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Assess the likely effects on a business, such as Morrisons, of a more competitive market. - 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 market.
Worked Solution & Example Answer:Assess the likely effects on a business, such as Morrisons, of a more competitive market. - Edexcel - A-Level Business - Question 1 - 2017 - Paper 2
Step 1
Where there is rivalry between similar companies within the same market
Answer
Morrisons operates in a competitive environment, contending with major rivals like Tesco and Sainsbury's, as well as rapidly growing discount retailers such as Aldi and Lidl. These market dynamics create significant challenges for Morrisons in maintaining its market share.
Step 2
Negative effects:
Answer
- Price Sensitivity: Consumers are increasingly price-sensitive and may shift their loyalty to supermarkets like Aldi and Lidl, which typically offer lower prices and better perceived value for money.
- Reduced Shopping Frequency: There’s a likelihood that consumers will shop less frequently due to rising price competition, potentially leading to a shrinking customer base for Morrisons.
- Market Share Decline: As seen in 2015, Morrisons' market share dipped by 1%, while Lidl's grew by 17.9%. This trend points towards a potentially diminishing market presence for Morrisons, impacting profitability and shareholder confidence.
Step 3
Possible counterbalance:
Answer
Despite these challenges, it’s important to note that Morrisons may retain customer loyalty for various reasons, such as its product range and the perceived quality of groceries. Additionally, while Morrisons faces stiff competition, it still holds an 11% market share compared to lower figures for Lidl and others, suggesting some competitive strength. Moreover, Morrisons' commitment to 'I'm cheaper' campaigning demonstrates a proactive approach to handling market pressures.
Step 4
Potential judgement:
Answer
In the short term, Morrisons may face significant difficulties maintaining competitive pricing against discount retailers, risking further loss of market share and profitability. However, in the long term, as Morrisons builds on its existing resources and market presence, it could counteract the threats posed by discount supermarkets through strategic store expansions and enhanced promotional efforts, ultimately stabilizing its position in the market.