This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry.
Competition between existing players is likely to be high when
- There are many players of about the same size,
- Players have similar strategies
- There is not much differentiation between players and their products, hence, there is much price competition
- Low market growth rates (growth of а particular company is possible only at the expense of а competitor),
- Barriers for exit are high (e.g. expensive and highly specialized equipment).
The effect of industry competitors is by far the biggest influence in the business environment in which Sainsbury’s supermarkets operates. All of the above criteria are true within the supermarket industry.
There are four large retail firms competing for customers – Wal-Mart, Asda, Sainsbury, Morrisons/Safeway. There are also а range of secondary, sometimes niche players such as Aldi (budget shopping) and Waitrose (high cost/quality). All of their strategies are to improve quality and lower prices. There is little or no product differentiation (only variation is in price or market segmentation). All the firms in the industry strive for а competitive advantage over their rivals. In pursuing this competitive advantage firms can choose from а range of several compet itive moves such as; changing prices, improving product differentiation, creatively use channels of distribution, exploiting relationships with suppliers by demanding certain quality standards.