Competition among business has never been greater. In what ways can a business become more competitive?

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First, the statement that "competition among businesses has never been greater" is incorrect. In fact, many economists and policy experts are worried about a significant decrease in competition in the United States and the negative effects of this decrease on innovation and consumer choice.

The business strategy of the so-called...

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First, the statement that "competition among businesses has never been greater" is incorrect. In fact, many economists and policy experts are worried about a significant decrease in competition in the United States and the negative effects of this decrease on innovation and consumer choice.

The business strategy of the so-called FANGs (Facebook, Amazon, Netflix, and Google) has been to expand rapidly and monopolize market share rather than to strive for profitability. They also stifle competition through network effects and the acquisition of potential competitors. Within such markets, moving quickly to dominate a niche and then establishing a monopoly while profiting from rent-seeking has been a successful strategy in many US industries; examples include cellphone carriers and airlines.

In a truly competitive environment, a company can compete effectively by innovating, in other words, by creating new products or improving older products. Another way a company can compete is through price; if a company can reduce costs and offer a product more cheaply than the competition, one is likely to gain market share. A third area in which a company can compete is through convenience; for example, many people shop on Amazon because clicking a few buttons is more convenient than going to a physical store.

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A business operating in a competitive environment (and that is precisely the environment that is supposed to exist in a free enterprise or capitalist system) should always be contemplating ways to beat that competition. As the competition intensifies, the business owner is expected to respond appropriately.

Companies will usually seek to gain a competitive advantage through marketing intended to influence consumer decision-making processes. McDonald's has historically been successful at utilizing television advertisements to maintain market share relative to competitors like Burger King and Wendy’s. Through annoying but catchy jingles, McDonald's marketing executives have been very adept at embedding those jingles in the subconscious of consumers. Manipulating the public through clever advertising intended to associate positive feelings with a specific brand is a tried-and-true tactic.

Another way companies seek to gain a competitive advantage is through product improvement. The highly competitive cell phone industry is a good example of the use of product improvement. Apple and Samsung are engaged in an exceptionally intense competition for market share, and both companies know that the key to success is technological innovation. How to do more with one’s cell phone is the main avenue to capturing market share. Service providers like AT&T, Verizon, and Sprint are a separate component of the discussion. User-friendly pocket computers and web browsers are the main focal point, and whichever manufacturer is seen as the more innovative will find itself in the preferential position.

A third way of increasing market share relative to that of the competition is through price. It stands to reason that consumers will seek out the lowest price item. Although qualitative factors sometimes trump price as a determining component of the consumer decision-making process in certain items if prices are relatively in-line with each other. One of the ideals of the free enterprise system is that competition leads to lower consumer prices. That remains a valid concept. It is not, however, as central a component as one might believe. Effective marketing practices and the perception of technological superiority can be more persuasive.

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Of course, the specifics of how a business can become more competitive depend on the nature of the business and of its competition.  However, there are some general things that all businesses can do.  They include:

  • Improve the quality of their products.  One aspect of competitiveness is the quality of the product.  The business can improve that quality or can publicize the qualities that already exist in an attempt to convince consumers that these qualities are superior to those of the competition.
  • Lower prices.  Price is the other aspect of competitiveness.  Businesses can lower their prices by streamlining their production processes.  This can often involve laying off workers.  It might also involve an increased use of technology.

Generally, businesses must either improve the quality of their product or lower its price (or both) to remain competitive.

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