Syllabus: Pearson Edexcel AS Business
Module: External Influences
Lesson: 2.5.3 The Competitive Environment

Introduction

This article supports the delivery of Theme 2.5.3: The Competitive Environment from the Pearson Edexcel AS Business specification. It is designed for classroom teachers, subject leaders, careers leads, and SLT, aligning fully with the curriculum content. Understanding the competitive environment helps students assess external pressures and how they shape strategic and operational decision-making. This topic lays the groundwork for real-world business analysis and is particularly valuable when introducing the complexities of external influences and market dynamics.

Key Concepts

The competitive environment refers to the external market forces that affect how businesses operate and perform, especially in relation to rivals. According to the Edexcel specification, students should understand:

• The impact of competition on decision-making and business behaviour

• How competitive markets differ from less competitive or monopolistic ones

• Pricing strategies influenced by competition (e.g. penetration pricing, price skimming)

• Non-price competition, such as product differentiation, customer service, and marketing

• Barriers to entry and exit that affect new and existing firms

• The role of market structure in shaping competitive intensity

Students must be able to analyse how businesses adapt strategies to gain or retain competitive advantage in a rapidly evolving environment.

Real-World Relevance

The competitive environment is constantly shifting, with examples from retail, tech, and automotive industries providing timely case studies:

• Supermarkets and price wars: In the UK, Aldi and Lidl have intensified competition by offering lower prices and streamlined services, prompting Tesco, Sainsbury’s, and Asda to price-match and develop loyalty schemes in response.

• Streaming platforms: Netflix’s market dominance has been challenged by Disney+, Prime Video, and Apple TV+, each investing in original content to capture market share.

• Electric vehicle (EV) market: Tesla’s early market leadership has sparked competitive responses from traditional automakers like Ford and Volkswagen, accelerating innovation and reducing prices.

These cases can help students grasp how firms adapt to maintain relevance, market share, and profitability.

How It’s Assessed

This topic is assessed through both data response and extended writing questions in Paper 1 and Paper 2 of the AS Business exams. Command words include:

• Analyse (e.g. “Analyse how competition may affect pricing decisions”)

• Evaluate (e.g. “Evaluate the impact of increased competition on a firm’s profitability”)

• Assess (e.g. “Assess the likely impact of a competitive market on a new entrant”)

Students should be encouraged to structure answers using Point, Evidence, Explanation, Link (PEEL) and to balance arguments when evaluating, referencing both benefits and limitations.

Enterprise Skills Integration

The competitive environment naturally links to several enterprise skills, helping students develop practical capabilities:

• Decision-making: Choosing pricing or marketing strategies in response to competitors

• Problem-solving: Identifying how to overcome market entry barriers or react to a rival’s innovation

• Strategic thinking: Long-term planning to maintain a competitive edge

• Adaptability: Responding to changes in consumer behaviour or new market entrants

These skills also support wider preparation for future enterprise tasks or project-based learning.

Careers Links

This topic connects to the Gatsby Benchmarks 4 (Linking curriculum learning to careers) and 5 (Encounters with employers and employees) by introducing students to roles in:

• Market analysis and strategy

• Product management and pricing

• Marketing and customer insights

• Business consultancy

Real-world career examples could include a competitive analyst at a tech firm or a brand manager responding to market challenges. Inviting guest speakers or setting up mock business consultancy tasks can bring these roles to life.

Teaching Notes

• Practical classroom approaches:

  • Use market simulations or role-play to demonstrate competitive behaviour.

  • Analyse recent case studies (e.g. supermarket wars, streaming service competition).

  • Set group challenges where students must launch a product in a competitive market and pitch their strategies.

• Common pitfalls:

  • Students often conflate market size with competitiveness. Emphasise the difference between a growing market and a competitive one.

  • Encourage depth in answers by prompting analysis of specific strategies rather than vague references to “beating rivals”.

• Extension opportunities:

  • Link with Theme 1.5 (Entrepreneurs and Leaders) and Theme 2.1 (Raising Finance) to explore how competitive pressures influence investment decisions.

  • Invite students to track a real business over a term, analysing how it responds to market competition.