C2 Competitive Pressures
Competition is the existence of rival firms selling the same or similar products. When there are many competitors in an industry, it puts pressure on businesses to be highly productive, innovative and efficient to survive. When larger competitors have a stronger brand image, more finance to invest in marketing and product development and reduced costs due to economies of scale, it can be very difficult for smaller firms to compete. This intense competition can reduce the chances of survival.
New entrants to a market seek opportunities to capture market share by enticing customers away from existing competition. Strategies may include launching products that are more innovative, higher quality or address a customer need not being met by existing products on the market. Successful new entrants would steal market share and gain growth advantages such as economies of scale, putting pressure on rivals to invest in their product development to survive.
Aggressive marketing strategies from competitors can intensify price competition, increase pressure to innovate, lure customers away, increase pressure to spend on marketing and damage brand reputation. All of this can negatively impact a business’s chances of survival.
Intensive price competition
Competitors may cut their prices in an attempt to gain market share forcing the business to match or undercut them to avoid losing customers. This reduces profit margins and can lead to losses if the market price become lower than costs, compromising the survival of the business. Price wars are when competitors repeatedly undercut each other’s prices which often leads to firms being priced out of the market.
Increased pressure to spend on marketing
In response to aggressive marketing strategies of competitors, a business may significantly increase their spending on marketing themselves. This may involve extensive market research to understand customer wants and needs, investment in the development of new products and high spending on promotion to entice and retain customers. Although this investment may increase customers, it is very costly which reduces profits.
Increased pressure to innovate
Aggressive competitors may rapidly introduce new products or features creating a buzz around their products and brand which can both attract new customers and enhance customer loyalty. Firms with a wider range of products are able to meet specific needs of more customers which can entice customers away from rivals. This puts pressure on businesses to respond by keeping up with innovation which increases costs
Damage brand reputation
Competitors may engage in unethical marketing practices to entice customers such as misleading advertising about product benefits. Customers may associate all businesses in the market with these practices which can have a damaging effect on brand image. This puts pressure on a business to differentiate itself from these competitors and promote their ethical practices which can increase costs.
