Approaches to Competitor Analysis

Approaches to Competitor AnalysisStrategic Marketing ManagementLearning objectives The importance of competitor analysis How firms can best identify against whom they are competingHow to evaluate competitive relationships How to identify competitors likely response profiles The components of the competitive information system and how the information generated feeds into the process of formulating strategyCompetitive EnvironmentGenerally higher levels and an increasing intensity of competitionNew and more aggressive competitors who are emerging with ever greater frequencyChanging bases of competition as organizations search ever harder for a competitive edgeThe wider geographic sources of competition More frequent niche attacksMore frequent and more strategic alliances are necessary A quickening of the pace of innovationThe need for stronger relationships and alliances with customers and distributorsAn emphasis upon value-added strategiesEver more aggressive price competitionThe difficulties of achieving long-term differentiation, with the result that a greater number of enterprises are finding themselves stuck in the marketing wilderness with no obvious competitive advantageThe emergence of a greater number of bad competitors

The importance of competitor analysis

Providing an understanding of your competitive advantage/disadvantage relative to your competitors positions Helping in generating insights into competitors strategies past, present and potential Giving an informed basis for developing future strategies to sustain/establish advantages over your competitors.

The importance of competitor analysis

SurviveHandle slow growthCope with changeExploit opportunitiesUncover key factorsReinforce intuitionImprove the quality of decisionsStay competitiveAvoid surprises.Identify against whom are Competing

Against whom are we competing?What strengths and weaknesses do they possess?What are their objectives? What strategies are they pursuing and how successful are they?How are they likely to behave and, in particular, how are they likely to react to offensive moves?Competitors AnalysisIs the competitor satisfied with its current position? What future moves is the competitor likely to make? The strength of the What market share does each competitor have?Competitors positioning

How strong is each competitors image What is their position within the trade? Is there a particular focus in certain markets? The strength of the In relative terms, how good is each element of each competitors marketing competitive offerings mix? How satisfied is each competitors customer base? What levels of customer loyalty exist? How satisfied are each competitors distributors?The strength of the How profitable is each competitor?

Competitors Resources

What is the size of each firms resource base? How big and efficient is the production base? How fast and effective are the product development processes? Understanding the What is each competitors strategic intent?

competitors strategiesWhat are their actions and probable reactions?Competitor Analysis step 1 Developing a general picture of the competitionCompetitors Position Competencies/capabilities Competitor 1 Competitor 2 Competitor 3 Competitor 4 Competitor 5 Competitive stance Price levels Brand recognition Distribution network After sales service Promotion/public relations Strategic focus Manufacturing skills Financial stability Technology skills New product innovations (Strong/high, Above average, Average, Less average ,Weak/low)Competitor Analysis step 2Developing an overview of competitors strengths In which segments or areas of technology is the competitor most vulnerable? What move on our part is likely to provoke the strongest retaliation by the competitor? Against the background of the answers to those questions, the marketing strategist needs then to consider two further issues: where are we most vulnerable to any move on the part of each competitor, and what can we realistically do in order to reduce this vulnerability? Porters approach to competitive structure analysisThe threat of new entrants The power of buyers The threat of substitutes The extent of competitive rivalry The power of suppliers.

Porters approach to competitive structure analysis

Threat of new entrants

Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked byincumbents(which in business refers to the largest company in a certain industry, for instance, in telecommunications, the traditional phone company, typically called the "incumbent operator"), the abnormal profit rate will trend towards zero (perfect competition).

Factors effect on how much of a threat new entrants May PoseThe existence ofbarriers to entry(patents, rights, etc.). The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.Government policyCapital requirementsAbsolute costCost disadvantages independent of sizeEconomies of scale.Economies of product differencesProduct differentiationBrand EquitySwitching costs or sunk cost Expected retaliationAccess to distributionCustomer loyalty to established brandsIndustry profitability (the more profitable the industry the more attractive it will be to new competitors)

Threat of Substitute Products/Services

The existence of products outside of the realm of the common product boundaries increases thepropensityof customers to switch to alternatives. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), while giving Pepsi a larger slice at Coke's expense. Another example is the substitute of traditional phone with a smart phone.Potential factors:Buyer propensity to substituteRelative price performance of substituteBuyer switching costsPerceived level of product differentiationNumber of substitute products available in the marketEase of substitutionSubstandard productQuality depreciationAvailability of close substitute

Bargaining Power of Customers

The bargaining power of customers is also described as the market of outputs: the ability of customers to put thefirmunder pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. The buyer power is high if the buyer has many alternatives. The buyer power is low if they act independently e.g. If a large number of customers will act with each other and ask to make prices low the company will have no other choice because of large number of customers pressure.Potential factors:Buyer concentration tofirm concentration ratioDegree of dependency upon existing channels of distributionBargaining leverage, particularly in industries with highfixed costs.Buyer switching costs relative tofirmswitching costsBuyer information availabilityForce down pricesAvailability of existing substitute productsBuyerprice sensitivityDifferential advantage (uniqueness) of industry productsRFM (customer value)AnalysisThe total amount of trading

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firmcan be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.Potential factors are:Supplier switching costs relative tofirmswitching costsDegree of differentiation of inputsImpact of inputs on cost or differentiationPresence of substitute inputsStrength of distribution channelSupplier concentration tofirmconcentration ratioEmployee solidarity (e.g.labor union)Supplier competition: the ability to forward vertically integrate and cut out the buyer.

Intensity of competitive rivalry

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.Potential factors:Sustainablecompetitive advantage throughinnovationCompetition between online and offline companiesLevel ofadvertisingexpensePowerful competitive strategyFirmconcentration ratioDegree of transparency

Identifying and evaluating competitors strengths and weaknesses SalesMarket shareCost and profit levels, and how they appear to be changing over timeCash flowsReturn on investmentInvestment patternsProduction processesLevels of capacity utilizationOrganizational cultureProducts and the product portfolioProduct qualityThe size and pattern of the customer baseThe levels of brand loyaltyDealers and distribution channelsMarketing and selling capabilities Operations and physical distributionFinancial capabilitiesManagement capabilities and attitudes to riskHuman resources, their capability and flexibilityPrevious patterns of response Ownership patterns and, in the case of divisionalzed organizations, the expectations of corporate management.

The signs of competitive strength in a companys position

Important core competencesStrong market share (or a leading market share)A pace-setting or distinctive strategyGrowing customer base and customer loyaltyAbove-average market visibilityBeing in a favorably situated strategic group Concentrating on fastest-growing market segmentsStrongly differentiated productsCost advantages Above-average profit marginsAbove-average technological and innovational capability A creative, entrepreneurially alert managementIn a position to capitalize on opportunitiesEvaluating Competitive relationships and analyzing how organizations competeConflict, where the firm sets out to destroy, damage or force the competitor out of the market.Competition, where two or more firms are trying to achieve the same goals and penetrate the same markets with broadly similar product offers.Coexistence, where the various players act largely independently of others in the market. This may in turn be due to the marketing planner being unaware of the competition; recognizing them but choosing to ignore them; or behaving on the basis that each firm has certain territorial rights that, tacitly, each player agrees not to infringe.Cooperation, where one or more firms work together to achieve interdependent goals. Typically, this is done on the basis of exchanging information, licensing arrangements, joint ventures and through trade associations. Collusion, which, although typically illegal, has as its purpose that of damaging another organization or, more frequently, ensuring that profit margins and the status quo are maintainedIdentifying competitors objectivesprofit maximizationcash flow, technological leadership,market share growth, service leadership or overall market leadership.Identifying competitors likely Response ProfilesThe relaxed competitor, who either fails to react or reacts only slowly to competitive moves. There are several possible reasons for this, the most common of which are that the management team believes that their customers are deeply loyal and are therefore unlikely to respond to a (better) competitive offer; they may fail to see the competitors move or underestimate its significance; they may not have the resources to respond; the market might be of little real importance; or the focus may be upon harvesting the business. However, whatever the reason, the marketing strategies must try to understand why the competitor is taking such a relaxed approach. The tiger competitor, who responds quickly and aggressively almost regardless of the nature and significance of any competitive move. Over time, firms such as this develop a reputation for their aggression and in this way create Fear, Uncertainty and Despair amongst other players in the market.

Identifying competitors likely Response ProfilesThe selective competitor, who chooses carefully and often very strategically how, where and with what level of aggression they will respond to any competitive move. Such an approach is generally based not just on a clear understanding of the relative value of the organizations markets, but also on the costs of responding and the likelihood of the response proving to be cost-effective. The unpredictable competitor, for whom it proves difficult or impossible to identify in advance how or, indeed, if they will respond to any particular move. The unpredictability of competitors such as this comes from the way in which in the past they may have responded aggressively on one occasion, but not at all on another when faced with what appears to be a broadly similar attack.

The components of the competitive information systemAlthough many of the inputs to a market intelligence system can be obtained through relatively straightforward and conventional market research routines, the much more strategically useful and indeed more necessary information on competitors intentions, capabilities and strategies can often only be obtained by radically different approaches Stage One Where are we now?

Strategic and marketing analysis, Marketing Segmental, Market Approaches, Approaches auditing and productivity and to customer to the analysis of and ratio environmental analysis competitor capability analysis.Stage Two Where do we want to be?

Strategic direction and strategic formulation Missions Market PositioningStage Three How might we get there?Strategic choice The strategic management of the marketing mix

Stage Four Which way is best?Strategic evaluation Criteria Modeling of choice approaches2

Stage Five How can we ensure arrival?Strategic implementation and control Problems to Management overcome control