Business Environment Challenges and Possible Solutions (10.2)

Chapter 10, Marketing, Competition, and the Customer

Lesson Objective: To understand

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You have learned that the business environment is made of many different elements:

• Price;

• Price of the competition;

• Customers' income;

• Population size, structure, and changes;

• Changes in consumers' preferences;

• Spending on advertisement and promotion spending.

One of the elements that impact business environment the most is the government intervention over markets - in other words, government's actions impacting businesses.

How do you think governments impact markets / business environment?

1. Laws to Prevent Monopolies:

Monopoly happens when a single (or very few) businesses dominate an entire industry.

When monopolies come to happen it is disadvantageous to consumers as well as it creates limits competition to happen:

2. Changing Policies Regarding Privatization:

Privatization is the process of transferring government owned businesses (public sector) to private enterprises (private sector).

- Governments may decide that certain government organizations would be better off when privatized.

The goods:

The main problem?

Government-owned organizations have the objective of serving peoples' needs whereas private sector businesses are profit-oriented.

3. Deregulation:

When governments make laws and regulations less strict on certain industries.

These industries might then self-adjust instead of being strictly regulated by the government (e.g. banking).

4. Subsidization:

Policies in which the government supports businesses' and industries' development by providing them with benefits.

- Such benefits are usually in the form of tax exemption.

- Government grants and loans are not uncommon.

In summary, governments can largely impact the business environment. They do so by:

1. Changing monopoly laws and regulations;

2. Privatizing or even nationalizing some companies/industries;

3. Deregulating industries so that companies have less strict regulations;

4. Subsidizing (or not) specific industries.

Other than governments, customers and the competition will have a great impact on businesses and its environment:

• Increasing competition (local or international) directly impacts the business environment. More competitive environments are harder to play in;

• Changing customers' preferences is another important factor: customers tastes and fashion is constantly changing forcing businesses to quickly respond.

How can businesses respond to such challenges?

By launching new products businesses are tackling both problems at the same time:

- They are fighting competition with newer, better products that suit customers changing preferences by identifying their needs/wants and developing products they like.

The same happens when businesses improve their efficiency:

- They are increasing the quality of their products and lowering their costs which allows for selling more products (fight competition) at lower prices (attract customers).

Competition can also be fought through investments in promotion:

- Businesses try to increase sales revenues through promotion and advertising investments.

Lastly, when competition is too intense and customers purchasing patterns have completely switch it is not uncommon to see businesses exploring new markets:

- Other cities, regions, and countries, might have lower competition and customers still interested in your product.

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Test Yourself (p. 145)

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Types of Market: Niche Marketing vs. Mass Marketing

Mass Marketing: when businesses attempt to sell the same product to the whole market (no differentiation);

Niche Marketing: a small portion of the total/whole market (different products, prices, location, promotion to different customers).

Which one is best? No right or wrong answer, it all depends on the business.

Examples:

Niche Marketing Analysis:

Benefits of Niche Marketing	Limitations of Niche Marketing
Small firms are able to compete in niches when the mass market is dominated by large companies.	High profits in the niche market might attract other firms and therefore increase competition.
Competition is usually lower than on mass markets (lower costs).	Economies of scale are unlikely and therefore the unit costs are higher.
Opportunity for price premium. Consumers are more likely to pay premium for exclusive, niche products that perfectly meet their needs/wants than mass products.	Consumers' changing preferences can largely impact companies operating in a niche market.

Mass Marketing Analysis:

Benefits of Mass Marketing	Limitations of Mass Marketing
Opportunities for economies of scale are available and therefore unit costs can be lower.	Competition is intense making prices lower and negatively impacting profits.
Reduced risks as a change in consumers preferences is likely to not impact a very large market.	Customers oftentimes look for specific products which are different than mass marketing - negative impact on business operating in such manner.
Large markets mean larger sales and profit potential.

In summary:

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To-Do List:

Case Studies (p. 147) - One File:

• Avitourism in South Africa

• Weetabix

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Chapter 10, Marketing, Competition, and the Customer