Growth, Development and Expansion

What are the 5 ways of identifying and analysing competition

1. Understand competitors

2. Learn from competitors

3. Understand Customer Preferences

4. Reduce business risk

5. Improving Pricing and Marketing

Understand Competitors

Help Businesses identify their direct and in-direct competitors and compare their strengths and weaknesses

Direct Competition

Businesses selling similar product to the same target market e.g. two local bakeries

In-direct Competition

Businesses selling different products that satisfy customer needs e.g. a bakery and a supermarket selling cakes

Learn from Competitors

Businesses can identify gaps in the market and opportunities to improve their products or services

Understand Customer Preferences

Analysing competitors helps businesses identify popular products and changing customer needs

Reducing Risk

Monitoring competitors help businesses identify threats and adapt to market change

Improve pricing and Marketing

Businesses can compare competitors’ prices and marketing strageties to remain competitive and attract customers

Competitive Advantage

Refers to the factors that allow a business to offer products or services more efficiently, cheaply or to a higher standard than competitors it is also the reason a customer would choose a product over its competitors

Ways a business can gain a competitive advantage

1. Cost: Offering products at lower prices, e.g. Ryanair

2. Differentiation: Offering unique features or higher quality at a lower cost e.g. Apple

3. Specialisation :Focusing on a specific market or customer need e.g. Rolex

4. Technology: using advanced technology to improve products or efficiency

5. Free returns

6. Next day Delivery

How businesses can capitalise on competitive advantage

1. Create a clear USP

2. Build customer Loyalty

3. Improve marketing

4. Invest in their advantage

Create a clear USP

Highlight what makes the business different from competitors

Build customer loyalty

Offer something customers value that is difficult to find else where, encouraging repeat business

Improve marketing

Promote the business’s unique strengths through advertising and branding

Invest in their advantage

Continue improving products, services, or technology to stay ahead of competitors

Example of a competitive advantage

Penny’s has a competitive advantage by offering fashionable clothing at low prices, attracting customers looking for good value

Porter’s Five Forces Model

Porter’s Five Forces Model includes five forces which support deeper understanding of the competitive forces within business which drive how the economic value is divided amongst stakeholders. It tells us if the influence is low → high.

What are the five forces

1. Threat of New Entrants

2. Bargaining Power of Suppliers

3. Bargaining Power of Buyers

4. Threat of Substitutes

5. Competitive Rivalry

Threat of New Entrants

-How easy or difficult it is for new businesses to enter the market and challenge existing businesses.

Influenced by: start-up costs, brand loyalty and access to distribution

The influence of threat of new entrants is low

A Franchise opens a national chain, requires huge capital. The Threat of new entrants is low.

The influence of threat of new entrants is high

A local barber shop pens, anyone with the same skill set can open a barber shop near by. The threat of new entrants is high.

Bargaining Power of Suppliers

-The influence suppliers have over the prices and terms they offer businesses

Influenced by: Number of suppliers and availability of alternatives

The influence of bargaining power of suppliers is low

Super mac’s can source materials from several suppliers. The bargaining power of suppliers is low.

The influence of bargaining power of suppliers is high

A small Irish cake maker that sell’s its products to also. If they rely on Aldi. It gives Aldi(the supplier) more power to negotiate lower prices. The bargaining power of suppliers is high.

Bargaining Power of Buyers

The influence customers have over prices, quality and service.

Influenced by: customer choice, online reviews and ease of switching

The influence of bargaining power of buyers is low

Apple’s iphone has a loyal customer base. so the price is set it can’t be negotiated. Bargaining power of buyers is low.

The influence of bargaining power of buyers is high

A taxi company vs Uber. customers can switch company’s at any given time. Bargaining Power of buyer is high

Threat of substitutes

The risk of customers switching to a different product or service that meets the same need

Influenced by availability, price, quality and convenience of alternatives

The influence of Threat of substitutes is low

Electricity suppliers, there are only a few practical substitutes. Threat of substitutes is low

The influence of Threat of substitutes is high

Spotify. Lots of practical substitutes such as youtube or apple music. Threat of substitutes is high

Competitive Rivalry

The level of competition between existing businesses in the same market.

Influenced by number of competitors, market growth and customer loyalty.

The influence of competitive rivalry is low

Irish rail has limited competition. so competitive rivalry is low

The influence of competitive rivalry is high

Apple green vs circle K. A lot of competition in fore court industry. So competitive rivalry is high

How Businesses use porter’s Model

Identify threats from competitors, suppliers and substitute products

Recognise strengths and weaknesses in its competitive position

Develop a competitive advantage through lower prices, better quality or unique products or services

How businesses use porter’s five forces to identify competitive advantage

Competitive Rivalry ~ identify competitors’ weaknesses and offer something different e.g. better quality or innovative products

Threat of New Entrants ~ Build customer loyalty and string brand recognition to make it harder for new competitors to enter the market.

Bargaining Power of Suppliers ~ negotiate better prices or use alternative suppliers to reduce costs

Bargaining Power of buyers ~ Offer unique products , better quality or customer service to encourage loyalty and reduce pressure to lower prices.

Threat of Substitutes ~ Build a strong brand and improve products to encourage to choose the business over alternatives