COMPETITOR ANALYSIS

COMPETITOR ANALYSISCOMPETITOR ANALYSIS

Learning ObjectivesLearning Objectives

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

Review how companies design Review how companies design competitive intelligence systems.competitive intelligence systems.

““Poor firms ignore their Poor firms ignore their competitors ; competitors ; average firms copy their average firms copy their competitors ; competitors ; winning firms lead their winning firms lead their competitors.”competitors.”

DefinitionsDefinitions Competitive Advantage Competitive Advantage

An advantage over competitors gained by An advantage over competitors gained by offering consumers greater value than offering consumers greater value than competitors offer. competitors offer.

Competitive Analysis Competitive Analysis The process of identifying key competitors; The process of identifying key competitors;

assessing their objectives, strategies, strengths assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid. selecting which competitors to attack or avoid.

Competitive MarketsCompetitive Markets

Failing to identify competitors can lead to Failing to identify competitors can lead to extinctionextinction

Internet businesses have led to Internet businesses have led to disintermediationdisintermediation of middlemen of middlemen

Competition can be identified using the Competition can be identified using the industryindustry or or marketmarket approach approach


Industries Can Be Classified By:Industries Can Be Classified By: Number of sellers and degree of Number of sellers and degree of

differentiationdifferentiation Cost structureCost structure Entry, mobility and exit barriersEntry, mobility and exit barriers Degree of vertical integrationDegree of vertical integration Degree of globalizationDegree of globalization

Industry StructuresIndustry Structures

Pure MonopolyPure Monopoly Pure OligopolyPure Oligopoly Differentiated Differentiated

OligopolyOligopoly Monopolistic Monopolistic

CompetitionCompetition Pure CompetitionPure Competition

Only one firm offers an undifferentiated product or service in an area

UnregulatedRegulated

Example: Most utility companies

Competitive MarketsCompetitive Markets Pure OligopolyPure OligopolyA few firms produce essentially identical A few firms produce essentially identical

commodities and little differentiation existscommodities and little differentiation existsLower costs are the key to higher profitsLower costs are the key to higher profitsExample:Example: oil oilDifferentiated OligopolyDifferentiated Oligopolyfew firms produce partially differentiated itemsfew firms produce partially differentiated items Differentiation is by key attributesDifferentiation is by key attributes Premium price may be chargedPremium price may be charged Example:Example: camera, washing m/c etc. camera, washing m/c etc.


Monopolistic competitionMonopolistic competition Many firms differentiate items in whole or partMany firms differentiate items in whole or part Appropriate market segmentation is key to Appropriate market segmentation is key to

successsuccess Example: Example: beauty clinics,beauty clinics, restaurantsrestaurantsPure CompetitionPure Competition Many competitors offer the same productMany competitors offer the same product Price is the same due to lack of differentiationPrice is the same due to lack of differentiation Example:Example: farmers selling milk, commodity farmers selling milk, commodity

market etc.market etc.

Cost StructureCost Structure

Each industry has a certain cost burden Each industry has a certain cost burden that shapes much of its strategic conduct.that shapes much of its strategic conduct.

E.g. Steel making- heavy manufacturing E.g. Steel making- heavy manufacturing and raw material costsand raw material costs

Toy manufacturing –heavy distribution and Toy manufacturing –heavy distribution and marketing costsmarketing costs

Entry, Mobility and Exit BarrierEntry, Mobility and Exit Barrier

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

Mobility barriers- when it tries to enter Mobility barriers- when it tries to enter more attractive market segmentsmore attractive market segments

Exit barriers- legal or moral obligations, Exit barriers- legal or moral obligations, low asset-salvage value due to low asset-salvage value due to obsolescence, lack of alternative obsolescence, lack of alternative opportunities etc.opportunities etc.

Porter’s five forces model of Porter’s five forces model of competitioncompetition

Suppliers (Bargaining Power of Suppliers)

Potential Entrants (Threat of New Entrants)

Buyers (Bargaining Power of Buyers)

Substitutes (Threat of Substitute Products or Services

Industry Competitors (Segment Rivalry)

Rivalry Among Existing Firms

Threat of Intense Segment RivalryThreat of Intense Segment RivalryA segment is unattractive A segment is unattractive if it already contains numerous, strong or if it already contains numerous, strong or

aggressive competitors.aggressive competitors. If it is stable or decliningIf it is stable or declining If plant capacity additions are done in large If plant capacity additions are done in large

incrementsincrements If fixed costs are highIf fixed costs are high If exit barriers are highIf exit barriers are high If competitors have high stakes in staying in the If competitors have high stakes in staying in the

segment.segment.These will lead to frequent price wars, advertising These will lead to frequent price wars, advertising

battles and new product introductions and will battles and new product introductions and will make it expensive to compete.make it expensive to compete.

Threat of new entrantsThreat of new entrants

Exit BarriersExit Barriers

Low High

Entry

Barriers

Low

High

Low, stable Returns

e.g. retail, e-commerce

High, stable

Returns e.g. education

High, risky Returns

e.g. energy

Worst Casee.g. Hotels

Those markets with high entry barriers have few players and thus high Those 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 stable and self-regulated, so the profit margins do not fluctuate along time.

Threat of Substitute ProductsThreat of Substitute Products

A segment is unattractive when there A segment is unattractive when there are actual or potential substitutes for are actual or potential substitutes for the product.the product.

Substitutes place a limit on prices and Substitutes place a limit on prices and on profitson profits

If technology advances or competition If technology advances or competition increases in these substitute increases in these substitute industries, prices and profits in the industries, prices and profits in the segment are likely to fall.segment are likely to fall.

Threat of buyers’ Growing Threat of buyers’ Growing Bargaining PowerBargaining Power

Buyers’ bargaining power grows Buyers’ bargaining power grows when they become more concentrated or when they become more concentrated or

organised.organised. When the product is undifferentiatedWhen the product is undifferentiated When the buyers’ switching costs are lowWhen the buyers’ switching costs are low When buyers’ are price sensitiveWhen buyers’ are price sensitive

Threat of Suppliers’ growing Threat of Suppliers’ growing Bargaining PowerBargaining Power

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

Suppliers’ tend to be powerful Suppliers’ tend to be powerful when they are concentratedwhen they are concentrated When there are few substitutesWhen there are few substitutes When the suppliers’ product is an important When the suppliers’ product is an important

inputinput When the cost of switching suppliers’ are highWhen the cost of switching suppliers’ are high

Competitor AnalysisCompetitor Analysis

1.Identifying Competitors1.Identifying Competitors Firms face a wide range of competition Firms face a wide range of competition Be careful to avoid “competitor myopia” Be careful to avoid “competitor myopia” Methods of identifying competitors: Methods of identifying competitors:

• Industry point-of-view Industry point-of-view • MarketMarket point-of-view point-of-view

Competitor maps can helpCompetitor maps can help

Competitor MapCompetitor Map

Analyzing CompetitorsAnalyzing Competitors

Determining competitors’ objectives Determining competitors’ objectives Identifying competitors’ strategies Identifying competitors’ strategies Strategic groups (A group of firms following Strategic groups (A group of firms following

the same strategy in a given target market is the same strategy in a given target market is called a strategic group).called a strategic group).

Assessing competitors’ strengths and Assessing competitors’ strengths and weaknesses weaknesses

Benchmarking Benchmarking Estimating competitors’ reactionsEstimating competitors’ reactions

Analyzing CompetitorsAnalyzing Competitors

A company should monitor three variables A company should monitor three variables when analysing competitors:when analysing competitors:

Share of marketShare of market Share of mindShare of mind Share of heartShare of heart

Competitor AnalysisCompetitor Analysis

3.Selecting Competitors to Attack or Avoid3.Selecting Competitors to Attack or Avoid

Strong or weak competitors Strong or weak competitors Customer value analysis (Customers identify and Customer value analysis (Customers identify and

rate attributes important in the purchase decision for rate attributes important in the purchase decision for the company and competition)the company and competition)

Close or distant competitors Close or distant competitors Most companies compete against close competitors Most companies compete against close competitors

““Good” or “Bad” competitors Good” or “Bad” competitors

Competitive Intelligence SystemsCompetitive Intelligence Systems

Designing the system involves:Designing the system involves: Setting up the systemSetting up the system Collecting the dataCollecting the data Evaluating and analyzing the dataEvaluating and analyzing the data Disseminating information and responding to queriesDisseminating information and responding to queries

Value analysisValue analysis helps firms to select competitors helps firms to select competitors to attack and to avoidto attack and to avoid Customers identify and rate attributes important in the Customers identify and rate attributes important in the

purchase decision for the company and competitionpurchase decision for the company and competition Attacking Attacking strongstrong, , closeclose, and , and badbad competitors will competitors will

be most beneficialbe most beneficial

DESIGNING COMPETITIVE STRATEGIESDESIGNING COMPETITIVE STRATEGIES

To prepare an effective marketing strategy, a To prepare an effective marketing strategy, a company must study its competitors as well company must study its competitors as well as its actual and potential customers.as its actual and potential customers.

A company should also pay attention to A company should also pay attention to latent competitors, who may offer new or latent competitors, who may offer new or other ways to satisfy the same need.other ways to satisfy the same need.

Competitive intelligence needs to be Competitive intelligence needs to be collected, interpreted, and disseminated collected, interpreted, and disseminated continuously. With good competitive continuously. With good competitive intelligence, managers can more easily intelligence, managers can more easily formulate their strategies.formulate their strategies.


A marketer should thoroughly examine the A marketer should thoroughly examine the problem of designing marketing strategies problem of designing marketing strategies that take into account competitors’ strategy. that take into account competitors’ strategy.

Some competitors will be large, others small. Some competitors will be large, others small. Some will have great resources, others will Some will have great resources, others will be strapped for funds. Further insight can be be strapped for funds. Further insight can be gained by classifying firms by the role they gained by classifying firms by the role they play in the target market, that of play in the target market, that of leadingleading, , challengingchallenging, , followingfollowing or or nichingniching..


Market leader 40%Market leader 40% Market Challenger 30%Market Challenger 30% Market Follower 20%Market Follower 20% Market nicher 10%Market nicher 10%


Market Leader : the firm with the largest Market Leader : the firm with the largest market sharemarket share

Market Challenger : a runner-up firm that is Market Challenger : a runner-up firm that is fighting hard for an increased market sharefighting hard for an increased market share

Market Follower : another runner-up firm that Market Follower : another runner-up firm that is willing to maintain its market share and is willing to maintain its market share and not rock the boatnot rock the boat

Market Nicher : firms that serve small market Market Nicher : firms that serve small market segments not being served by larger firmssegments not being served by larger firms

MARKET LEADER STRATEGIESMARKET LEADER STRATEGIES

Dominant firms want to remain number one. Dominant firms want to remain number one. This calls for action on three fronts :This calls for action on three fronts :

(1) The firm must find ways to expand its (1) The firm must find ways to expand its total market demand.total market demand.

(2) The firm must protect its current market (2) The firm must protect its current market share through good defensive and offensive share through good defensive and offensive actions.actions.

(3) The firm can try to increase its market (3) The firm can try to increase its market share further, even if market size remains share further, even if market size remains constant.constant.

Leaders Defense StrategyLeaders Defense Strategy


Market leader strategiesMarket leader strategies The company can search for new users The company can search for new users Market penetration strategyMarket penetration strategy ( who might ( who might

use it but do not )use it but do not ) New market segment strategyNew market segment strategy ( those who ( those who

have never used ithave never used it Geographical expansion strategyGeographical expansion strategy ( those ( those

who live somewhere else)who live somewhere else)


The market leader has to use The market leader has to use defensive defensive strategystrategy to reduce the probability of attack, to reduce the probability of attack, or divert the attacks.or divert the attacks.

Position defensePosition defense: building superior brand : building superior brand powerpower

Flank defenseFlank defense: build outposts to protect a : build outposts to protect a weak front .( bring out new products or weak front .( bring out new products or products with less price )products with less price )


Pre emtive defensePre emtive defense: attack before the enemy : attack before the enemy starts its offense. ( have products of all price starts its offense. ( have products of all price types and categories eg Seiko)types and categories eg Seiko)

Counteroffensive defense: Counteroffensive defense: attack the attack the competetor with same strategy as the competetor with same strategy as the competetor.competetor.

Mobile defense: Mobile defense: leader stretches his domain leader stretches his domain over new territories it spreads through market over new territories it spreads through market broadening and market diversificationbroadening and market diversification


Market broadningMarket broadning: Company shifts its : Company shifts its focus from current product to the focus from current product to the underlying generic need.underlying generic need.

Eg : Petrolium companies sought to recast Eg : Petrolium companies sought to recast themselves into energy companies. themselves into energy companies.

They are into coal, power, oil, nuclear, and They are into coal, power, oil, nuclear, and chemical industrischemical industris


Market diversification :Market diversification : Diversification into unrelated industriesDiversification into unrelated industries..

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

territories and reassign resources to stronger territories and reassign resources to stronger territoriesterritories

Market leaders can improve their profitability by Market leaders can improve their profitability by expanding their market share .expanding their market share .


3) Expanding Market Share : 3) Expanding Market Share : Identify the most important variables affecting Identify the most important variables affecting

profits (pursue new marketing strategies)profits (pursue new marketing strategies) Higher shares tend to produce higher profits under Higher shares tend to produce higher profits under

two conditions : two conditions : (a) unit costs fall with increased market share (b) (a) unit costs fall with increased market share (b)

company offers a superior quality product and company offers a superior quality product and charges a premium price, that more than covers the charges a premium price, that more than covers the cost of offering higher qualitycost of offering higher quality

Share gaining companies typically develop and add Share gaining companies typically develop and add more new products to their linemore new products to their line


(Expanding Market Share)(Expanding Market Share) Co. increase their product quality relative to Co. increase their product quality relative to

competitors’competitors’ Increases in sales force expenditures Increases in sales force expenditures Increased advertising may also produce share gainsIncreased advertising may also produce share gains Co. that cut their prices more deeply than Co. that cut their prices more deeply than

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

MARKET CHALLENGER STRATEGIESMARKET CHALLENGER STRATEGIES

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

they can attack the leader and other they can attack the leader and other competitors in an aggressive bid for further competitors in an aggressive bid for further market share (market challengers)market share (market challengers)

OROR they can play ball and not “rock the boat” they can play ball and not “rock the boat”

(market followers)(market followers)


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

doing the job and are under-financeddoing the job and are under-financed It can attack small local and regional firms It can attack small local and regional firms

that are not doing the job and are under-that are not doing the job and are under-financedfinanced

(it should follow the military principle of (it should follow the military principle of objective, which holds that every military objective, which holds that every military operation must be directed toward a clearly operation must be directed toward a clearly defined, decisive and attainable objective).defined, decisive and attainable objective).


(We can imagine an opponent who occupies a certain market territory; and (We can imagine an opponent who occupies a certain market territory; and we can show five attack strategies in the following way…) we can show five attack strategies in the following way…)

ATTACKER

DEFENDER

4. Bypass Attack2. Flanking Attack

1. Frontal Attack

3. Encirclement Attack

Choosing an attack strategyChoosing an attack strategy 1. Frontal Attack1. Frontal Attack : Head on attack. Attacks the : Head on attack. Attacks the

opponents strengths rather than its weaknesses.opponents strengths rather than its weaknesses. 2. Flanking Attack2. Flanking Attack : Concentration of strengths : Concentration of strengths

against weaknesses.against weaknesses. 3. Encirclement Attack3. Encirclement Attack : Attempt to capture a wide : Attempt to capture a wide

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

4. Bypass Attack4. Bypass Attack : Bypassing the main enemy and : Bypassing the main enemy and attacking easier markets (diversifying into unrelated attacking easier markets (diversifying into unrelated products, new geographical markets, new products, new geographical markets, new technologies).technologies).

5. Guerrilla Attack5. Guerrilla Attack : Attacking on different territories : Attacking on different territories of the opponent, with the aim of harassing and of the opponent, with the aim of harassing and demoralize the opponent.demoralize the opponent.

MARKET CHALLENGER STRATEGIESMARKET CHALLENGER STRATEGIES(ATTACK STRATEGIES AVAILABLE TO CHALLENGERS)(ATTACK STRATEGIES AVAILABLE TO CHALLENGERS)

Price discount strategyPrice discount strategy Cheaper goods strategyCheaper goods strategy Prestige goods strategyPrestige goods strategy Product proliferation strategy (launching a Product proliferation strategy (launching a

large product variety)large product variety) Product innovation strategyProduct innovation strategy Improved service strategyImproved service strategy Distribution innovation strategyDistribution innovation strategy Manufacturing cost reduction strategyManufacturing cost reduction strategy Intensive advertising promotionIntensive advertising promotion

MARKET FOLLOWER STRATEGIESMARKET FOLLOWER STRATEGIES

A strategy of product imitation might be as profitable A strategy of product imitation might be as profitable as a strategy of product innovation (as a strategy of product innovation (Innovative Innovative ImitationImitation))

A market follower must know how to hold current A market follower must know how to hold current customers and win a fair share of new customers. customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to Each follower tries to bring distinctive advantages to its target market – location, services, financing etc.its target market – location, services, financing etc.

The follower is a major target of attack by The follower is a major target of attack by challengers. Therefore, the market follower must challengers. Therefore, the market follower must keep its manufacturing costs low and its product keep its manufacturing costs low and its product quality and services high. It must also enter new quality and services high. It must also enter new markets as they open up.markets as they open up.

MARKET FOLLOWER STRATEGIESMARKET FOLLOWER STRATEGIES

Three broad followership strategies can be Three broad followership strategies can be distinguished :distinguished :

Cloner – emulates the leaders’ products, Cloner – emulates the leaders’ products, distribution, advertising and so on; (it distribution, advertising and so on; (it doesn’t originate anything).doesn’t originate anything).

Imitator – copies some things from the leader Imitator – copies some things from the leader but maintains differentiation in terms of but maintains differentiation in terms of packing, advertising, pricing and so on.packing, advertising, pricing and so on.

Adapter – takes the leader’s products and Adapter – takes the leader’s products and adapts and often improves them.adapts and often improves them.

MARKET NICHER STRATEGIESMARKET NICHER STRATEGIES

An alternative to being a follower in a An alternative to being a follower in a large market is to be a leader in a small large market is to be a leader in a small market or niche. Smaller firms normally market or niche. Smaller firms normally avoid competing with larger firms by avoid competing with larger firms by targeting small markets of little or no targeting small markets of little or no interest to the larger firms. But interest to the larger firms. But increasingly, even large firms are increasingly, even large firms are setting up business units, or setting up business units, or companies, to serve niches.companies, to serve niches.


The main point is, that firms with low shares The main point is, that firms with low shares of the total market can be highly profitable of the total market can be highly profitable through smart niching.through smart niching.

Niching is profitable, because the market Niching is profitable, because the market nicher ends up knowing the the target nicher ends up knowing the the target customer group so well that it meets their customer group so well that it meets their needs better than other firms that are needs better than other firms that are casually selling to this niche. As a result, the casually selling to this niche. As a result, the nicher can charge a substantial mark-up over nicher can charge a substantial mark-up over costs because of the added value.costs because of the added value.

The nicher achieves high margin, whereas The nicher achieves high margin, whereas the mass marketer achieves high volume.the mass marketer achieves high volume.


An ideal market niche would have the following An ideal market niche would have the following characteristics :characteristics :

The niche is of sufficient size and purchasing power The niche is of sufficient size and purchasing power to be profitableto be profitable

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

competitorscompetitors The firm has the required skills and resources to The firm has the required skills and resources to

serve the niche in a superior fashionserve the niche in a superior fashion The firm can defend itself against an attacking major The firm can defend itself against an attacking major

competitor through the customer goodwill it has competitor through the customer goodwill it has built upbuilt up


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

manufacturers)manufacturers)

Expanding nichesExpanding niches Protecting nichesProtecting niches

(Multiple niching is preferable to single (Multiple niching is preferable to single niching) niching)

Balancing Customer and Balancing Customer and Competitor OrientationsCompetitor Orientations

Competitor-centeredCompetitor-centered companies evaluate companies evaluate what competitors are doing, then formulate what competitors are doing, then formulate competitive reactionscompetitive reactions

Customer-centeredCustomer-centered companies focus on companies focus on customer developments when formulating customer developments when formulating strategystrategy

COMPETITOR ANALYSIS

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