Competition and the competitive environment

Competition happens when two or more businesses try to sell similar products or services to the same customers or market segment. A competitor is another business that offers a similar product or service to those customers. The competitive environment is the set of rival businesses and conditions that affect how well a business can attract and keep customers.

To understand your competitive environment, identify your main competitors and compare their strengths and weaknesses with your own. A competitor's strength is a factor that helps that rival attract customers; a competitor's weakness is a factor that may make customers choose another business. Compare rivals on price, quality, location, product range and customer service, looking at what they charge and how well they treat customers. A small bike repair business, for instance, might find a rival charges less per repair, but many customers complain that repairs take over a week and gears come back badly adjusted. That comparison shows where the rival is strong and where you could compete.

Opportunities and threats

Analysing competitors helps you spot opportunities, such as a gap in the market for a service rivals do not offer, and threats, such as a rival offering better value. How much this matters depends on how many rivals there are, how strong they are and your own resources. More competition can reduce your market share and profit if customers switch to rivals, while customers benefit from lower prices, greater choice and better quality as businesses work harder to attract them.

Responding and monitoring

When deciding how to respond, consider what it will cost and whether you can afford it. Cutting prices may attract customers but reduce the money made on each sale, and a small business may not be able to match a larger rival's spending.

Competitors' actions and customer preferences change, so monitor rivals regularly. A rival might launch a new product or improve its service, and customers' tastes can shift. Regular checking helps you adapt before you lose sales.