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Competition analysis

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What is competition? Competition is a contest between individuals, groups, nations, animals, etc. for territory, a niche, or a location of resources. It arises whenever two or more parties strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For example, animals compete over water supplies, food, etc. Humans compete for water, food. Business is often associated with competition as most companies are in competition with at least one other firm over the same group of customers.

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Competition analysis Building strong brands requires a keen understanding of competitors. New competition is coming from all direction Global competitors (eager to grow sales in new markets) e.g., Zong china based company. Warid Royal bank of Scotland-Barclays Bank. Online competitors (seeking cost efficient ways to expand distribution) e.g., TESCO- Marks & Spencer-Dell Private label and store brands (designed to provide low-price alternatives. E.g., Thunder cola, mekka cola

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Competitive forces Michael Porter has identified five forces that determine the long run attractiveness of a market. Industry competition Threat of new entrants Threat of substitute product Buyer power Supplier power.

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Competitive forces Industry Competition Threat of New entry Buyers power Threat of substitutes Suppliers power

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Competitive forces Industry competition An industry is unattractive if it already contains number of strong or aggressive competitors. competitive industry lead to frequent price wars, advertising battles and new product introduction and it is very expensive to compete in such industry. For example- The cellular phone market.

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Competitive forces Threat or new entrants The most attractive segment is one in which entry barriers are high and exit barrier are low. It is not only the competitors that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. For example- Zong cellular China based company enter the Pakistan market as a new entrant.

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Competitive Forces Entry Barriers Advertising (the incumbent company spending heavily on advertising that new firms would find more difficult to afford. Customer loyalty - Large incumbent firms may have existing customers loyal to established products. The presence of established strong brands within a market can be a barrier to entry in this case.

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Competitive Forces Threat of substitute product- A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits. If technology advances or competition increases, prices and profits are likely to fall. E.g., Surf excel is a substitute product of Arial

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Competitive Forces Threat of buyers growing bargaining power A segment is unattractive if buyers posses strong bargaining power. Buyers bargaining power are strong when they are few or they purchase frequently or suppliers are many. Buyers can change suppliers easily.

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Competitive Forces Threat of suppliers growing bargaining power A segment is unattractive if the companys suppliers able to raise prices or reduce quality supplied. Suppliers are strong when there are few suppliers and many buyers or the buyers purchases are not frequent. Suppliers can change buyers easily.

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Identifying Competitors The company should know about its competitors. Competitors in an industry are those they are satisfying the same needs and wants of the target market/ customers. E.g., Pepsi co, knows that Coca-Cola is its competitor Safe Guard knows that life boy is its competitor Proctal and Gamble knows that liver brother is its competitor.

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Analyzing Competitors Strategies. strategy is the scope and direction of the company over the long term to achieve advantage through its limited resource in a challenging environment to fulfill the requirement of customers. In the analysis of competitors the company must check what sort of strategy its competitors are using. E.g., the product strategy, pricing strategy, distribution and promotion strategy.

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Analyzing Competitors Objectives Once a company has identified its main competitors and their strategies, its must know, what is each competitors seeking in the market place. The objective can be-maximize profits, sales growth, market share, technological leadership, service leadership or a mix of these.

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Analyzing Competitors Strength and Weaknesses A company needs to gather information about each competitors strength and weaknesses.

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Analyzing Competitors Example of Strength and Weaknesses Competitor-A is weak in Distribution and Technical assistance Competitor-C is Weak in all aspects. Competitor-B is no weaknesses- can attack on the weak points of Competitor A and B Customer Awareness Product Quality Product Availability Technical Assistance Selling Staff Competitor-Aexcellent poor good Competitor-Bgood excellentgoodexcellent Competitor-Cfairpoorgoodfair

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Analyzing Competitors Selecting Competitors After the company has conducted customer Analysis and examined its competitors carefully, it can focus its attack on one of the following classes of competitors. 1. Strong versus weak 2. Close versus distant 3. Good versus Bad

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Analyzing Competitors Strong versus Weak Most companies aim their shots at weak competitors, because this requires fewer resources. Competitor C in the previous example is weak competitor comparatively.

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Analyzing Competitors Close versus Distant. Most companies compete with the competitors that resemble them most. For example safeguard and Life boy Gold are close competitors. Pepsi and Coca-Cola are closed Competitors. Pepsi and Nestle are distant competitors

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Analyzing Competitors Good versus Bad Every industry contains good and bad competitors. Good competitors play by the industrys rules, they set prices in reasonable relationship to cost. Bad competitors try to buy share rather than earn it.

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Competitive Strategies Market Leader Strategies: Among firms in an industry there is a business firm which is acknowledged as Market leader. The firm which has the largest market share Market leader leads other firms in Price change, New Product Introduction, distribution and Promotions. Some well know Market Leaders Microsoft, Intel, P&G, Caterpillar, Gillette

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Market leader 40% Market Share Market Challenger 30% Market Share Market Follower 20% Market Share Market Nicher 10%

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Market Challenger Market Challenger: Business firms that occupy the second highest market share in the ranking are Market challengers Pepsi Co, Ford. Some of the market challenger has overtaken the leaders. For example Toyota has overtaken General Motors.

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Market Challenger Strategy Price cut is the most intense reason of challenging a market leader and maintaining quality. Price reduction is achieved by decreasing the total fixed cost Or may challenge the leader by introducing Prestige Goods, Price Discounts, Product line, Innovation, Services, Intensive Distribution, low Manufacturing Cost and Promotions.

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Market Follower Market Follower Strategy: product imitation might be as profitable as product innovation Innovator spend heavy cash on developing a new product, distribute and promote it to people. But another firm comes copy the new product and get the rewards of it at the expense of market leader. Market followers are of three kind

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Market Follower strategies Counterfeiters: They copy market leader products and sell it to customers in black market, e.g. Music companies, Videos. Cloners: Those companies who copy the name and packaging with slight variation Imitators: Those companies who copy some part of the innovation from market leader but maintain the differentiation e.g. Sony mp3 players and iPods or Samsung touch phones and iPhones.

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Market Nicher: An alternative to be a follower in large market is to be a leader in Small Market. Small business firms normally avoid competing with larger firms thus targeting smaller markets. Firms with low share of the total market can become highly profitable. In a study of hundreds of business units, the Strategic Planning Institute found that the return on investment averaged 27% in smaller markets, but only 11% in larger markets.

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Balancing Customer-Competitor Orientation Competitor Centered Companies: Companies that bring changes to their marketing activities according to their competitors: Customer Centered: Companies that bring changes to their marketing activities according to their customer:

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Balancing Customer-competitor Orientation cont.. Competitors-Centered Observed Situation Competitor W is going all out to crush us in north zone. Competitor X is improving its distribution coverage in the south zone and hurting our sales Competitor Y has cut its prices in the east zone and we lost 3% of the market share in less than one-quarter. Competitor Z has introduced a new service feature in the west zone affecting our sales. Reaction: We will withdraw from the north zone to avoid a messy battle. We will increase our trade-promotion budget in the south zone We will meet the price cut in the east zone. We will increase our advertising expenditure in the west zone

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Balancing Customer-competitor Orientation cont.. Customer Centered Observed: The total market is growing 4% annually. The quality sensitive segment is growing at 8% annually. A growing number of customers have expressed an interest in a 24-hour hotline, which no one in the industry offers. Reaction: We will focus more effort on reaching and satisfying the quality segment of the market. We will buy better components, improve quality control, and shift our advertising theme to quality. We will avoid cutting prices and making deal because we do not want the kind of customer that buys this way. We will install a 24-hour hotline if it looks promising.

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Michael Porters Competitive Strategies Michael Porters competitive Strategies 1. Cost leadership 2. Differentiation 3. Cost Focus 4. Differentiation Focus

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Michael Porters Competitive Strategies cont Overall Price (Cost) Leadership: appealing to a broad section of the market by providing products or services at the lowest price. E.g., Costco is the cost leader in retail stores, Hyundai is the cost leader in automobiles Differentiation: appealing to a broad section of the market through offering differentiating features that make customers willing to pay premium prices, e.g., superior technology, quality, special features, and service. Price (Cost) Focus: concentrating on a narrow customer segment and competing with lowest prices, which, again, requires having lower cost structure than competitors (e.g., a single, small shop on a side-street in a town, in which they will order electronic equipment at low prices, or the cheapest automobile made in India by TATA company) Differentiation Focus: concentrating on a narrow customer segment and competing through differentiating features (e.g., a high-fashion women's clothing boutique in Paris, or Ferrari).