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Marketing Diploma Course – Questions on Unit Two Aleksandre Ananiashvili – S12976

Name of student: Aleksandre Ananiashvili (S12976)


Name of lecture: Marketing Diploma Course
Date of assignment: 05/Apr/2009
Assignment Title: Answer the Questions on Unit Two

1. Describe the competitive environment in which this company operates.

Business Gifts Ltd. are wholesale supplier of a wide range of gifts to firms or organizations, who
gives these to suitable customers as gifts. The company is dealing with inexpensive pens, diaries, desk
utensils, stationary products and expansive items such as briefcases and personal organizers.
The company has many competitors in the United Kingdom offering the same types of goods,
although Business Gifts Ltd. has been for longer then most in the market. The structure of the company
is following: all items shown in the catalogue are brought in from the different manufacturers, some of
which also offer an inscribe service. Business Gifts Ltd. has several problems like timing, orders of
large quantities, location of the customer and the competitors in the market. For example, timing is
difficult for the company for avoiding the customer dissatisfaction. Large quantity orders often causes a
great problem while there is no more items left in the stock that is why they always try to keep small
amount of most popular products in. Moreover, competition is the most powerful disaster for the
Business Gifts Ltd. as any unforeseen mistake can lead the company to a profit lost or closure.
The competitive environment is the part of the company’s external environment that consists of
other firms trying to win costumers in the same market. It is the segment of the industry that includes
all immediate rivals. Competitive environment is the common type of market all around the world and
it mostly affects on those companies, for which are difficult to distinguish each other by their
characteristics and products offered to the clients or customers. For example, in several very similar
companies, key structures that may result them to the decrease of profit are price and the quality of
product. If they are not satisfying, firms and organizations they are dealing with it will suddenly effect
on their revenue.
If we look at Business Gifts Ltd., the competitive environment in which this company operates is
very dangerous, because of the service it offers to the firms and organizations. As I already mentioned
before, there are lot of other organizations offering the same product to the customers with the same
terms and conditions and it probably increases the competitive atmosphere among the companies. If
time management is not well and product is not available in the stock at all the time whenever a
customer asks, the company will loose many clients that give the possibility to the competitors to
achieve their target much easier then before. As Business Gifts Ltd. is not neither the monopoly nor
oligopoly company it always has to look after its quality, service and the price that they are offering to
firms and organizations to avoid the company closure because of powerful competitive environment.

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Marketing Diploma Course – Questions on Unit Two Aleksandre Ananiashvili – S12976

2. Using Porter’s Five-Force Model, assess the competitive environment of this firm.

The model of pure competition implies that risk-adjusted rates of return should be constant across
firms or industries. However, numerous economic studies have affirmed that different industries can
sustain different levels of profitability; part of this difference is explained by industry structure.
Michael Porter provided a framework called Porter’s Five-Force that models a firm or an industry
as being influenced by five forces. The strategic business manager seeking to develop an edge over
rival firms can use this model to better understand the industry context in which the firm operates.
Porter’s Five-Force Model is:
I. Rivalry
II. Threat Of Substitutes
III. Buyer Power
IV. Supplier Power
V. Barriers to Entry / Threat of Entry
The intensity of rivalry for Business Gifts Ltd. may be influenced by the following industry
characteristics:
o A large numbers of firms directly effects on Business Gifts Ltd. competitive environment, as
it is not the only company providing clients by pens, diaries, desk utensils, etc. There are many
other organizations even manufacturers offering the same service and goods to customers. A
large number of firms increase rivalry because more firms must compete for the same
customers and resources. The rivalry intensifies if the firms have similar market share, leading
to a struggle for market leadership.
o Slow market growth may cause Business Gifts Ltd to fight for market share. In a growing
market, firms, in general, are able to improve revenues simply because of the expanding
market.
o High fixed costs results in an economy of scale effect that increases rivalry. When total costs
are mostly fixed costs, Business Gifts Ltd. must produce near capacity to attain the lowest
unit costs. Since the firm must sell this large quantity of product, high levels of production
lead to a fight for market share and results in increased rivalry.
o High storage cost causes Business Gifts Ltd. to sell goods like pens, diaries, etc as soon as
possible. If other producers are attempting to unload at the same time, competition for
customers intensifies.
o Low switching costs increases rivalry. When a customer can freely switch from one product
to another, there is a greater struggle to capture customers.
o Low level of product differentiation is associated with higher levels of rivalry. Brand
identification, on the other hand, tends to constrain rivalry.
o Strategic stakes are high when a firm is losing market position or has potential for great
gains. This intensifies rivalry.
o High exit barriers place a high cost on abandoning the product and cause a Business Gifts
Ltd. to remain in an industry, even when the venture is not profitable. A common exit
barrier is asset specificity. When the equipment required for manufacturing a product is
highly specialized, these assets cannot easily be sold to other buyers in another industry.
o Industry stakeout A growing market and the potential for high profits induces new firms to
enter a market. A point is reached where the industry becomes crowded with competitors,
and demand cannot support the new entrants and the resulting increased supply. In this case
Business Gifts Ltd. may become crowded if its growth rate slows and the market becomes
saturated, creating a situation of excess capacity with too many goods chasing too few
buyers. A shakeout ensues, with intense competition, price wars, and company failures.
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Marketing Diploma Course – Questions on Unit Two Aleksandre Ananiashvili – S12976

Threats of substitutes refer to products in other industries that are considered as Business Gifts
Ltd’s competitors. A threat of substitutes exists when a product's demand is affected by the price
change of a substitute product. A product's price elasticity is affected by substitute products - as more
substitutes become available, the demand becomes more elastic since customers have more
alternatives. A close substitute product constrains the ability of Business Gifts Ltd. in an industry to
raise prices. The competition engendered by a Threat of Substitute comes from products outside the
company. While the threat of substitutes typically influences an industry through price competition,
there can be other concerns in assessing the threat of substitutes.
The power of buyers is the impact that customers have on Business Gifts Ltd. In general, when
buyer power is strong, the relationship to the producing industry is near to a market in which there are
many suppliers and one buyer. Under such market conditions, the buyer sets the price. In general, few
such suppliers exist, but frequently there is some asymmetry between a producing industry and buyers.
I can say as my point of view that Business Gifts Ltd. is not considered as company facing the power of
buyer.
A supplier power is for example, Business Gifts Ltd. requires materials, labor, components, and
other supplies. This requirement leads to buyer-supplier relationships between the company and the
firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an
influence on the Business Gifts Ltd., such as selling materials at a high price to capture some of the
company's profits.
Barriers to entry are the possibility that new firms may enter the market and immediately affects
competition. In general, any company should be able to enter and exit a market, and if free entry and
exit exists, then profits always should be nominal. In reality, however, industries possess characteristics
that protect the high profit levels of firms in the market and inhibit additional rivals from entering the
market. In case of the Business Gifts Ltd., it equals to the great loss of profit or may be the business
failure, as they are not manufacturers but they are ordering product from the industries for providing
the business companies by inexpensive goods.
As a conclusion, what I can say is that Business Gifts Ltd. is suffering many problems by the
competitors, as the firm itself, is not producing any good. They only order great number of product
from manufacturers to store it to the stock as if any demand to have the ready supply. In addition, as the
competition is very powerful, many other newly established firms can make the same deal with even
the customers with more efficient ways and takeover the leading firm known as Business Gifts Ltd. So,
competitive market always causes compete among the companies and very much effect on the price
and the quality they deal with.

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