An environment that is competitive is one where businesses
selling comparable goods compete for customers by employing various
distribution channels and pricing models. Learn how to keep your business
Competitive Environment Definition
Companies vying for market shares define a competitive
environment. A single company's profit margins may be modest in these business
environments because the market is saturated with like-minded corporations or
small businesses selling comparable goods. To make the most of a customer's
dollar, retailers must be resourceful with their negotiating position,
alliances, and marketing plans. The importance of each company identifying and
focusing on its market segments grows as new competitors for existing
businesses enter the market.
How Do Competitive Environments Affect Businesses?
The production methods and marketing plans employed by each
business are impacted by competitive environments. It is simple for businesses
to set the best prices and invest less time in their market research in an
oligopoly (when multiple companies, businesses, or firms in a specific industry
become so influential it discourages the creation of new firms) or monopoly
(when a single entity controls the entire industry). This is due to the fact
that there is little competition and a small number of large companies, giving
each one more market power.
However, in environments where there is competition,
businesses must constantly keep an eye on the price points, quality, features,
and marketing of a competitor's products. Businesses need to develop
distinctive competitive strategies. This might entail identifying a more
focused target market, lowering prices, or developing new products that more
directly address the needs of customers.
4 Types of Competitive Environments
Different competitive environments come in various forms.
Think about the following:
1. Monopolistic competition: In monopolistic competition,
numerous businesses offer various versions of the same goods, giving customers
a wide range of options and giving suppliers more pricing flexibility.
Businesses will rely on and emphasize the distinctiveness of their products to
2. Monopoly: A monopoly exists when a single business
produces a sought-after good. Because there is no competition, the company has
total control over the market, allowing it to set prices and obstacles to
future market entry.
3. Oligopoly: This type of economic organization has a small
number of non-competitive firms with substantial market power. Companies can
raise prices because there is little competition in an oligopoly.
4. Pure competition is the term used when several businesses
produce comparable goods in the same market. Because the market, not the
producers, will determine pricing, each company's business strategy must be
Competitive Environment Examples
Consider the following hypothetical scenarios, which depict
competitive environments and how businesses can adapt to stay ahead.
1. Customer incentives: Two knit-sock businesses prepare for
winter sales. The first holds a flash sale, offering a buy-one-get-one-free
deal for the week following Black Friday, a critical period for online sales.
The second cannot afford to do a BOGO but is concerned about losing customers
during this critical period, so they instead offer buyers 50% off their second
purchase to remain competitive.
2. Free shipping: To serve more environmentally conscious customers, more companies are producing reusable plastic and metal water bottles. Individual businesses find it difficult to break through, so one new entrant makes a splash by offering free shipping on all first orders.
3. New products: As people prioritize hygiene and germ-free hands in response to public health recommendations, more companies are entering the hand soap industry. Consumers want more specificity in their purchases, and one company responds by launching a new line of scents to see which performs best in the market.