Competition

Competition occurs when there are two or more rivals (competitors) in a particular market each trying to win market share from each other. Businesses compete in two major areas:
1. Price
2. Differentiation

Price competition sometimes involves trying to undercut rivals in order to provide a more attractive package to customers. For example, retailers of phone, gas, water, and electricity services seek to attract customers by telling them that they can undercut a rivals charges. However, in other circumstances, rivals may seek to charge relatively high prices for premium products when they are competing through differentiation.(Here the emphasis on price will be in giving value for money)

Differentiation

Differentiation involves providing a 'different' and in some ways 'superior' product to rivals. Businesses differentiate their products in all sorts of ways to develop competitive edge. National newspapers differentiate themselves by offering more recent news coverage, more extensive features e.g. an emphasis on sport, having better pictures and supplements.

Football clubs differentiate themselves from rivals by having better players, more exclusive stadiums, better websites, and by playing a style of football that is designed to gain loyal support.

Cosmetics producers differentiate themselves through exclusive brands, expensive advertising campaigns, better promotions, associations with fashion leaders such as top models, better scent, more exclusive bottles etc.

Direct competition

Direct competition is head-to-head rivalry between producers/sellers of highly similar products e.g. opposition between two High Street chains of key cutters. Indirect competition exists between producers/sellers who are competing for the same £ of consumer spending. For example, a bookseller can be said to be in indirect competition with a CD seller.