competition analysis
TRANSCRIPT
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COMPETITION ANALYSIS
Dr. Kartik Dave
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Sun Tzu and the Art of War
Around the year 500 BC, the great Chinese military strategist, Sun Tzu wrote a dissertation on the Art of War. From a 21st century perspective, many of Sun Tzu's approaches would be viewed as barbaric today. Nevertheless, his views on strategy are still relevant today - for both military commanders and business leaders looking at how to win against competitors. For instance:
If you are ignorant of both your enemy and yourself,then you are a fool and certain to be defeated in every battle.
If you know yourself, but not your enemy,for every battle won, you will suffer a loss.
If you know your enemy and yourself, you will win every battle.
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Competitor analysis
Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context through which to identify opportunities and threats. Competitor profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.
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Marketing not only requires a focus on satisfying customer needs it also has a competitive dimension.The firm must seek a value proposition that satisfies the needs of target customers more effectively than competitors.
WHY COMPETITOR ANALYSIS?
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WHY COMPETITOR ANALYSIS?
Current strategy, strengths and weaknesses of a competitor can suggest opportunities and threats that will merit a response.
Insights into future competitor strategies may allow the prediction of emerging threats and opportunities.
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A decision about strategic alternatives might easily hinge on the ability to forecast the likely reaction of key competitors.
Finally, competitor analysis may result in the identification of some strategic questions, questions that will be worth monitoring closely over time.
WHY COMPETITOR ANALYSIS?
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There are two different ways of identifying current competitors. From the perspective of the customer -
grouping of competitors according to the degree they compete for a buyer’s choice.
On the basis of their competitive strategy - placing of competitors in strategic groups .
IDENTIFYING COMPETITORS
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From the perspective of the customer: Focus on customer choice. A buyer of a
particular brand could be asked what brand would have been purchased if that brand was out of stock or what are the other brands he had considered for purchase.
IDENTIFYING COMPETITORS
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Association of products with specific use contexts or applications. A number of respondents could be asked to list out the different use situations for a particular product under study. Then these respondents could be asked to name all the products that are appropriate for each of these use contexts.
IDENTIFYING COMPETITORS
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Brand CompetitionWhen a company sees its competitors as other companies offering a similar product or services to the same customers at similar prices.
IDENTIFYING COMPETITORS
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Industry CompetitionWhen a company sees its competitors as all companies making the same product or class of products.
IDENTIFYING COMPETITORS
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Form CompetitionWhen a company sees its competitors as all companies manufacturing products that supply the same service.
IDENTIFYING COMPETITORS
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Generic CompetitionWhen the company sees its competitors that compete for the same consumer money.
IDENTIFYING COMPETITORS
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A strategic group is a group of firms that: Over time pursue similar competitive
strategies (e.g., product differentiation, use of same distribution channel).
Have similar characteristics (e.g., size, aggressiveness).
Have similar assets and skills (e.g., strong brand, excellent service quality image).
IDENTIFYING COMPETITORS – STRATEGIC GROUPS
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PROCEDURE FOR CONSTRUCTING A STRATEGIC
GROUPIdentify the competitive characteristics that differentiate firms in the industry.
Price & quality rangeGeographic coverageDegree of vertical integrationProduct line breadthUse of distribution channelsDegree of services offered
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Plot the firms on two-variable map using pairs of these differentiating characteristics.Assign firms that fall in about the same strategy space to the same strategic group.
PROCEDURE FOR CONSTRUCTING A STRATEGIC
GROUP
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STRATEGIC GROUPS IN MAJOR APPLIANCE INDUSTRY
GROUP ANarrow line
Lower manufacturing costVery high service
High price
GROUP CModerate line
Medium manufacturing costMedium serviceMedium price
GROUP BFull line
Low manufacturing costGood serviceMedium price
GROUP DBroad line
Medium manufacturing costsLow serviceLow price
High Vertical IntegrationVertical Integration
Assembler
Qu
al ity
Low
High
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USING THE STRATEGIC GROUP CONCEPT
The conceptualization of strategic groups can make the process of competitor analysis more manageable. Numerous industries contain many more competitors than can be analyzed individually.
Furthermore, little strategic content and insight will be lost in most cases, because firms in a strategic group will be affected by and react to industry developments in similar ways.
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SOURCES OF POTENTIAL COMPETITORS
Market expansionProduct expansion
Backward integrationForward integration
The export of assets and skillsRetaliatory or defensive
strategies
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Elements influencing Competitor Actions
Size, Growth, and Profitability Image and Positioning Strategy Competitor Objectives and Commitment Current and Past Strategies of Competitors Competitor Organization and Culture Cost Structure Exit Barriers Assessing Strength and Weakness
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What Drivesthe Competitor
What the Competitor is doing and can do
Competitor’s Response Profile
AssumptionsHeld about itselfand the industry
CapabilitiesBoth strengths
and weaknesses
Future Goals
At all levels of managementand in multiple dimensions
Current StrategyHow the business is currently competing
COMPONENTS OF A COMPETITOR ANALYSIS
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What really drives the behaviour of a competitor is its future goals and the assumptions it holds about its own situation and the nature of its industry.
These driving factors are much harder to observe, yet they often determine how a competitor will behave in the future.
COMPONENTS OF A COMPETITOR ANALYSIS
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A knowledge of goals will allow predictions about whether or not each competitor is satisfied with present position and financial results, and, therefore, how likely that competitor is to change strategy and vigour with which it will react to outside events or to moves by other firms.
COMPONENTS OF A COMPETITOR ANALYSIS
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The assumptions about its own situation will guide the way the firm behaves and the way it reacts to events.If it sees itself as a low-cost producer, for example, it may try to discipline a price cutter with price cuts of its own.
COMPONENTS OF A COMPETITOR ANALYSIS
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Every firm also operates on assumptions about its industry and competitors.Examining assumptions of all types can identify biases that may creep into the way mangers perceive their environment.
COMPONENTS OF A COMPETITOR ANALYSIS
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A competitor’s strategy is most usefully thought of as its key operating policies in each functional area of business and how it seeks to interrelate the functions.A knowledge of a competitor’s pattern of new product or new market moves can help one anticipate future growth directions.
COMPONENTS OF A COMPETITOR ANALYSIS
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If a differentiation strategy is detected, to what extent does it rely on product-line breadth, product quality, service, or distribution ?If a low cost strategy is employed, is it based on economies of scale, the experience curve, manufacturing facilities and equipment, or access to raw materials?
COMPONENTS OF A COMPETITOR ANALYSIS
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The assessment of a competitor’s strengths and weaknesses starts with an identification of relevant assets and skills for the industry and then evaluates the competitor on the basis of those assets and skills.
Components of the competitor’s value chain must also be examined to assess whether any of these provide the potential to generate competitive advantage for the competitor.
ASSESSING COMPETITOR’S STRENGTHS AND WEAKNESSES
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THE GENERIC VALUE CHAIN
InboundLogistics
Operations OutboundLogistics
Marketing
& Sales
Service
Margin
Margin
Firm Infrastructure
Human Resource ManagementTechnology Development
Procurement
SupportActivities
Primary Activities
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AREAS OF COMPETITOR STRENGTHS AND WEAKNESSES
INNOVATION
•Technical product superiority
•New product capability
•R&D
•Technologies
•Patents
MANUFACTURING•Cost Structure
•Flexible production operations
•Equipment
•Access to raw material
•Vertical integration
•Capacity
MANAGEMENT
•Quality of top and middle mangt.
•Knowledge of business
•Culture
•Strategic goals and plans
•Entrepreneurial thrust
•Planning/operation system
•Loyalty turnover
•Quality of strategic decision making
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AREAS OF COMPETITOR STRENGTHS AND WEAKNESSES
MARKETING•Product quality reputation
•Product characteristics/differentiation
•Brand name recognition
•Breadth of the product line
•Customer orientation
•Segmentation/focus
•Distribution
•Retailer relationship
•Advertising/promotion skills
•Sales force
•Customer service/product support
CUSTOMER BASE•Size and loyalty
•Market share
•Growth of segments served
FINANCE - ACCESS TO CAPITAL•From operations
•From net short-term assets
•From ability to use debt & equity fin
•Parent’s willingness to finance
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THE COMPETITIVE STRENGTH GRID
First, the relevant assets and skill for the industry is to be identified.
The next step is to scale your own firm and major competitors on the relevant assets and skills.
The result is termed a competitive strength grid and serves to summarize the position of the competitors with respect to assets and skills.
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COMPETITIVE STRENGTH GRIDAssets and Skills
Key for Success
New product capacity
Product quality
Cost structure
Product differentiation
Dealer satisfaction
Market share
Secondary Importance
Flexible production
Financial capacity
Quality of management
Sales force/distribution
Brand name recognition
Advertising/promotion
Quality of service
Growth of target segment
Company A Company B Company C
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THE COMPETITOR RESPONSE PROFILE
The analysis of a competitor’s future goals, assumptions, current strategies, and capabilities, will lead to a profile of how a competitor is likely to respond.
The first step in building a response profile is to predict the strategic changes the competitor might initiate.
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The next step in building a response profile is to determine competitor’s defense capability against the feasible strategic moves our firm might make, and possible industry and environmental changes that might occur.
THE COMPETITOR RESPONSE PROFILE
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What Drivesthe Competitor
What the Competitor is doing and can do
Competitor’s Response Profile
AssumptionsHeld about itselfand the industry
CapabilitiesBoth strengths
and weaknesses
Future Goals
At all levels of managementand in multiple dimensions
Current StrategyHow the business is currently competing
THE COMPONENTS OF A COMPETITOR ANALYSIS
Is the competitor satisfied with itscurrent position ?
What likely moves or strategy shifts will the competitor make?
Where is the competitor vulnerable?
What will provoke the greatest andmost effective retaliation by the competitor?
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FUNCTIONS OF COMPETITOR INTELLEGENCE SYSTEM
Collecting field data Collecting published data
Compiling The data
Cataloging The data
Digestive Analysis
Communication To strategist
Competitor analysis For strategy formulation