The Nature of Competition.

Introduction: The Nature of Competition

Competition is natural in any market because resources and customers are limited. Every firm wants a bigger share of these limited opportunities.

Competition is like a race where many firms run side by side, each trying to run faster, offer better or sell cheaper so they can win more customers and grow their business. 

Definition of Competition in Business Policy

In business policy, competition simply means the struggle between companies that are trying to do better than each other.

 

Theoretical Foundations of Competition

·        Industrial Organization (IO) Economics.

·        Porter's Five Forces. 

·        Resource Based View

Industrial Organization (IO) Economics.

Industrial Organization IO Economics is a field of study that examines the behaviour of firms and markets

Structure Conduct Performance SCP Paradigm, a fundamental framework in IO economics It suggests that a markets structure determines the conduct of firms which in turn affects the market performance

SCP Paradigm includes;

1. Structure: characteristics of the market including the number of firms  ( monopoly, oligopoly, and perfect competition market) barriers to entry and exit, product differentiation.

2. Conduct: Firms conduct refers to the strategiesand behavious of firms in the market including: pricing strategy, advertising and marketing, research and development.

3. Performance: Market performance refers to the outcomes of firms conduct including: efficiency, innovation and consumer welfare.

Porter Five Forces Framework

 They’re;

1Threat of New Entrants Barriers to entry

2 Bargaining Power of Suppliers Supplier influence

3 Bargaining Power of Buyers Customer negotiating power

4 Threat of Substitute Products Alternative products or services

5 Competitive Rivalry Industry competition intensity

These framework helps businesses analyze industry competitiveness and develop strategic plans

The Resource Based View (RBV)

The Resource Based View RBV is a strategic management theory that explains how companies can achieve sustainable competitive advantage by leveraging their unique resources and capabilities

Key Components

1 Valuable resources Resources that are rare unique or difficult to imitate

2 Rare resources Resources that are not easily available to others

3 Imitable resources Resources that are difficult or impossible for others to replicate

4 Organized resources Resources that are effectively utilized and managed within the organization

By leveraging their unique resources and capabilities companies can create sustainable competitive advantages and outperform their rivals

 Types of Competition

1 Direct Competition This occurs between businesses that offer similar or identical products or services to the same target market For example Coca Cola and Pepsi directly compete in the soft drink industry

2 Indirect Competition Involves businesses offering substitute products that satisfy the same customer need For instance a cinema and a streaming service both compete for a consumers entertainment time and money

3 Potential Entrants These are new companies that could enter the market and disrupt existing players Although not yet competing they pose a threat by increasing supply reducing prices or introducing innovation

4 Global Competition Refers to competition from international companies operating in the same market often offering lower prices or superior products due to economies of scale advanced technology or stronger global presence

These types of competition shape how businesses develop strategies ,price their products and position themselves in the market

What Is a Competitive Strategy in Business?

Competitive strategy is a long term plan a business uses to gain an edge over rivals. It involves choosing how to compete through lower costs, unique products, focused niches, or a mix of these to win customers and strengthen market position.

Cost Leadership Strategy

Cost leadership strategy also called cost minimization strategy means offering lower prices than competitors while still keeping products and services at a good standard and quality. This approach leads to customer satisfaction and helps a business maximize profit because more customers are attracted

A good example is Exness also called Born to Trade compared to other brokers like FXTM Pepperstone and XM in the forex market Exness offers lower trading costs such as smaller commissions low deposits and tighter spreads yet still provides quality services like fast execution and a reliable platform This keeps customers satisfied and attracts more traders which increases overall profit even with lower charges. 

Cost leadership strategy helps businesses operate profitably efficiently and effectively while achieving their objectives and growing customer patronage. 

Differentiation strategy

The differentiation strategy under competition focuses on creating unique value propositions that set a company apart from its competitors This often involves offering distinctive products or services through design features or user experience building a strong brand identity and developing an integrated ecosystem or customer experience

Example 

Apple uses sleek design and a tightly integrated ecosystem combining hardware software and services to make its products stand out. This allows Apple to command premium prices despite intense market competition

Differentiation strategy aims to compete by being different not cheaper

 

 

 

Focus (niche) strategy

A focus or niche strategy means concentrating on a clearly defined segment of the market. By serving a specific group, a business can tailor its products or services to meet unique needs, stand out from larger competitors and build a strong reputation as a specialist. 

This often leads to stronger customer loyalty, better use of resources, quicker responses to market changes, and a lasting edge over rivals.

Dual Strategy

Dual strategy means a company combines elements of focus and differentiation at the same time.It targets a specific market segment while also offering unique features or services that make its products stand out.

This approach lets the firm serve a niche market with something special, building loyalty and reducing direct competition.

 

 

Developing a long term competitive strategy

Developing a long term competitive strategy means looking at your business strengths weaknesses and resources compared to your rivals and deciding how to secure and maintain an edge in the market It starts with understanding both your internal capabilities and the industry conditions using tools like Porters Five Forces and the Resource Based View to see where you can lead or stand out Common long term strategies include cost leadership differentiation focus and dual strategy

Examples

1 Apple Differentiation Strategy. 

Strategy Focuses on premium design ecosystem integration and strong branding  

This lead to Long term impact Sustained customer loyalty and industry leadership despite high prices

2 Dangote Group Cost Leadership and Vertical Integration. 

Strategy Controls supply chain from raw materials to distribution to keep cement prices competitive. 

This lead Long term impact Market dominance in Nigeria and expansion across Africa. 

Understanding and analyzing competitors

I dentify your competitors. 

ii Know their strengths and weaknesses. 

iii Compare yourself. 

iv Find opportunities. 

Reasons for competition analysis

i To improve your business. 

ii To stand out. 

iii To make informed decisions. 

Understanding and analyzing competition help you know who you are competing with ,what they are doing and how you can do better. 

Differentiating Value Proposition 

Differentiating value proposition means clearly showing why your product or service is unique and better than others in the market.

 It highlights special features, benefits or experiences that make customers choose you over competitors, it is about giving people a clear reason to prefer your business.

Innovation and Continuous Adaptation 

Innovation and continuous adaptation are important for staying competitive improving efficiency and driving growth

Benefits of Innovation and Continuous Adaptation

1 Staying competitive by adapting to changing market conditions and customer needs. 

2 Improving efficiency by using new technologies and processes. 

3 Driving growth by creating new products services or business models. 

Innovation and continuous adaptation embraces change by being open to new ideas and ready to pivot when needed, it encourages experimentation by building a culture that supports new ideas ,  Learning from failures by turning mistakes into lessons for improvement. 

By focusing on innovation and continuous adaptation organizations can stay ahead and succeed in the long term. 

Collaboration alliances and partnerships

Collaboration alliances and partnerships mean working together by sharing resources expertise and ideas to reach a common goal. 

They can affect the nature of competition in many ways through  

1 Increased competition. 

2 New market entrants. 

3 Shifting market structures. 

Requirements for an effective collaboration

1 Clear communication

2 Defined roles and responsibilities

3 Trust and respect

4 Flexibility and adaptability

Collaborations lead to increased competitive edge in the bigger market and can also decrease competition depending on how it is managed. 

Mergers and acquisitions as competitive strategy

Mergers and acquisitions allow companies to join forces or buy other firms to grow faster. They can reduce competition increase market share gain new technology or enter new markets.

When done well this strategy strengthens a company and makes it more competitive against rivals

Offensive and Defensive Moves Against Rivals 

Businesses use offensive strategies like new product launches, aggressive pricing, and market expansion to capture more customers and weaken rivals.

On the other hand, defensive strategies aim to protect market share through product improvements, loyalty programs and legal protections.

Offensive moves are proactive and attack competitors, while defensive moves are reactive and focus on defense.

Both approaches help companies stay competitive and maintain or grow their market position.

Internal Strategic Responses. 

Internal strategic responses to competition involve using a company’s own strengths and resources to stay ahead

Some internal responses include;

1 Improving operational efficiency by streamlining processes and reducing costs

2 Investing in research and development to create new products or services

3 Enhancing product quality by improving features and performance

4 Developing employee skills through training to boost productivity

5 Leveraging company culture to encourage innovation and customer satisfaction

Focusing on internal strengths and capabilities companies build a lasting competitive advantage and handle external competition effectively

Price based competition. 

Price based competition happens when businesses try to attract customers by offering lower prices than their competitors. 

The main focus is on cost rather than product quality features or brand loyalty

In other words it is like saying come to us because we are cheaper than the rest. However too much price cutting can reduce profits for all businesses involved

Break even analysis in competition. 

Break even analysis helps a business know the exact sales point where revenue equals costs With this knowledge a company can set prices and sales targets to cover costs before competing for profit 

It is useful in competitive markets because it shows how much you must sell to survive and then plan how to beat rivals

Quality enhancement as a competitive tool

Quality enhancement as a competitive tool means improving your product or service so it is more valuable reliable and satisfying to customers

In a world full of options quality speaks louder than noise It keeps customers coming back builds trust and makes a brand stand out even in a crowded market

Companies that focus on quality do not need to beg for attention. Their work speaks for them and that becomes their strongest competitive edge

Innovation in products and services

Innovation in products and services means creating or improving offerings in a way that gives customers more value helps a company stand out from competitors and drives business growth   

This can include new technology added features better functionality improved user experience or even a new business model

Product innovation. 

This is about developing new products or improving existing ones to meet changing customer needs or take advantage of new market opportunities

Service innovation. 

This is about improving how a service is delivered experienced or managed often through new processes technologies or business models

Brand Reputation in Rivalry. 

Brand reputation is a vital competitive asset. A strong reputation builds trust and loyalty and allows a company to charge premium prices giving it an edge over rivals. A damaged reputation can lead to losing customers and a weaker market position

Proactive management and consistent positive customer experiences are important to use reputation as a competitive advantage. 

Why brand reputation is important in rivalry

1 Competitive advantage. 

2 Impact of negative reputation. 

3 Strategic management. 

Customer service as a differentiator

Customer service as a differentiator means using excellent after sales service and support to stand out from competitors and build loyalty. 

Benefits of excellent customer service

1.      Customer loyalty builds trust and encourages repeat business. 

2.      Competitive advantage sets a business apart in crowded markets. 

3.      Positive word of mouth satisfied customers promote the business

Customer loyalty programs as a competitive tool. 

Loyalty programs like reward points discounts or special offers keep customers coming back.  They make it harder for competitors to lure them away and help build long term relationships. 

A strong loyalty program creates repeat business and gives a company an edge in crowded markets

Advertising and Promotion 

Advertising and promotion play an important role in shaping competition within a market or economy.  They are tools businesses use to stand out attract customers and build brand loyalty In a competitive market. 

Companies invest in advertising to gain visibility and market share often by showing unique features price advantages or emotional appeal

Impact of Technology and Innovation on Competition

Technology and innovation change how businesses compete by creating faster processes, new products and better services. Companies that adopt new technologies gain an edge, while those that lag behind risk losing customers. 

Innovation also lowers barriers for new entrants, increases choices for consumers and pushes all firms to keep improving to stay relevant.

Government Regulations and Policies 

Government regulations are legally enforceable rules set by government agencies to control or guide the actions of individuals businesses or institutions. They are made to protect public interest ensure fair markets promote safety and maintain order.

Government policies are plans or decisions adopted by the government to achieve specific goals in the economy society environment. Politics Policies give direction and are often carried out through laws programs or schemes

Some regulatory bodies in Nigeria include the 

·        Central Bank of Nigeria (CBN).

·        Corporate Affairs Commission (CAC).

·        Nigeria Civil Aviation Authority (NCAA).

Purpose of regulations and policies

1. Ensure safety equity and sustainability

2. Correct market failures

3. Protect rights and promote welfare

Government regulations enforce rules to protect society while policies provide direction for national development. Both work together to create balanced and sustainable governance. 

Economic benefits of competition

Competition pushes businesses to keep improving and trying new ideas It leads to innovation as firms look for better ways to serve customers It also drives efficiency because companies cut waste reduce costs and make smarter use of resources to stay ahead 

Prices often go down as businesses try to attract buyers and this gives consumers more affordable options More players in the market also means a wider range of products and services which supports choice entrepreneurship and overall economic growth

Social benefits of competition

Competition leads to better quality because companies want to impress and retain customers. It gives consumers power since they can choose where to spend their money and that makes businesses more accountable to them.

New and growing companies create jobs and keep industries, active Competition also inspires new approaches in service delivery leading to better experiences and solutions for people. 

Competition benefits both the economy and society It makes businesses smarter and more efficient lowers costs brings variety improves quality and creates opportunities for growth and development