What do you think is the best strategy for existing businesses to adopt in response to the entry of a new large competitor free essay sample

What do you think is the best strategy for existing businesses to adopt in response to the entry of a new large competitor? Justify your answer with reference to the UK bottled water market and/or other markets that you know. Almost all business operates in competition with other businesses, whether this is Sainsburys competing with Asda for customers at a local, national and international level or two local hairdressers competing for clients in a single town. Competition is usually between firms supplying the same product. For example, British Gas compete not just with other suppliers in the gas provision market but also with the suppliers of other types of fuel, including coal, electricity and oil. The managing director of Waterman Pens is famously quoted as saying: We are not in the market for pens, but executive gifts. Therefore he redefined the companys competitors as Dunhill and Rolex, rather than Parker and Bic. We will write a custom essay sample on What do you think is the best strategy for existing businesses to adopt in response to the entry of a new large competitor? or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Competition is generally regarded as being positive, bringing benefits in particular to customers. The advantages of competition are based on the fact that, in order to gain market share, firms need to offer the cheapest or the best quality products to customers. This requires them to operate as efficiently as possible, in a cost effective way while at the same time improving the quality of products and services as much as possible. However, competition also has some negative. Where competition is based solely on price, product quality might be sacrificed because resources that are devoted to competing with other firms, such as the huge amounts spent on advertising and packaging, could be directed to producing cheaper or better products. Also, competition between firms means that, inevitably, some businesses will be forced out of the market, with the economic and human consequences of redundancy and unemployment. Finally, the competitive process tends to mean that successful established businesses gradually take over, for example Nestle and Danone – or merge with unsuccessful ones. This in turn leads to the existence of a smaller number of larger and larger businesses. This has happened, for example, in the supermarket sector. In very competitive markets, such as those that can be described as monopolistic competition, new competitors enter all the time. For example, a new hairdresser or a new cafe might set up on the high street. In order to compete, existing businesses will need to ensure that their product or service is of an appropriate quality, is priced and promoted appropriately and has its own USP. For example, in order for Nestle and Danone to give their bottled water a USP they could introduce different size bottles, and different flavours. In some industries, barriers to entry prevent or deter new firms from entering. They thus enable existing firms to continue relatively unchallenged and, in effect, protect them from new entrants and allow them to earn higher profits than they might in a more competitive environment. This is the case in monopoly or oligopoly markets such as car manufacturers, supermarkets and banks. However, from being a relatively small player in a market, a business can develop into a dominant business as a result of a takeover or a merger. This can have a significant impact on the competitive forces for existing firms that are now faced with a more powerful competitor. For example, in 2003, Morrisons, a medium sized bust fast growing supermarket chain, took over Safeway and became a much more significant competitor for Asda, Tesco and Sainsburys. The more competitive the market, the less opportunity there is for profit as firms try to cut costs and prices in order to attract customers. Where there is little competition but a strong demand, supernormal profits may be made. Such profits are often a sign of unfair competition. To retain a good reputation, Nestle and Danone must make sure their actions are fair competition. Fair competition is where firms compete on equal terms in a way that offers consumers the best choice of products and prices. An example of unfair competition would be Danone only supplying retailers that promise not to stock Nestle or Coca Cola or that agree to stock the whole range of Danones products.