Question

Why do you think competing businesses endeavor to differentiate? How can external factors regulate the nature of competition within an industry?

Answer 1

Competing businesses cater to the same set of customers, who are spoilt for choice when few players who excel in their fields, strive to provide best value to them. In this scenario, where all of them provide the same or nearly the same quality and cost effectiveness, the businesses look forward to the factors that differentiate their offerings in comparison to the others, and try to provide what other caan not. These differentiating aspects can be in terms of size, shape or broader issues like eco friendliness of products, global accreditions or something else that is perceived by the customers as a virtue, to achieve competitive advantage.

External factors such as those which accelerate demand of a particular product or service might bring in more competitors in the field. They can come in form of changing demography, increase in the disposable income of consumers or a government mandate. Similarly, a new technology or an invention might open up a new market which suddenly becomes lucrative might attract more players participating in the industry for their share of pie. External factors such as changes in international business scenario, economic and political changes, natural causes etc, can create new markets or diminish the existing ones, affecting the level of competition in the industry.