COMPETITOR ANALYSIS

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Learning Objectives
Understand how a company identifies its primary

competitors and ascertains their strategies. Review how companies design competitive intelligence systems.

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

Definitions
Competitive Advantage

Competitive Analysis
The

An advantage over competitors gained by offering consumers greater value than competitors offer. process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack 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 more attractive market segments Exit barriers- legal or moral obligations, low assetsalvage value due to obsolescence, lack of alternative opportunities etc.

Porters five forces model of competition

Potential Entrants (Threat of New Entrants) Suppliers (Bargaining Power of Suppliers)

Industry Competitors (Segment Rivalry) Rivalry Among Existing Firms

Buyers (Bargaining Power of Buyers)

Substitutes (Threat of Substitute Products or Services

Threat of Intense Segment Rivalry

A segment is unattractive if it already contains numerous, strong or aggressive competitors. If it is stable or declining If plant capacity additions are done in large increments If fixed costs are high If exit barriers are high If competitors have high stakes in staying in the segment. These will lead to frequent price wars, advertising battles and new product introductions and will make it expensive to compete.

Threat of new entrants

Exit Barriers Low Low Low, stable Returns e.g. retail, ecommerce
High, stable Returns e.g. education

High Worst Case e.g. Hotels

Entry Barriers

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.

High, risky Returns e.g. energy

Threat of Substitute Products

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 in these substitute industries, prices and profits in the segment 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 companys suppliers

are 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 myopia refers 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 competitors trying to satisfy the same customer need or build relationships with the same customer group

Competitor Analysis
Competitor map highlights both competitive opportunities and challenges facing the firm

Center is the list of consumer activities First outer ring lists main competitors Second outer ring lists indirect competitors

A competitor Map of Eastman (Kodak in the digital imaging business)

Identifying Competitors Strategies

Companies need to understand the competitors

ability 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 Competitors Strengths and Weaknesses

Primary data Secondary data Personal experience Word of mouth Benchmarking is the comparison of the companys

products or services to competitors or leaders in other industries to find ways to improve quality and performance

Estimating Competitors Reactions

Marketing managers need to develop an

understanding of a given competitors mentality, culture, values, and way of doing business to anticipate how the competitor will react to the companys 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 various competitors offers. Identification of major attributes that customers value and the importance of these values Assessment of the companys and competitors performance on the valued attributes

Analyzing Competitors
A company should monitor three variables when analysing competitors: Share of market Share of mind Share of heart

Competitor Analysis
Selecting Competitors to Attack or Avoid
Strong or weak competitors Customer value analysis (Customers identify and rate attributes important in the purchase decision for the company and competition) Close or distant competitors Most companies compete against close competitors Good or Bad competitors

DESIGNING COMPETITIVE STRATEGIES

To prepare an effective marketing strategy, a

company must study its competitors as well as its actual and potential customers. A company should also pay attention to latent competitors, who may offer new or other ways to satisfy the same need. Competitive intelligence needs to be collected, interpreted, and disseminated continuously. With good competitive intelligence, managers can more easily formulate their strategies.

DESIGNING COMPETITIVE STRATEGIES

A marketer should thoroughly examine the problem

of designing marketing strategies that take into account competitors strategy. Some competitors will be large, others small. Some will have great resources, others will be strapped for funds. Further insight can be gained by classifying firms by the role they play in the target market, that of leading, challenging, following or niching.

DESIGNING COMPETITIVE STRATEGIES

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

DESIGNING COMPETITIVE STRATEGIES

Market Leader : the firm with the largest

market share Market Challenger : a runner-up firm that is fighting hard for an increased market share Market Follower : another runner-up firm that is willing to maintain its market share and not rock the boat Market Nicher : firms that serve small market segments not being served by larger firms

MARKET LEADER STRATEGIES

Dominant firms want to remain number one. This calls for action on three fronts : (1) The firm must find ways to expand its total market demand. (2) The firm must protect its current market share through 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 STRATEGIES

Market leader strategies The company can search for new users Market penetration strategy ( who might use it but do

not ) New market segment strategy ( those who have never used it Geographical expansion strategy ( those who live somewhere else)

MARKET LEADER STRATEGIES

The market leader has to use defensive

strategy to reduce the probability of attack, or divert the attacks. Position defense: building superior brand power e.g. Sony, Nescafe Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus. Flank defense: build outposts to protect a weak front .( bring out new products or products with less price ) e.g. HUL

MARKET LEADER STRATEGIES

Pre-emptive defense: attack before the enemy

starts its offense. ( have products of all price types 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 to respond to Mercedes attack Mobile defense: leader stretches his domain over new territories it spreads through market broadening and market diversification

MARKET LEADER STRATEGIES

Market broadning: Company shifts its focus from

current product to the underlying generic need. Eg : Petroleum companies sought to recast themselves into energy companies. They are into coal, power, oil, nuclear, and chemical industries

MARKET LEADER STRATEGIES

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. Indias TATA Group sold its soaps and detergents business units to Unilever in 1993

MARKET LEADER STRATEGIES

Expanding Market Share Co. increase their product quality relative to competitors Increases in sales force expenditures Increased advertising may also produce share gains Co. that cut their prices more deeply than competitors do not achieve significant marketshare gains generally. Presumably, enough rivals may meet the price cuts partly, and others may offer other values to the buyers, so that buyers do not switch to the price cutter.

MARKET CHALLENGER STRATEGIES

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

an aggressive bid for further market share (market challengers) OR they can play ball and not rock the boat (market followers)

MARKET CHALLENGER STRATEGIES

Strategic Objectives and Opponent(s) : It can attack the market leader It can attack firms of its own size that are not doing the job and are under-financed It 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 and attainable objective).

MARKET CHALLENGER STRATEGIES

(We can imagine an opponent who occupies a certain market territory; and we can show five 4. Bypass Attack attack strategies in the following way) 2. Flanking Attack A T T A 1. Frontal Attack C DEFENDER K E 3. Encirclement R Attack

Choosing an attack strategy

1. Frontal Attack : Head on attack. Attacks the opponents

strengths rather than its weaknesses. 2. Flanking Attack : Concentration of strengths against weaknesses. 3. Encirclement Attack : Attempt to capture a wide slice of the enemys territory through a comprehensive Blitz attack. 4. Bypass Attack : Bypassing the main enemy and attacking easier markets (diversifying into unrelated products, new geographical markets, new technologies). e.g. Pepsi use a bypass attack strategy against Coke in China by locating its bottling plants in the interior provinces 5. Guerrilla Attack : Attacking on different territories of the opponent, with the aim of harassing and demoralize the 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 as

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

MARKET FOLLOWER STRATEGIES

Three broad followership strategies can be distinguished : Cloner emulates the leaders products, distribution, advertising and so on; (it doesnt originate anything). Imitator copies some things from the leader but maintains differentiation in terms of packing, advertising, pricing and so on. Adapter takes the leaders products and adapts and often improves them.

MARKET NICHER STRATEGIES

An alternative to being a follower in a large market is

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

MARKET NICHER STRATEGIES

The main point is, that firms with low shares of the

total market can be highly profitable through smart niching. 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 firms that are casually selling to this niche. As a result, the nicher can charge a substantial mark-up over costs because of the added value. The nicher achieves high margin, whereas the mass marketer achieves high volume.

MARKET NICHER STRATEGIES

An ideal market niche would have the following characteristics : The niche is of sufficient size and purchasing power to be profitable The niche has growth potential The niche is of negligible interest to major competitors The firm has the required skills and resources to serve the niche in a superior fashion The firm can defend itself against an attacking major competitor through the customer goodwill it has built up

MARKET NICHER STRATEGIES

Nichers have three tasks : Creating niches (e.g. Nike, the athletic shoe manufacturers) Expanding niches Protecting niches (Multiple niching is preferable to single niching)