2 Competitor Analysis

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COMPETITOR ANALYSIS



Learning Objectives

Understand how a company identifies its primary competitors and ascertains their strategies.

Review how companies design competitiveintelligence systems.



“Poor firms ignore theircompetitors ;

average firms copy theircompetitors ; winning firms lead theircompetitors.”



Definitions

Competitive Advantage

An advantage over competitors gained byoffering consumers greater value thancompetitors offer.

Competitive AnalysisThe process of identifying key competitors;

assessing their objectives, strategies,strengths and weaknesses, and reaction

patterns; and selecting which competitors toattack or avoid.



Entry, Mobility and Exit Barrier

Entry barrier- high capital requirement, economies of scale, patents and licensing, scarce location, raw material etc.

Mobility barriers- when it tries to enter moreattractive market segmentsExit barriers- legal or moral obligations, low asset-

salvage value due to obsolescence, lack of alternative

opportunities etc.



Porter’s five forces model of competition

Suppliers(BargainingPower of

Suppliers)

Potential Entrants(Threat of New Entrants)

Buyers(BargainingPower of

Buyers)

Substitutes (Threat of Substitute Products orServices

Industry Competitors(Segment Rivalry)

Rivalry Among ExistingFirms



Threat of Intense Segment Rivalry

A segment is unattractiveif it already contains numerous, strong oraggressive competitors.If it is stable or declining

If plant capacity additions are done in largeincrementsIf fixed costs are highIf exit barriers are high

If competitors have high stakes in staying in thesegment.These will lead to frequent price wars, advertising

battles and new product introductions and willmake it expensive to compete.



Threat of new entrants

Exit Barriers

Low High

EntryBarriers

Low

High

Low, stableReturns

e.g. retail, e-commerce

High, stable

Returns e.g. education

High, riskyReturns

e.g. energy

Worst Casee.g. Hotels

ØThose markets with high entry barriers have few players and thus high profit margins.Those markets with low entry barriers have lots of players and thus low profit margins.Those markets with high exit barriers are unstable and not self-regulated, so the profit margins fluctuate very much along time. Those markets with a low exit barrier are stableand self-regulated, so the profit margins do not fluctuate along time.

http://en.wikipedia.org/wiki/Profit










Threat of Substitute Products

A segment is unattractive when there are actual orpotential substitutes for the product.Substitutes place a limit on prices and on profitsIf technology advances or competition increases in

these substitute industries, prices and profits in thesegment are likely to fall.



Threat of buyers’ Growing Bargaining Power

Buyers’ bargaining power grows

when they become more concentrated or organised.

When the product is undifferentiated

When the buyers’ switching costs are low When buyers’ are price sensitive



Threat of Suppliers’ growing Bargaining Power

A segment is unattractive if the company’s suppliersare able to raise prices or reduce quantity supplied.

Suppliers’ tend to be powerful

when they are concentrated When there are few substitutes

When the suppliers’ product is an important input

When the cost of switching suppliers’ are high



Competitor Analysis

1.Identifying Competitors Firms face a wide range of competition

Be careful to avoid “competitor myopia” (Competitor myopiarefers to a firm focusing on what it considers to be its direct

competition and not being aware of indirect or new competitors

Methods of identifying competitors:

Industry point of view refers to competitors within the same industry

Market point of view refers to competitorstrying to satisfy the same customer need or buildrelationships with the same customer group



Competitor Analysis

Competitor map highlights both competitiveopportunities and challenges facing the firmü Center is the list of consumer activities

ü First outer ring lists main competitors

ü Second outer ring lists indirect competitors

A competitor Map of Eastman

(Kodak in the digital imaging business)



Identifying Competitor’s Strategies

Companies need to understand the competitor’sability to deliver value to its customers

• Product quality

• Product features• Customer service

• Pricing policy

• Distribution coverage

• Sales force strategy

• Promotion programs

• Financial strategies

• R&D



Assessing Competitor’s Strengths and Weaknesses

Primary data

Secondary data

Personal experience

Word of mouthBenchmarking is the comparison of the company’s

products or services to competitors or leaders inother industries to find ways to improve quality and

performance



Estimating Competitor’s Reactions

Marketing managers need to develop anunderstanding of a given competitor’s mentality,culture, values, and way of doing business toanticipate how the competitor will react to the

company’s marketing strategies



Selecting Competitors to Attack and Avoid

Customer value analysis determines the benefits that target customers value and how customers rate the relative value of variouscompetitor’s offers.

• Identification of major attributes that customers value and the importance of these values

• Assessment of the company’s and competitors’

performance on the valued attributes



Analyzing Competitors

A company should monitor three variables whenanalysing competitors:

Share of market

Share of mindShare of heart



Competitor Analysis

Selecting Competitors to Attack or Avoid

Strong or weak competitors

Customer value analysis (Customers identify and rateattributes important in the purchase decision for thecompany and competition)

Close or distant competitors

Most companies compete against close competitors“Good” or “Bad” competitors



DESIGNING COMPETITIVESTRATEGIES

To prepare an effective marketing strategy, acompany must study its competitors as well as itsactual and potential customers. A company should also pay attention to latent

competitors, who may offer new or other ways tosatisfy the same need.Competitive intelligence needs to be collected,

interpreted, and disseminated continuously. With

good competitive intelligence, managers can moreeasily formulate their strategies.




A marketer should thoroughly examine the problemof designing marketing strategies that take intoaccount competitors’ strategy.

Some competitors will be large, others small. Some will have great resources, others will be strapped forfunds. Further insight can be gained by classifyingfirms by the role they play in the target market, that

of leading, challenging, following or niching.




Market leader 40%

Market Challenger 30%

Market Follower 20%

Market nicher 10%




Market Leader : the firm with the largestmarket share

Market Challenger : a runner-up firm that is

fighting hard for an increased market shareMarket Follower : another runner-up firmthat is willing to maintain its market shareand not rock the boat

Market Nicher : firms that serve smallmarket segments not being served by largerfirms



MARKET LEADER STRATEGIES

Dominant firms want to remain number one. This callsfor action on three fronts :(1) The firm must find ways to expand its total market

demand.

(2) The firm must protect its current market sharethrough good defensive and offensive actions.(3) The firm can try to increase its market share

further, even if market size remains constant.



Leaders Defense Strategy




Market leader strategiesThe company can search for new users

Market penetration strategy ( who might use it but do

not )New market segment strategy ( those who have neverused it

Geographical expansion strategy ( those who live

somewhere else)




The market leader has to use defensivestrategy to reduce the probability of attack, ordivert the attacks.

Position defense: building superior brandpower e.g. Sony, Nescafe

Mercedes was using a position defense strategy until Toyota launched a frontal attack with itsLexus.

Flank defense: build outposts to protect a weak front .( bring out new products or

products with less price ) e.g. HUL




Pre-emptive defense: attack before the enemy starts its offense. ( have products of all pricetypes and categories eg Seiko has over 2,000

models)Counteroffensive defense: attack the

competitor with same strategy as the

competitor. e.g. Toyota launched the Lexus torespond to Mercedes attack

Mobile defense: leader stretches his domainover new territories it spreads through market

broadening and market diversification




Market broadning: Company shifts its focus fromcurrent product to the underlying generic need.

Eg : Petroleum companies sought to recastthemselves into energy companies.

They are into coal, power, oil, nuclear, and chemicalindustries




Market diversification :

Diversification into unrelated industries.

Contraction defense :It is strategic withdrawal. Give up weaker territories

and reassign resources to stronger territories

Market leaders can improve their profitability by

expanding their market share .e.g. India’s TATA Group sold its soaps and detergents

business units to Unilever in 1993




Expanding Market ShareCo. increase their product quality relative to

competitors’

Increases in sales force expendituresIncreased advertising may also produce sharegainsCo. that cut their prices more deeply than

competitors do not achieve significant market-share gains generally. Presumably, enough rivalsmay meet the price cuts partly, and others may offer other values to the buyers, so that buyers donot switch to the price cutter.



MARKET CHALLENGER STRATEGIES

Firms that occupy second, third and lower ranks in anindustry can be called runner-up firms. Theserunner-up firms can adopt one of the two postures :

they can attack the leader and other competitors inan aggressive bid for further market share (marketchallengers)

OR

they can play ball and not “rock the boat” (marketfollowers)




Strategic Objectives and Opponent(s) :It can attack the market leaderIt can attack firms of its own size that are not doing

the job and are under-financedIt can attack small local and regional firms that are

not doing the job and are under-financed(it should follow the military principle of objective,

which holds that every military operation must be

directed toward a clearly defined, decisive andattainable objective).




(We can imagine an opponent who occupies acertain market territory; and we can show fiveattack strategies in the following way…)

ATTAC

K ER

DEFENDER

4. Bypass Attack 2. Flanking Attack

1. Frontal Attack

3. EncirclementAttack



Choosing an attack strategy

1. Frontal Attack : Head on attack. Attacks the opponentsstrengths rather than its weaknesses.

2. Flanking Attack : Concentration of strengths against weaknesses.3. Encirclement Attack : Attempt to capture a wide slice of

the enemy’s territory through a comprehensive ‘Blitz’attack.

4. Bypass Attack : Bypassing the main enemy andattacking easier markets (diversifying into unrelatedproducts, new geographical markets, new technologies).

e.g. Pepsi use a bypass attack strategy against Coke inChina by locating its bottling plants in the interiorprovinces

5. Guerrilla Attack : Attacking on different territories of the opponent, with the aim of harassing and demoralizethe opponent.



MARKET CHALLENGER STRATEGIES(ATTACK STRATEGIES AVAILABLE TO CHALLENGERS)

Price discount strategy Cheaper goods strategy Prestige goods strategy Product proliferation strategy (launching a large

product variety)Product innovation strategy Improved service strategy Distribution innovation strategy

Manufacturing cost reduction strategy Intensive advertising promotion



MARKET FOLLOWER STRATEGIES

A strategy of product imitation might be asprofitable as a strategy of product innovation(Innovative Imitation) A market follower must know how to hold current

customers and win a fair share of new customers.Each follower tries to bring distinctive advantagesto its target market – location, services, financingetc.

The follower is a major target of attack by challengers. Therefore, the market follower mustkeep its manufacturing costs low and its productquality and services high. It must also enter new

markets as they open up.



MARKET FOLLOWER STRATEGIES

Three broad followership strategies can bedistinguished :Cloner – emulates the leaders’ products,

distribution, advertising and so on; (it doesn’toriginate anything).Imitator – copies some things from the leader but

maintains differentiation in terms of packing,advertising, pricing and so on. Adapter – takes the leader’s products and adapts

and often improves them.



MARKET NICHER STRATEGIES

An alternative to being a follower in a large market isto be a leader in a small market or niche. Smallerfirms normally avoid competing with larger firms by targeting small markets of little or no interest to the

larger firms. But increasingly, even large firms aresetting up business units, or companies, to serveniches.




The main point is, that firms with low shares of thetotal market can be highly profitable through smartniching.Niching is profitable, because the market nicher

ends up knowing the the target customer group so well that it meets their needs better than other firmsthat are casually selling to this niche. As a result, thenicher can charge a substantial mark-up over costs

because of the added value.

The nicher achieves high margin, whereas the massmarketer achieves high volume.




An ideal market niche would have the followingcharacteristics :

The niche is of sufficient size and purchasingpower to be profitable

The niche has growth potentialThe niche is of negligible interest to major

competitorsThe firm has the required skills and resources to

serve the niche in a superior fashionThe firm can defend itself against an attackingmajor competitor through the customer goodwill ithas built up




Nichers have three tasks :Creating niches (e.g. Nike, the athletic shoe

manufacturers)

Expanding niches

Protecting niches

(Multiple niching is preferable to single niching)

2 Competitor Analysis

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