Photo AI
Assess the likely effects on a business, such as Morrisons, of a more competitive environment. - Edexcel - A-Level Business - Question 1 - 2017 - Paper 2
Question 1
Assess the likely effects on a business, such as Morrisons, of a more competitive environment.
Worked Solution & Example Answer:Assess the likely effects on a business, such as Morrisons, of a more competitive environment. - Edexcel - A-Level Business - Question 1 - 2017 - Paper 2
Step 1
Where there is rivalry between similar companies within the same market
Answer
Morrisons is directly competing with major players like Tesco and Sainsbury's, along with rapidly growing competitors such as Aldi and Lidl. This competition forces Morrisons to remain vigilant in their pricing strategies and customer services to retain their market share.
Step 2
Negative effects
Answer
Consumers tend to be more price-sensitive, frequently opting for supermarkets like Aldi and Lidl that offer lower prices or better value for money. This has led to a decrease in consumer spending at Morrisons, with a reported fall in their market share by 1% in 2015, while other competitors experienced significant growth. The competition could lead to decreased profitability as pressures mount to lower prices, affecting shareholder dividends and future investments.
Step 3
Possible counterbalance
Answer
Despite these challenges, Morrisons benefits from customer loyalty due to factors such as location and the range and quality of groceries they offer. Their market share of 11% still positions them favorably compared to Aldi's 4.3% and Lidl's 4.3%, indicating that they still hold a significant market potential. Their 'I'm cheaper' campaign could harness this loyalty and help to combat pressures from discount competitors.
Step 4
Potential judgement
Answer
In the short run, Morrisons may struggle to maintain competitive pricing and consequently face reductions in market share. However, in the long term, as they adapt their strategies and leverage their stronger resource base, the threats from discount supermarkets could be diminished. The increasing number of stores and greater resources available for promotional activities may assist with regaining market presence.