Most businesses share their market with rivals. Competition pushes firms to offer better value — but it also makes life harder, because customers can always take their money elsewhere.
Who are competitors?
Competitors are other businesses selling similar products to the same customers. A halal burger van competes with nearby takeaways, cafés and even supermarket ready meals. Competition can be:
- Direct — very similar products, like two grocers on the same street.
- Indirect — different products meeting the same need, like a cinema competing with a bowling alley for a family's evening out.
Price competition
Here firms try to win customers by charging less. A shop might run a sale, offer discounts, or match a rival's price. Price competition can boost sales, but cutting prices too far reduces profit and can start a damaging price war that hurts everyone.
Non-price competition
Firms can compete without cutting prices by offering something better:
- Quality — better ingredients or workmanship.
- Customer service — friendly, helpful, quick.
- Branding and reputation — a name people trust.
- Location and convenience — easy to reach or open late.
- Extra features — free delivery, loyalty cards, a wider range.
Non-price competition builds loyalty and protects profit, because customers stay even if a rival is slightly cheaper.
Effects of competition
| For customers | For businesses |
|---|---|
| Lower prices | Pressure to keep costs down |
| More choice | Must keep improving to survive |
| Better quality and service | Lower profit margins |
Competition is generally good for customers. For firms it is a challenge that rewards those who offer real value and punishes those who become complacent.