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Objectives:
- To understand the nature of competition and how companies might make themselves distinctive from their competitors
- To understand that there is also competition within organisations for scarce resources
- To understand that beyond the neatly defined competitors there are also substitute products or services that the customer may find just as satisfying and appealing
Competitors
There are very few commercial organisations that do not face competition in their market place. The degree of competition will be affected by a number of factors. Firstly, the profit that can be made in an industry: the higher the potential profit, the more attractive the industry will be and the more companies will wish to enter that market.
Secondly, the level of production capacity in an industry compared to the level of demand will also affect the degree of competition – if there is plenty of demand for all of the players they are unlikely to compete strenuously.
What industries can you think of where the profits are high and there have, recently, been new entrants eager to join? Are there any industries where supply is significantly higher than demand?
The nature of the product, or service, will itself affect the degree of competition. If it is difficult to make the product distinctive - by branding for instance - then it is known as a “commodity product” and competition is likely to be fierce. If we take the cases of electricity, gasoline, domestic gas, and mobile telephone services, we see that all of these are difficult to make distinctive – about the only differentiator available is price. We can contrast the mobile phones themselves where branding and other features are available to make the product stand out from those that the competition is offering.
You might want to think about the market for PCs over the past five years. More specifically, you might want to track the cost of an entry-level laptop over the past five years: competition has become fierce - and mainly price driven - as the product has become more of a commodity.
Internally within organisations there will be competition for any scarce resource. Within DA there is the possibility of developing the software, but there is also the possibility of developing the software overseas more cost effectively. The various senior members of staff are likely to compete strongly for their choice. Even within organisations the choice is not always made on a rational basis! Despite all of the rational, quantitative, tools and techniques available (such as npv), decisions may well be made for political or emotional reasons. Within the project team itself there are conflicting views on the development of software by schools themselves and whether the product actually has any health implications?
Are there any resources in short supply within your school or college, which you as students feel it is worth competing for? Or can you see evidence of your teachers competing for resources to support their teaching subject (try asking them if you are unsure!)?
Substitutes
Beyond those companies that we might consider as competitors there are also organisations offering a substitute for our product or service. In the case of Shinkendo and DA they will be aware of the competition for school sports funds but there are also other things on which schools could spend their budgets. These could be classified as “substitutes”.
You might want to think of those other substitutes and decide what makes this product (or less) effective.
If we consider the sports teachers, there is a broader range of substitute to be considered. Some might feel strongly that the console is no substitute for actually playing the sport.
With the broader definition of substitution, you could again be asked to think how else a child might want to spend their time? Possibly some of them will want to play the sport physically, some might prefer to play more traditional computer games, whilst some might want to develop the software for new games. Think back to how this might influence your marketing decisions, and think about how you would convince each of these stakeholders that your approach was best.
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