, such as two pizza takeaways.
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Indirect competitors
Businesses selling a different product that meets the same need, such as a pizza takeaway and a burger bar.
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Highly competitive markets
Many businesses competing for the same customers, so each must work harder to win sales.
Competition on Every Corner
When two cafés sit on the same street, every customer who walks into one is a sale the other has lost. Each owner has to understand what the other does well and badly - and find a reason for customers to choose them instead.
Two direct competitors, fighting for the same customers every day.
How to Judge a Competitor
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Price
Are they cheaper or more expensive? Do customers think they are good value for money?
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Quality
How good are their products and how reliable is their service?
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Location
Are they easy to reach, on a busy street, near customers or online?
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Product range
How much choice do they offer? Is it wider or narrower than ours?
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Customer service
Are staff friendly and helpful? How do they deal with complaints and returns?
Comparing Two Cafés
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Price
Café A: Coffee £2.50. Café B: Coffee £3.40. Who is stronger?: Café A
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Quality
Café A: Standard coffee. Café B: Freshly roasted beans. Who is stronger?: Café B
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Location
Café A: On the main street. Café B: Down a side street. Who is stronger?: Café A
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Product range
Café A: Drinks only. Café B: Drinks, cakes and lunches. Who is stronger?: Café B
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Customer service
Café A: Busy and slow. Café B: Friendly and quick. Who is stronger?: Café B
Finding Out About Competitors
Market research tells a business how its competitors compare.
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Visit them
Go in as a customer and see their prices, range, quality and service first-hand.
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Websites and social media
Check their prices, menus, offers and what customers say in reviews.
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Customer surveys
Ask customers why they choose a competitor and what it does well or badly.
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Market maps
Plot competitors to see where they are positioned and where they are not.
How Competition Affects Business Decisions
A business must respond to what its competitors do.
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Pricing
A business may lower its prices, or match a competitor's, to avoid losing customers - or charge more if it offers better quality.
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Quality and added value
Improving quality, design or branding gives customers a reason to choose it over a cheaper rival.
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Customer service
Better service is a way to compete that a larger rival may struggle to match.
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Location
A business may choose a site away from strong competitors, or deliberately close to them where customers already go.
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Product range
Adding new products, or specialising in something competitors do not offer, can win customers.
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Costs
Businesses in competitive markets must keep costs down so they can keep prices low and still make a profit.
Who Wins When There Is More Competition?
Good for customers
- Lower prices.
- Better quality and service.
- More choice.
- More new products and innovation.
Hard for businesses
- Must cut prices, so profits fall.
- Must spend more on quality, promotion and service.
- Harder to win and keep customers.
- Weaker businesses may be forced to close.
Case study
Supermarkets: Competing on Price
The discount supermarkets Aldi and Lidl have grown quickly in the UK by offering low prices and a smaller range of mostly own-brand products. The larger supermarkets had to respond. Tesco launched Aldi Price Match in 2020, promising to match Aldi's prices on hundreds of products, and Sainsbury's launched its own Aldi Price Match in 2021. Competition from the discounters changed the pricing decisions of Britain's biggest supermarkets - and gave customers lower prices.
Beat the Competition
You own Café A from the comparison table. Café B has better quality, a wider product range and friendlier service, but you are cheaper and on the main street. Decide two changes you will make to win customers from Café B, and explain the impact of each on your costs and your sales.
1. Choose two factors to improve.
2. Say exactly what you will change.
3. Explain the effect on your costs.
4. Explain the effect on your sales.
A good answer shows: Two specific changes, each linked to one of the five factors, with the effect on both costs and sales explained.
Can I...?
- 1Explain what the competitive environment is.
- 2Judge a competitor on price, quality, location, product range and customer service.
- 3Explain how a business can find out about its competitors.
- 4Explain how competition affects pricing and other decisions.
- 5Explain how competition affects customers and businesses.
Summary & Exam Focus
- Competitors can be judged on price, quality, location, product range and customer service.
- Businesses research competitors to find their strengths and weaknesses.
- Competition affects decisions about price, quality, service, location and range.
- Competition is good for customers but squeezes businesses' profits.
Exam focus
Explain one way that competition might affect the decisions a small business makes. (3 marks) (3 marks)
Name one decision - price, quality, location, range or service - then explain what the business would change and what that does to its sales, costs or profit.
Key terms
The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.
- Competitive environment
- The strength and number of businesses competing in the same market.
- Competitor
- Another business selling similar products to the same customers.
- Direct competitor
- A business selling the same kind of product to the same customers.
- Indirect competitor
- A business selling a different product that meets the same customer need.
- Product range
- The variety of products a business offers.
- Customer service
- How a business treats its customers before, during and after a sale.
Downloads
Free to keep, print and annotate.
- The competitive environment.pptx Built from the lesson script on 24 September 2026. View
- The competitive environment - Completed Notes.docx The full notes for the lesson, to revise from. Built from the lesson script on 24 September 2026. View
- The competitive environment - Exam Questions.docx Built from the lesson script on 24 September 2026. View
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