EDEXCEL GCSE BUSINESS · PAPER 1
The competitive environment
Spotting a business opportunity · Lesson 5 of 5
Teacher copy - includes the notes for whoever is teaching from it.
Last Lesson
Answer from memory before the answers appear.
1. What is a market map?
A diagram that plots businesses against two features customers care about.
2. What might an empty area on a market map show?
A possible gap in the market.
3. Give one benefit of a market map.
Shows gaps, shows competitors, or helps a business position its product.
4. 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A gap may have no demand, only two features, based on opinion, or goes out of date.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
1. Explain what is meant by the competitive environment.
2. Identify the strengths and weaknesses of competitors based on price, quality, location, product range and customer service.
3. Explain the impact of competition on business decision making.
4. Explain 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.
▸ Competitors. Other businesses selling similar products to the same customers - such as two cafés on the same street.
▸ Direct competitors. Businesses selling the same kind of product, such as two pizza takeaways.
▸ Indirect competitors. Businesses selling a different product that meets the same need, such as a pizza takeaway and a burger bar.
▸ Highly competitive markets. Many businesses competing for the same customers, so each must work harder to win sales.
Competition on Every Corner
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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. |
PART ONE
Strengths and Weaknesses of Competitors
Five things to compare every competitor on.
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? |
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? |
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? |
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Comparing Two Cafés
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Factor |
Café A |
Café B |
Who is stronger? |
|---|---|---|---|
|
Price |
Coffee £2.50 |
Coffee £3.40 |
Café A |
|
Quality |
Standard coffee |
Freshly roasted beans |
Café B |
|
Location |
On the main street |
Down a side street |
Café A |
|
Product range |
Drinks only |
Drinks, cakes and lunches |
Café B |
|
Customer service |
Busy and slow |
Friendly and quick |
Café B |
Finding Out About Competitors
Market research tells a business how its competitors compare.
▸ Visit them. Go in as a customer and see their prices, range, quality and service first-hand.
▸ Websites and social media. Check their prices, menus, offers and what customers say in reviews.
▸ Customer surveys. Ask customers why they choose a competitor and what it does well or badly.
▸ Market maps. Plot competitors to see where they are positioned and where they are not.
PART TWO
The Impact of Competition on Decisions
Competitors change what a business does - often every day.
How Competition Affects Business Decisions
A business must respond to what its competitors do.
▸ Pricing. A business may lower its prices, or match a competitor's, to avoid losing customers - or charge more if it offers better quality.
▸ Quality and added value. Improving quality, design or branding gives customers a reason to choose it over a cheaper rival.
▸ Customer service. Better service is a way to compete that a larger rival may struggle to match.
▸ Location. A business may choose a site away from strong competitors, or deliberately close to them where customers already go.
▸ Product range. Adding new products, or specialising in something competitors do not offer, can win customers.
▸ 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?
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GOOD FOR CUSTOMERS |
HARD FOR BUSINESSES |
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▸ Lower prices. ▸ Better quality and service. ▸ More choice. ▸ More new products and innovation. |
▸ 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
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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. |
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2020 Tesco launches Aldi Price Match |
2021 Sainsbury's launches Aldi Price Match |
Key Terms
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Competitive environment The strength and number of businesses competing in the same market. |
Competitor Another business selling similar products to the same customers. |
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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. |
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Product range The variety of products a business offers. |
Customer service How a business treats its customers before, during and after a sale. |
Your Task: Beat the Competition
12 minutes
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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.
Note: The best answers keep Café A's strengths (price and location) instead of copying Café B, and recognise that every improvement costs money.
Can I...?
☐ Explain what the competitive environment is.
☐ Judge a competitor on price, quality, location, product range and customer service.
☐ Explain how a business can find out about its competitors.
☐ Explain how competition affects pricing and other decisions.
☐ Explain how competition affects customers and businesses.
Summary
✓ 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.
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EXAM FOCUS Explain one way that competition might affect the decisions a small business makes. (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. |
Exam Practice: The Competitive Environment
Answer all questions. Use the context of the business in the question where one is given. · 25 minutes
▸ Question 1 · 1 mark · Define. Define the term 'competitor'.
▸ Question 2 · 1 mark · State. State one factor a business could use to judge the strengths and weaknesses of a competitor.
▸ Question 3 · 2 marks · Outline. Outline one way a small business could compete with a larger competitor.
▸ Question 4 · 3 marks · Explain. Explain one way that competition might affect the decisions a small business makes.
▸ Question 5 · 6 marks · Analyse. Analyse the impact of the new competitor on Hana's business.
Question 1 · 1 mark · Define
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“Define the term 'competitor'.” |
HOW TO ANSWER IT Command word: Define. Worth 1 mark, so plan before writing.
Question 1 · mark scheme
1 mark available. Award a mark for each point made.
▸ 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.
Question 2 · 1 mark · State
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“State one factor a business could use to judge the strengths and weaknesses of a competitor.” |
HOW TO ANSWER IT Command word: State. Worth 1 mark, so plan before writing.
Question 2 · mark scheme
1 mark available. Award a mark for each point made.
▸ Any one of: price; quality; location; product range; customer service. 1 mark
▸ Model answer. Customer service.
Question 3 · 2 marks · Outline
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“Outline one way a small business could compete with a larger competitor.” |
HOW TO ANSWER IT Command word: Outline. Worth 2 marks, so plan before writing.
Question 3 · mark scheme
2 marks available. Award a mark for each point made.
▸ 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).
Question 4 · 3 marks · Explain
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“Explain one way that competition might affect the decisions a small business makes.” |
HOW TO ANSWER IT Command word: Explain. Worth 3 marks, so plan before writing.
Question 4 · mark scheme
3 marks available. Award a mark for each point made.
▸ 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).
Question 5 · 6 marks · Analyse
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“Analyse the impact of the new competitor on Hana's business.” — 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… |
HOW TO ANSWER IT Command word: Analyse. Worth 6 marks, so plan before writing.
Question 5 · mark scheme
6 marks available. Award a mark for each point made.
▸ 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.