Competitive Environment: 4 Types of Competitive Environments

A competitive environment consists of companies competing for market shares. In these business environments, like-minded corporations or small businesses selling similar products saturate the market, meaning a single company’s profit margins can be slim. Retailers must get creative with bargaining power, partnerships, and marketing strategies to earn a buyer’s dollar. New entrants become other companies’ direct competitors, increasing the importance of individual businesses naming and targeting their market segments.

Competitive environments affect each business’s production practices and marketing strategies. In an oligopoly (when multiple companies, businesses, or firms in a specific industry become so influential it discourages the creation of new firms) or a monopoly (when a single entity controls all of a particular industry), it’s easy for companies to set the best prices and put less effort into their market research. This is because there is limited competition and only a few large companies exist, giving each one greater market power.

In competitive environments, however, businesses must constantly monitor a competitor's products' price points, quality, features, and marketing. Businesses must create competitive strategies that set them apart. This might include finding a more specific target market, setting lower prices, or creating new products that speak more strongly to consumers’ needs.

There are a few different types of competitive environments. Consider the following:

1. 1. Monopolistic competition: In monopolistic competition, multiple companies sell different versions of products, giving consumers many options and allowing businesses more freedom with their prices. Companies will rely on and highlight their products’ uniqueness to market them.
2. 2. Monopoly: A monopoly exists when a single company creates a desired product. The company has complete control over the market because there is no competition, which means it can set prices and barriers for future market entry.
   
3. 3. Oligopoly: This economic structure consists of only a few companies that do not compete and have significant leverage in the market. In an oligopoly, companies can set higher prices because competition is light.
4. 4. Pure competition: When multiple companies create similar products in the same market the terminology is pure competition. Each company’s business strategy must be highly creative because the market, not the producers, will set the pricing.

Consider the following hypothetical scenarios that illustrate competitive environments and how companies might adapt to stay ahead.

• Customer rewards: Two knit-sock companies get ready for winter sales. The first hosts a flash sale, offering a buy-one-get-one deal for the week after Black Friday, a significant time for online sales. The second one cannot afford to do a BOGO but worries about losing consumers during this crucial period, so they instead offer buyers a deal of fifty percent off their second purchase to remain competitive.
• Free shipping: More companies are creating reusable plastic and metal water bottles to serve more environmentally conscious consumers. This makes it hard for individual businesses to break through, so one new entrant makes a splash by offering free shipping for customers on all their first orders.
• New products: The hand soap industry sees more companies entering the market as people prioritize hygiene and germ-free hands amid public health recommendations. Consumers need more specificity in what they buy, and one company responds by revealing a new line of scents to see which performs best in the market.

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