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Market Share and Threat of Market Entry | AQA Q1.4, Paper 2 2019

Level:
A-Level
Board:
AQA

Last updated 27 Oct 2020

Here are two suggested responses to the question on the threat of market entry by businesses into the UK breakfast cereal market

ANSWER 1

The combined market share of the top four manufacturers (65.1%) is likely to mean a relatively low threat of market entry by other businesses. The competitive advantages that these four businesses are likely to make the opportunity to enter the market seem quite unattractive. For example, the major supermarkets, where most cereals are sold, will want to stock the leading cereal brands owned by the likes of Kellogg’s and Nestle in addition to their own-label cereals. This might restrict the available distribution for a new market entrant making it harder for them to get their breakfast cereals in front of consumers. Similarly, in the breakfast cereal market there is strong brand loyalty, supported by the high level of sales and advertising spend of the big four (Appendix E: Kellogg’s spend between 5-7% of sales on advertising). To counter strong brand loyalty it is likely that a new market entrant would have to spend a significant amount to build customer awareness and then offer promotional discounts and other offers to encourage product trial. Unless a new market entrant has the financial resources to sustain this, their market entry is unlikely to be successful

EXAMINER COMMENTARY:

A good response which is well developed and fully focused on the demands of the question. One of the strengths of this response is the use of data to support the argument being made, namely the combined market share of the top four RTE manufacturers and the level of spend on advertising.

ANSWER 2

Although the UK RTE breakfast cereal market is dominated by the big four manufacturers (65.1% combined market share) that does not necessarily mean that new entrants cannot enter the market successfully or that the threat of new entry is very low. Supermarkets - who are the main distribution channel for breakfast cereals - will not want cereal manufacturers like Kellogg’s and Weetabix to have high bargaining power over them. So supermarkets may want to encourage new cereal brands and products into the market and therefore offer their customers greater choice. For example, a new brand might respond to the data in Appendix 3 by entering the market with a differentiated breakfast cereal product which features no added sugar, no artificial ingredients and is high in fibre. Although this brand might not be able to achieve the economies of scale enjoyed by the big four, it might still be able to enter the market profitably with the support of distribution by a large supermarket group and by targeting a niche cereal customer at a premium price.

EXAMINER COMMENTARY:

A well developed response which is applied effectively to the context and meets the demands of the question. Excellent use of models and theories within this response to support the arguments being made which demonstrates depth of knowledge and understanding.

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