Competitor Analysis

Competitor Analysis

In formulating business strategy, managers must consider the strategies of the firm's competitors. While in highly fragmented commodity industries the moves of any single competitor may be less important, in concentrated industries competitor analysis becomes a vital part of strategic planning.

Competitor analysis has two primary activities, 1) obtaining information about important competitors, and 2) using that information to predict competitor behavior. The goal of competitor analysis is to understand:

with which competitors to compete,

competitors' strategies and planned actions,

how competitors might react to a firm's actions,

how to influence competitor behavior to the firm's own advantage.

Casual knowledge about competitors usually is insufficient in competitor analysis. Rather, competitors should be analyzed systematically, using organized competitor intelligence-gathering to compile a wide array of information so that well informed strategy decisions can be made.

1.Competitor Analysis Framework

Michael Porter presented a framework for analyzing competitors. This framework is based on the following four key aspects of a competitor:

Competitor's objectives Competitor's assumptions

Competitor's strategy Competitor's capabilities

Objectives and assumptions are what drive the competitor, and strategy and capabilities are what the competitor is doing or is capable of doing. These components can be depicted as shown in the following diagram:

2.Competitor Analysis Components

A competitor analysis should include the more important existing competitors as well as potential competitors such as those firms that might enter the industry, for example, by extending their present strategy or by vertically integrating.

3Competitor's Current Strategy

The two main sources of information about a competitor's strategy is what the competitor says and what it does. What a competitor is saying about its strategy is revealed in:

annual shareholder reports 10K reports

interviews with analysts statements by managers press releases

However, this stated strategy often differs from what the competitor actually is doing. What the competitor is doing is evident in where its cash flow is directed, such as in the following tangible actions:

hiring activity R & D projects

capital investments

promotional campaigns strategic partnerships

mergers and acquisitions

4.Competitor's Objectives

Knowledge of a competitor's objectives facilitates a better prediction of the competitor's reaction to different competitive moves. For example, a competitor that is focused on reaching short-term financial goals might not be willing to spend much money responding to a competitive attack. Rather, such a competitor might favor focusing on the products that hold positions that better can be defended. On the other hand, a company that has no short term profitability objectives might be willing to participate in destructive price competition in which neither firm earns a profit.

Competitor objectives may be financial or other types. Some examples include growth rate, market share, and technology leadership. Goals may be associated with each hierarchical level of strategy - corporate, business unit, and functional level.

The competitor's organizational structure provides clues as to which functions of the company are deemed to be the more important. For example, those functions that report directly to the chief executive officer are likely to be given priority over those that report to a senior vice president.

Other aspects of the competitor that serve as indicators of its objectives include risk tolerance, management incentives, backgrounds of the executives, composition of the board of directors, legal or contractual restrictions, and any additional corporate-level goals that may influence the competing business unit.

Whether the competitor is meeting its objectives provides an indication of how likely it is to change its strategy.

5.Competitor's Assumptions

The assumptions that a competitor's managers hold about their firm and their industry help to define the moves that they will consider. For example, if in the past the industry introduced a new type of product that failed, the industry executives may assume that there is no market for the product. Such assumptions are not always accurate and if incorrect may present opportunities. For example, new entrants may have the opportunity to introduce a product similar to a previously unsuccessful one without retaliation because incumbant firms may not take their threat seriously. Honda was able to enter the U.S. motorcycle market with a small motorbike because U.S. manufacturers had assumed that there was no market for small bikes based on their past experience.

A competitor's assumptions may be based on a number of factors, including any of the following:

beliefs about its competitive position past experience with a product

regional factors industry trends rules of thumb

A thorough competitor analysis also would include assumptions that a competitor makes about its own competitors, and whether that assessment is accurate.

6.Competitor's Resources and Capabilities

Knowledge of the competitor's assumptions, objectives, and current strategy is useful in understanding how the competitor might want to respond to a competitive attack. However, its resources and capabilities determine its ability to respond effectively.

A competitor's capabilities can be analyzed according to its strengths and weaknesses in various functional areas, as is done in a SWOT analysis. The competitor's strengths define its capabilities. The analysis can be taken further to evaluate the competitor's ability to increase its capabilities in certain areas. A financial analysis can be performed to reveal its sustainable growth rate.

Finally, since the competitive environment is dynamic, the competitor's ability to react swiftly to change should be evaluated. Some firms have heavy momentum and may continue for many years in the same direction before adapting. Others are able to mobilize and adapt very quickly. Factors that slow a company down include low cash reserves, large investments in fixed assets, and an organizational structure that hinders quick action.

7.Competitor Response Profile

Information from an analysis of the competitor's objectives, assumptions, strategy, and capabilities can be compiled into a response profile of possible moves that might be made by the competitor. This profile includes both potential offensive and defensive moves. The specific moves and their expected strength can be estimated using information gleaned from the analysis.

The result of the competitor analysis should be an improved ability to predict the competitor's behavior and even to influence that behavior to the firm's advantage.

8.ANALYSIS OF CONSUMER & INDUSTRY MARKETS

What makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares.

More than this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete successfully in your market.

8.1.How to Use the Tool

To carry out a SWOT Analysis, start by downloading our free template. Then answer the following questions:

8.2..Strengths:

What advantages does your company have?

What do you do better than anyone else?

What unique or lowest-cost resources do you have access to? What do people in your market see as your strengths?

What factors mean that you "get the sale"?

Consider this from an internal perspective, and from the point of view of your customers and people in your market. Be realistic: It's far too easy to fall prey to "not invented here syndrome". (If you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths!)

In looking at your strengths, think about them in relation to your competitors - for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity.

8.3.Weaknesses:

What could you improve? What should you avoid?

What are people in your market likely to see as weaknesses? What factors lose you sales?

Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible.

8.4..Opportunities:

Where are the good opportunities facing you?

What are the interesting trends you are aware of? Useful opportunities can come from such things as:

Changes in technology and markets on both a broad and narrow scale. Changes in government policy related to your field.

Changes in social patterns, population profiles, lifestyle changes. Local events.

A useful approach for looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities.

Alternatively, look at your weaknesses and ask yourself whether you could create opportunities by eliminating them.

8.5Threats:

What obstacles do you face?

What is your competition doing that you should be worried about?

Are the required specifications for your job, products or services changing? Is changing technology threatening your position?

Do you have bad debt or cash-flow problems?

Could any of your weaknesses seriously threaten your business?

Carrying out this analysis will often be illuminating – both in terms of pointing out what needs to be done, and in putting problems into perspective.

Strengths and weaknesses are often internal to your organization.Opportunities and threats often relate to external factors. For this reason the SWOT Analysis is sometimes called Internal-External Analysis and the SWOT Matrix is sometimes called an IE Matrix Analysis Tool.

You can also apply SWOT Analysis to your competitors. As you do this, you'll start to see how and where you should compete against them.

8.6..Marketing Strategies for Service Firms

Services firms require attention additional 3Ps according to Booms and Bitner. The additional 3Ps are people, physical evidence and process.

The marketing department or function has a say and a view on these additional Ps.

In a service business companies employees are in direct contact with the customer and hence their behavior with the customer has an influence on customer satisfaction. Ideally employees should exhibit competence, a caring attitude, responsiveness, initiative, problem solving ability, and goodwill. So they have to be trained to exhibit appropriate behavior. The employees must have authority to solve problems that arise in service encounters without much delay and contacting various levels of supervisors. This is empowerment of service employees.

The physical facilities are important because customers come there and have the service. Hence the design and maintenance of the facility becomes a marketing issue.

The processes used to deliver the services are marketing issues. If the customer does not like the process he will not come back. Hence market research has to find out the customer‗s likes and dislikes about the processes.

Hence the idea that service marketing requires internal marketing or involvement of marketing function in internal aspects of the company or the firm emerged. Internal marketing describes the work done by the company and marketing department to convey the needs of the potential customers to the service employees and the effort to train them and motivate them to provide exceptional service to customers.

Another concept in services marketing is interactive marketing. It refers to the skill of employees to interact with the client in serving the client. Clients judge services by technical quality as well as the interaction quality. Whether the surgeon has done the operation properly or not is the technical quality. Whether he has shown concern and inspired confidence or not is interaction quality. Service providers must provide high touch along with high tech.

8.7..Managing the Differentiation

What are sources for differentiating in service businesses?

Service offer: while the core service could be the primary service package, a firm can come out with secondary service features that provide differentiation. We always have to remember that an additional feature added to a product must be valued by the customer and has to be profitable to the company. Hence marketers are involved to find those features which are valued by the customers and operations or process specialists are involved to deliver the feature at a cost that is profitable to the company.

Delivery: Reliability in service can be differentiating feature. Many firms find it difficulty to provide reliability.

Image: Developing an image that inspires trust is a differentiating feature.

8.8..Managing Service Quality

Quality is a differentiator. Parasuraman, Zeithaml, and Berry formulated a service-quality model that highlights the main requirements for delivering high service quality.

They identified possible five gaps that result in poor service.

1.                 Gap between consumer expectation and management perception

1.                 Gap between management perception and service quality specification

2.                 Gap between service quality specification and service delivery

3.                 Gap between service deliver and external communication

4.                 Gap between perceived service and expected service

The same researchers identified five determinants of service quality. According to the order of preference of the variables is:

Reliability

Responsiveness Assurance

Empathy Tangibles