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Edexcel GCSE Business · 1BS0
Edexcel 1BS0 · 1.2.4 Check the specification (PDF) (opens in a new tab)
A business does not attract customers simply by offering something they need. Customers may have several businesses to choose from. Competition is rivalry between businesses seeking to attract customers in the same market. For an entrepreneur opening a café, nearby cafés may already offer the drinks, food and service that potential customers want.
Businesses therefore need to understand their competitive environment: the rivals they face, what those rivals offer and how their actions affect customer choices. A competitor’s strength can be a threat, while a competitor’s weakness may create an opportunity to offer something better.
Competition puts pressure on businesses to improve quality, provide better service or keep prices attractive. These responses can benefit customers, but they can also increase a business’s costs or reduce its profit. Success depends on meeting customers’ needs while keeping the business financially viable.
An entrepreneur should compare competitors using price, quality, location, product range and customer service. These factors work together: customers may accept a higher price if they receive better quality or greater convenience.
| Factor | How it can be a competitor’s strength | Possible weakness or limitation |
|---|---|---|
| Price | Lower prices can attract customers who are looking for the best deal. | Low prices leave less money from each sale to cover costs and contribute to profit. They may not attract customers who put quality first. |
| Quality | Reliable, well-made products or a consistently good service can encourage repeat purchases and justify higher prices. | Providing higher quality may cost more. Customers may choose a cheaper rival if they do not value the difference. |
| Location | An accessible location close to customers makes buying convenient. | A location far from customers can discourage purchases. A convenient location alone may not distinguish a business from nearby rivals. |
| Product range | A wide choice can meet different needs and allow customers to buy several things from one business. | A large range can be more difficult to manage and make consistent quality harder to maintain. A narrow range may fail to meet some customers’ needs. |
| Customer service | Helpful staff, prompt assistance and effective handling of problems can encourage loyalty and positive recommendations. | Poor service can drive customers away. Good service also costs money and may not persuade customers who mainly want the lowest price. |
A strength is not equally valuable to every customer. A café near a station might appeal to commuters because it is convenient, but customers seeking somewhere to spend a relaxed afternoon might care more about quality and service. Competitor analysis must therefore consider the business’s target market, rather than simply count how many strengths each rival has.
Consider an example: an entrepreneur is planning a small café. A nearby rival offers cheap drinks and a convenient location, but has a limited food range and unhelpful service.
The entrepreneur could compete on price, but matching the rival’s prices might leave too little money to cover the new café’s costs. Alternatively, the entrepreneur could offer a wider food range and friendly, knowledgeable staff. This would give customers a reason to choose the new café without it having to be the cheapest.
That response is differentiation: making the business noticeably different in a way customers value. If customers appreciate the food and service, these features could create a competitive advantage, helping the café attract customers rather than lose them to its rival. However, the extra food choice and staffing would increase costs. The decision is worthwhile only if enough customers value the improvements.
Pricing decisions: businesses consider rivals’ prices when setting their own. A rival’s price cut may encourage a business to lower its price to protect sales. However, it could instead retain its price and emphasise better quality or service. The appropriate response depends on costs and customers’ priorities.
Product decisions: competitors’ products can encourage a business to improve quality, add features or change its range. A small business might introduce an item that rivals do not offer. This could attract customers with an unmet need, but developing and supplying it uses money and resources.
Marketing decisions: a business may change its advertising or promotions to explain why customers should choose it. Rather than making a vague claim to be better, it can highlight a meaningful difference, such as a wider range or more helpful service. Competitors’ promotions may also influence when and how it advertises.
Operational and staffing decisions: competing successfully may require changes inside the business. To offer lower prices without sacrificing profit, it may seek more efficient ways to operate and reduce costs. To improve service, it may train staff. These decisions connect competition with operations, finance, marketing and the management of employees.
A small business rarely has enough resources to outperform every competitor on every factor. It needs to focus on differences its customers value and that it can afford to provide.
Competitors may also react: they could copy a successful product, improve their service or cut their prices. Businesses therefore need to keep reviewing the competitive environment. A response that attracts customers today may become less effective as rivals change.
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Assess price, quality, location, product range and customer service.
Judge strengths and weaknesses against what the target market values.
Compete through lower prices or valued differences—not necessarily both. A response may protect sales but raise costs or reduce profit. Its success depends on customers’ priorities, the business’s resources and competitors’ reactions.
Get unlimited access to all revision notes, key terms, and exam tips.
Apply the comparison to the business and its customers: a low price matters more when customers are price-sensitive.
Develop a chain of reasoning: a competitor’s strength → the business’s response → an effect on customers, sales, costs or profit.
Do not assume that cutting prices increases profit. More sales may not compensate for earning less on each sale.
When judging a response, consider its cost, what customers value and whether competitors could copy it.
Competition
Rivalry between businesses seeking to attract customers in the same market.
Competitor
A business that rivals another business for customers.
Target market
The group of customers a business aims its goods or services at.
Competitive advantage
A feature or capability that helps a business attract customers rather than lose them to rivals.
Product range
The different goods or services a business offers to customers.
Differentiation
Making a product or business noticeably different from rivals in a way that customers value.
Put your knowledge into practice — try past paper questions for Business
Competition
Rivalry between businesses seeking to attract customers in the same market.
Competitor
A business that rivals another business for customers.
Target market
The group of customers a business aims its goods or services at.
Competitive advantage
A feature or capability that helps a business attract customers rather than lose them to rivals.
Product range
The different goods or services a business offers to customers.
Differentiation
Making a product or business noticeably different from rivals in a way that customers value.