Approaches to

Competitor
Analysis
Strategic Marketing Management

Learning objectives
The importance of competitor analysis
How firms can best identify against whom

they are competing

How to evaluate competitive relationships
How to identify competitors likely response
profiles
The components of the competitive
information system and how the information
generated feeds into the process of
formulating strategy

Competitive
Environment
Generally higher levels and an increasing intensity of competition
New and more aggressive competitors who are emerging with ever greater

frequency
Changing bases of competition as organizations search ever harder for a
competitive edge
The wider geographic sources of competition
More frequent niche attacks
More frequent and more strategic alliances are necessary
A quickening of the pace of innovation
The need for stronger relationships and alliances with customers and distributors
An emphasis upon value-added strategies
Ever more aggressive price competition
The difficulties of achieving long-term differentiation, with the result that a
greater number of enterprises are finding themselves stuck in the marketing
wilderness with no obvious competitive advantage
The emergence of a greater number of bad competitors

The importance of competitor analysis

Providing an understanding of your

competitive advantage/disadvantage relative

to your competitors positions
Helping in generating insights into
competitors strategies past, present and
potential
Giving an informed basis for developing future
strategies to sustain/establish advantages
over your competitors.

The importance of competitor analysis

Survive
Handle slow growth
Cope with change
Exploit opportunities
Uncover key factors
Reinforce intuition
Improve the quality of decisions
Stay competitive
Avoid surprises.

Identify against whom are

Competing
Against whom are we competing?
What strengths and weaknesses do they

possess?
What are their objectives?
What strategies are they pursuing and how
successful are they?
How are they likely to behave and, in
particular, how are they likely to react to
offensive moves?

Competitors Analysis
Is the competitor satisfied with its current

position?
What future moves is the competitor likely to
make?
The strength of the What market share does
each competitor have?

Competitors positioning
How strong is each competitors image
What is their position within the trade?
Is there a particular focus in certain markets?
The strength of the In relative terms, how good is

each element of each competitors marketing

competitive offerings mix?
How satisfied is each competitors customer base?
What levels of customer loyalty exist?
How satisfied are each competitors distributors?
The strength of the How profitable is each
competitor?

Competitors Resources

What is the size of each firms resource base?

How big and efficient is the production base?
How fast and effective are the product

development processes?
Understanding the What is each competitors
strategic intent?

competitors
strategies
What are their actions and probable

reactions?

Competitor Analysis
step 1
Developing a general picture of the competition
Competitors Position Competencies/capabilities Competitor 1 Competitor

2 Competitor 3 Competitor 4 Competitor 5 Competitive stance

Price levels
Brand recognition
Distribution network
After sales service
Promotion/public relations
Strategic focus
Manufacturing skills
Financial stability
Technology skills
New product innovations
(Strong/high, Above average, Average, Less average ,Weak/low)

Competitor Analysis
step 2
Developing an overview of competitors strengths
In which segments or areas of technology is the competitor

most vulnerable?
What move on our part is likely to provoke the strongest
retaliation by the competitor?
Against the background of the answers to those questions,
the marketing strategist needs then to consider two further
issues:
where are we most vulnerable to any move on the part of
each competitor, and
what can we realistically do in order to reduce this
vulnerability?

Porters approach to competitive

structure analysis
The
The
The
The
The

threat of new entrants

power of buyers
threat of substitutes
extent of competitive rivalry
power of suppliers.

Porters approach to competitive

structure analysis

Threat of new entrants

Profitable markets that yield high returns will

attract new firms. This results in many new

entrants, which eventually will decrease
profitability for all firms in the industry. Unless
the entry of new firms can be blocked
byincumbents(which in business refers to the
largest company in a certain industry, for
instance, in telecommunications, the traditional
phone company, typically called the
"incumbent operator"), the abnormal profit rate
will trend towards zero (perfect competition).

Factors effect on how much of a

threat new entrants May Pose
The existence ofbarriers to entry(patents, rights, etc.). The most attractive segment is

one in which entry barriers are high and exit barriers are low. Few new firms can enter
and non-performing firms can exit easily.
Government policy
Capital requirements
Absolute cost
Cost disadvantages independent of size
Economies of scale.
Economies of product differences
Product differentiation
Brand Equity
Switching costs or sunk cost
Expected retaliation
Access to distribution
Customer loyalty to established brands
Industry profitability (the more profitable the industry the more attractive it will be to
new competitors)

Threat of Substitute Products/Services

The existence of products outside of the realm of the common product boundaries

increases thepropensityof customers to switch to alternatives.

For example, tap water might be considered a substitute for Coke, whereas Pepsi is a
competitor's similar product. Increased marketing for drinking tap water might "shrink
the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow
the pie" (increase consumption of all soft drinks), while giving Pepsi a larger slice at
Coke's expense. Another example is the substitute of traditional phone with a smart
phone.
Potential factors:
Buyer propensity to substitute
Relative price performance of substitute
Buyer switching costs
Perceived level of product differentiation
Number of substitute products available in the market
Ease of substitution
Substandard product
Quality depreciation
Availability of close substitute

Bargaining Power of Customers

The bargaining power of customers is also described as the market of outputs: the ability of

customers to put thefirmunder pressure, which also affects the customer's sensitivity to
price changes. Firms can take measures to reduce buyer power, such as implementing a
loyalty program. The buyer power is high if the buyer has many alternatives. The buyer
power is low if they act independently e.g. If a large number of customers will act with each
other and ask to make prices low the company will have no other choice because of large
number of customers pressure.
Potential factors:
Buyer concentration tofirm concentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, particularly in industries with highfixed costs.
Buyer switching costs relative tofirmswitching costs
Buyer information availability
Force down prices
Availability of existing substitute products
Buyerprice sensitivity
Differential advantage (uniqueness) of industry products
RFM (customer value)Analysis
The total amount of trading

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs.

Suppliers of raw materials, components, labor, and services (such as expertise)

to the firmcan be a source of power over the firm when there are few
substitutes. If you are making biscuits and there is only one person who sells
flour, you have no alternative but to buy it from them. Suppliers may refuse to
work with the firm or charge excessively high prices for unique resources.
Potential factors are:
Supplier switching costs relative tofirmswitching costs
Degree of differentiation of inputs
Impact of inputs on cost or differentiation
Presence of substitute inputs
Strength of distribution channel
Supplier concentration tofirmconcentration ratio
Employee solidarity (e.g.labor union)
Supplier competition: the ability to forward vertically integrate and cut out the
buyer.

Intensity of competitive rivalry

For most industries the intensity of competitive

rivalry is the major determinant of the

competitiveness of the industry.
Potential factors:
Sustainablecompetitive advantage
throughinnovation
Competition between online and offline companies
Level ofadvertisingexpense
Powerful competitive strategy
Firmconcentration ratio
Degree of transparency

Identifying and evaluating

competitors strengths and
weaknesses
Sales
Market share
Cost and profit levels, and how they appear to be changing over time
Cash flows
Return on investment
Investment patterns
Production processes
Levels of capacity utilization
Organizational culture
Products and the product portfolio
Product quality
The size and pattern of the customer base
The levels of brand loyalty
Dealers and distribution channels
Marketing and selling capabilities
Operations and physical distribution
Financial capabilities
Management capabilities and attitudes to risk
Human resources, their capability and flexibility
Previous patterns of response
Ownership patterns and, in the case of divisionalzed organizations, the expectations of corporate management.

The signs of competitive strength in a companys position

Important core competences
Strong market share (or a leading market share)
A pace-setting or distinctive strategy
Growing customer base and customer loyalty
Above-average market visibility
Being in a favorably situated strategic group
Concentrating on fastest-growing market segments
Strongly differentiated products
Cost advantages
Above-average profit margins
Above-average technological and innovational capability
A creative, entrepreneurially alert management
In a position to capitalize on opportunities

Evaluating Competitive
relationships and analyzing
how organizations compete
Conflict, where the firm sets out to destroy, damage or force the

competitor out of the market.

Competition, where two or more firms are trying to achieve the same
goals and penetrate the same markets with broadly similar product offers.
Coexistence, where the various players act largely independently of
others in the market. This may in turn be due to the marketing planner
being unaware of the competition; recognizing them but choosing to
ignore them; or behaving on the basis that each firm has certain territorial
rights that, tacitly, each player agrees not to infringe.
Cooperation, where one or more firms work together to achieve
interdependent goals. Typically, this is done on the basis of exchanging
information, licensing arrangements, joint ventures and through trade
associations.
Collusion, which, although typically illegal, has as its purpose that of
damaging another organization or, more frequently, ensuring that profit
margins and the status quo are maintained

Identifying competitors
objectives
profit maximization
cash flow,
technological leadership,
market share growth,
service leadership or
overall market leadership.

Identifying competitors
likely Response Profiles
The relaxed competitor, who either fails to react or reacts only

slowly to competitive moves. There are several possible reasons for

this, the most common of which are that the management team
believes that their customers are deeply loyal and are therefore
unlikely to respond to a (better) competitive offer; they may fail to
see the competitors move or underestimate its significance; they
may not have the resources to respond; the market might be of little
real importance; or the focus may be upon harvesting the business.
However, whatever the reason, the marketing strategies must try to
understand why the competitor is taking such a relaxed approach.
The tiger competitor, who responds quickly and aggressively
almost regardless of the nature and significance of any competitive
move. Over time, firms such as this develop a reputation for their
aggression and in this way create Fear, Uncertainty and Despair
amongst other players in the market.

Identifying competitors
likely Response Profiles
The selective competitor, who chooses carefully and

often very strategically how, where and with what level of

aggression they will respond to any competitive move. Such
an approach is generally based not just on a clear
understanding of the relative value of the organizations
markets, but also on the costs of responding and the likelihood
of the response proving to be cost-effective.
The unpredictable competitor, for whom it proves difficult
or impossible to identify in advance how or, indeed, if they
will respond to any particular move. The unpredictability of
competitors such as this comes from the way in which in the
past they may have responded aggressively on one occasion,
but not at all on another when faced with what appears to be
a broadly similar attack.

The components of the competitive

information system
Although many of the inputs to a market

intelligence system can be obtained through

relatively straightforward and conventional
market research routines, the much more
strategically useful and indeed more
necessary information on competitors
intentions, capabilities and strategies can
often only be obtained by radically different
approaches

Stage One Where are we now?

Strategic and marketing analysis,
Marketing Segmental,
Market Approaches,
Approaches auditing and productivity and to

customer to the analysis of and ratio

environmental analysis competitor capability
analysis.

Stage Two Where do we want to be?

Strategic direction and strategic formulation
Missions Market
Positioning

Stage Three How might we get

there?
Strategic choice
The strategic management of the marketing

mix

Stage Four Which way is

best?
Strategic evaluation
Criteria Modeling of choice approaches2

Stage Five How can we ensure

arrival?
Strategic implementation and control
Problems to Management overcome control