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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.
Teacher resources
The teacher copies: slides with the questions built in, the answers, and anything else attached to this lesson for whoever is teaching it.
- The competitive environment - Teacher Slides.pptx Teacher The lesson slides with the teacher's notes on each slide, and every question and mark scheme built in. Built from the lesson script on 24 September 2026. View
- The competitive environment - Teacher Notes.docx Teacher The complete notes with the teacher's notes and every model answer in full. Built from the lesson script on 24 September 2026. View
Student handouts
The same files the students see, to print or hand out.
- 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
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A gap may have no demand, only two features, based on opinion, or goes out of date.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.
Questions and answers
9 questions set on this lesson, with the mark schemes and model answers open.
Define the term 'competitor'.
Mark scheme — 1 mark available
- A business selling similar products / to the same customers — 1 mark
Model answer
Another business that sells similar products or services to the same customers.
State one factor a business could use to judge the strengths and weaknesses of a competitor.
Mark scheme — 1 mark available
- Any one of: price; quality; location; product range; customer service — 1 mark
Model answer
Customer service.
Outline one way a small business could compete with a larger competitor.
Mark scheme — 2 marks available
- A way identified, e.g. customer service / quality / location / specialist range / USP — 1 mark
- Developed in context — 1 mark
Model answer
By offering better customer service (1), such as knowing regular customers by name, which a large business with many branches may struggle to match (1).
Explain one way that competition might affect the decisions a small business makes.
Mark scheme — 3 marks available
- A decision identified, e.g. pricing / quality / customer service / location / product range — 1 mark
- First linked point of explanation — 1 mark
- Second linked point of explanation — 1 mark
Model answer
It may decide to lower its prices (1). If a competitor sells a similar product more cheaply, customers may switch to the competitor (1). Lowering prices could protect the business's sales, but it would reduce the profit it makes on each item (1).
Source: Hana owns an independent bookshop in a small town. A large chain bookshop has just opened a branch on the same high street. The chain sells best-sellers at lower prices than Hana, and has a much bigger range. Hana's shop is known for friendly staff who recommend books, and for its children's reading events. Analyse the impact of the new competitor on Hana's business.
Mark scheme — 6 marks available
- AO2 (Application, 3 marks): uses the context - the chain's lower prices and range, Hana's staff and reading events — Level 1-3
- AO3a (Analysis, 3 marks): chains of reasoning showing the impact on Hana's sales, prices and profit — Level 1-3
Model answer
The chain sells best-sellers at lower prices, so customers who only care about price may switch to it. This means Hana's sales of popular books are likely to fall, reducing her revenue. If she lowers her prices to compete, she will make less profit on each book, which is difficult for a small business with higher costs. However, the competition may push Hana to focus on her strengths. Her friendly staff and children's reading events are customer service the chain may not offer. By promoting these, she can give customers a reason to keep choosing her shop, which means she can protect her loyal customers without having to win a price war she cannot afford.
Which one of the following is a way to judge a competitor's strengths and weaknesses?
Why: Competitors are judged on price, quality, location, product range and customer service.
A pizza takeaway and a burger bar in the same town are examples of:
Why: They sell different products that meet the same need - a quick takeaway meal - so they are indirect competitors.
How are customers likely to benefit from more competition in a market?
Why: Businesses compete for customers by cutting prices and improving quality and choice.
A new competitor opens next door with lower prices. Which response would most likely protect a small business's profit?
Why: Competing on service or quality avoids a price war, which would reduce profit on every sale.