Competitors' Behaviour (VCE SSCE Business Management): Revision Notes
Competitors' Behaviour
Why monitor competitors?
Businesses must regularly track the actions of their competitors to remain competitive in the market. This continuous monitoring helps businesses detect important changes that could affect their own operations and market position.
A competitor is a business rival in the same market offering similar products or services.
Effective competitor monitoring is not a one-time activity but an ongoing process. Businesses that fail to monitor their competitors risk being blindsided by market changes, losing customers, and falling behind in their industry.
Effective competitor monitoring focuses on three key areas:
- New product or service launches
- Updates or extensions to existing product lines
- Changes to pricing strategies
All these changes directly impact competing businesses, which must be prepared to respond. Competitor actions can either create opportunities for a business to exploit or pose threats that require defensive action.
Monitoring in practice
Successful businesses track their rivals' activities on a daily basis. In the retail sector, major supermarkets closely monitor what other supermarkets and specialist stores are doing in terms of product range and pricing.
For example, large supermarkets monitor:
- Competing supermarkets in the same area
- Specialist stores (butchers, bakeries, fruit shops)
- Farmers' markets
- New market entrants
This monitoring is essential because customer preferences vary. While many customers prefer the convenience of purchasing all items from one supermarket, a significant number still choose to buy specific products (meat, bread, fresh produce) from specialist retailers. Understanding this variety in consumer behaviour helps businesses identify both threats and opportunities in their market.
Strategies for competitive advantage
Businesses employ various strategies to gain a competitive advantage over their rivals. Understanding and responding to competitor behaviour is crucial for maintaining or growing market share.
Pricing strategies
Price competition is a primary battleground for many businesses. In the Australian supermarket sector, major retailers like Coles and Woolworths constantly monitor each other's pricing. This leads to patterns where:
- One chain offers a product on special one week
- The competitor responds with their own special the following week
- Suppliers are involved in monitoring and adjusting prices
ALDI has intensified competition in this sector by operating a consistently lower pricing business model, forcing traditional retailers to reconsider their pricing approaches. This demonstrates how a new entrant with a different business model can disrupt an entire industry's competitive dynamics.
Inducements and incentives
Beyond competitive pricing, businesses offer various inducements and incentives to attract and retain customers. Common examples include:
- Special promotional offers (e.g., "Buy 3 Get 1 Free")
- Temporary price reductions
- Bundle deals
- Exclusive member discounts
These strategies aim to encourage immediate purchases and build customer preference for the business over its competitors.
Loyalty schemes and memberships
Many businesses operate loyalty programs and membership schemes as long-term strategies to:
- Encourage repeat purchases
- Gather customer data
- Build customer relationships
- Create switching costs (making it harder for customers to move to competitors)
These programs complement short-term promotional strategies and help businesses secure a stable customer base.
Case study: Food retail sector
The Australian food retail sector demonstrates how businesses must adapt to both competitor actions and changing customer preferences.
Market competition
The major players (Coles and Woolworths) face competition from multiple sources:
- Each other (traditional rivalry)
- ALDI (price-focused competitor)
- Specialist stores (quality-focused competitors)
- Farmers' markets (fresh produce competitors)
Each competitor type requires a different response strategy.
Responding to customer demand
Food retailers face increasing demand for ready-made and convenience food. New competitors have entered this market space by:
- Preparing and delivering cooked family meals
- Providing fresh meal kits with recipes for home cooking
Market Response: Major Retailers Adapting to New Competition
When new competitors entered the ready-made meal market, major retailers had to respond quickly to protect their market share.
Their response included:
- Expanding their range of ready-made and convenience food
- Introducing click-and-collect facilities at outlets
- Matching the convenience offered by new entrants
This response demonstrates how businesses must monitor both competitor behaviour and customer needs simultaneously, as maintaining market share depends on addressing both factors.
Case study: Entertainment industry
The entertainment industry illustrates how industry disrupters can force established businesses to fundamentally rethink their business models.
Industry transformation
Traditional free-to-air (FTA) networks and pay TV operators face unprecedented pressure from new streaming content providers including Netflix, Apple TV+, and Stan.
Competitive advantages of streaming services
Streaming services have disrupted the market by offering:
- Content on-demand (viewers choose what and when to watch)
- Competitive pricing
- No lock-in contracts
- Easy cancellation without fees
This contrasts sharply with traditional pay TV subscriptions (such as Foxtel), which often involve long-term commitments and cancellation fees.
Additional disruption
Smartphones have created another competitive threat, as consumers increasingly use these devices to:
- Watch movies and shows
- Follow live sports
- Access newsfeeds
Remaining advantages of traditional TV
Despite these disruptions, pay TV operators and FTA networks retain some competitive advantages:
- Ability to broadcast live TV
- Comprehensive news coverage
- Live sporting events
- Major event broadcasting
These advantages are particularly important for content that benefits from real-time viewing. Live sports and breaking news, for example, lose their appeal when viewed on delay, giving traditional broadcasters a continuing competitive edge in these specific content areas.
Strategic implications
Key Strategic Lessons from Industry Disruption
This case study shows how businesses must:
- Evaluate their business models when facing industry disrupters
- Identify their unique competitive advantages
- Adapt to changing consumer behaviour and technology
- Balance traditional strengths with new market demands
Businesses that fail to recognize and respond to disruptive competitors risk becoming irrelevant, regardless of their historical market position.
Exam guidance
Approaching Competitor Behaviour Questions in Exams
When analysing competitor behaviour in exam questions, the command word determines your approach:
For "describe" questions: Clearly outline what competitors are doing (new products, pricing changes, service innovations) without extensive explanation.
For "explain" questions: Identify the competitor action and then explain how it affects other businesses in the market and why businesses must respond.
For "analyse" questions:
- Examine specific competitor behaviours
- Consider the impact on market dynamics
- Evaluate how different businesses might respond
- Assess both opportunities created and threats posed
For "evaluate" questions:
- Judge the effectiveness of different competitive strategies
- Consider both advantages and disadvantages
- Weigh up different possible responses
- Reach a reasoned conclusion about the best approach
When using case studies, always link specific examples back to the theoretical concepts of competitor monitoring and competitive advantage.
Remember!
Key Points to Remember:
- Competitor: A business rival in the same market for products or services
- Businesses must continuously monitor competitors' products, pricing, and service offerings
- Competitor actions can create both opportunities and threats
- Key competitive strategies include pricing competition, inducements/incentives, and loyalty schemes
- Different industries face different types of competitive challenges (price competition in retail, technology disruption in entertainment)
- Effective businesses respond to competitor behaviour while also meeting changing customer needs
- Maintaining market share requires monitoring and responding to multiple competitors simultaneously
Key terms to remember: competitor, competitive advantage, pricing strategies, inducements, loyalty schemes, market share, industry disrupters, business model