Competitor analysis

At the end of this module the learning outcomes

are:
- Importance of understanding competition
- Approaches to competitor analysis
- Identifying competitors likely response

Competitor analysis
Suggested Readings
Strategic Management by Pearce and Robinson
(chapter 3)

Competitor analysis
ASIAN PAINTS
Indian paint industry
Highly concentrated
Top four players
95% of the market share
Asian Paints
Market leader
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Competitor analysis
ASIAN PAINTS
Next player has less than half market share
How it has maintained
Strong value proposition
Higher customer perceived benefits
Lower costs
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Competitor analysis
ASIAN PAINTS
Higher customer perceived benefits
Initial foray in semi-urban and rural market
Required extensive distribution network
Bypasses wholesaler arrangement
Appointed retailers in semi-urban areas all
over India
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Competitor analysis
ASIAN PAINTS
Higher customer perceived benefits

Rural areas
Smaller size paint products
Risk of inventory build up
Invested in IT to ensure strict inventory control
Networking of offices and depots
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Competitor analysis
Higher customer perceived benefits
Urban areas
Paints for every price points
Competitively priced thus encouraging economies
of scale
Launch of premium paints
Launch of color world tinting system
Customers mix shade before buying
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Competitor analysis
Higher customer perceived benefits
Entry into painting solutions
Dominated by unorganized sector
Offer solutions
Higher margins in services

Competitor analysis
Lower costs
Color world tinting
Means lower stocks
Reducing inventory and working capital
Tight control on receivables
Inventory in number of days and
receivables lower than industry average
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Competitor analysis
These initiatives have helped Asian Paints
to maintain its competitive advantage
and distinct edge over competitors

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Competitor analysis
Importance
- Provides an understanding of your competitive
advantage / disadvantage relative to your
competitors position.
- Insights into competitors strategies
- Developing future strategies to sustain/establish
advantages over your competitors.

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Competitor analysis
Seeking competitive advantage
Two types of analysis
Industry analysis
Comparative analysis

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Competitor analysis
Industry analysis
Every industry
Peculiar characteristics
Porters five-force model

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Competitor analysis
Porter's approach to competitive structure
analysis
Nature and intensity of competition within any
industry is determined by the interaction of five key
forces:
1. The threat of new entrants
2. Power of buyers
3. Threat of substitutes
4. Extent of competitive rivalry
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5. Power of suppliers

Competitor analysis
1. Threat of new entrants
- Depends on barriers to entry
- How heavy is the capital investment
Intel's huge investment into research
- Strong brand image to overcome
Coke investments required to build brands
- Cost incurred to create distribution channels
Hindustan Levers huge investments
in distribution in rural areas
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Competitor analysis
2. Power of buyers
- Is likely to be higher if:
1. There are large number of suppliers
2. Alternative sources of supply
3. Threat of backward integration
Example
Reliance Industries
1. Started as textiles company
2. Makes raw materials to produce textiles
3. Vertically integrated
4. Bargains on price for huge quantities it picks16up.

Competitor analysis
3. Threat of substitutes
- Will be more prevalent if:
- Customers perceive other offers to perform
the same function as ours
- Substitute products offer higher value for
money
- Substitute products earn higher profits

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Competitor analysis
Onion versus ready to make paste
Dabur Hommade pastes

Tomato versus tomato puree

Scooters versus Motorcycles
Hero Honda sales at the expense of Bajaj

Vanaspati versus edible oils

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Competitor analysis
4. Extent of competitive rivalry
Intensity of rivalry will be greater if:
- Competitors are of equal size and are seeking
dominance
- High fixed costs provoke price wars to maintain
capacity. E.g: Airlines industry

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Competitor analysis
New addition of capacity have created excess
capacity
Hotel industry
Automobile industry

Product homogeneity necessitates activity to

maintain share.

Coke versus Pepsi

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Competitor analysis
5.Power of suppliers
Is likely to be higher if:
- There are few suppliers
- Cost of switching from one supplier to another is
high
E.g: Intel
Suppliers are likely to integrate forward
Kirloskar compressors into airconditioners.
Reliance entry into petroleum products retailing
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Competitor analysis
Comparative analysis
Specific advantage of competitors within a
given market
Two types
Structural advantage
Responsive advantage
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Competitor analysis
Structural advantage
Built into business
A manufacturing plant at Chennai for
Hyundai to carry out exports

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Competitor analysis
Responsive advantage
Position of comparative advantage that have
accrued to business over time
Leveraging strategic phenomena at work in
the business
Either cost or unique value
Indigo over Air India
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Competitor analysis
Intensity and Degree of competition
Factors
Opportunity potential
Ease of entry
Nature of product
Exit barriers
Homogeneity of market
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Competitor analysis
Intensity and Degree of competition
Factors

Industry structure or competitive position of firms

Commitment to the industry
Feasibility of technological innovations
Scale economies
Economic climate
Diversity of firms
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Competitor analysis
Opportunity potential
Promising industry attracts rivals
Telecom service operators

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Competitor analysis
Ease of entry
Easy entry
Attracts marginal players
Committed players discourage potential
entrants
Colgate trying to thwart Anchor with
Brands
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Competitor analysis
Nature of product
Offerings perceived to be similar
Tends to go on price
Severe competition

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Competitor analysis
Exit barriers
Regulated
Exit difficult
Mobile services

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Competitor analysis
Homogeneity of market
Intensity is higher than segmented
Telecom services versus Telecom handset
players

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Competitor analysis
Industry structure or competitive position
of firms
Large number of firms
Intensity higher
Aggression leads to retaliation
Fewer players leads to less retaliation
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Competitor analysis
Commitment to the industry
Contribution to overall sales
Maintain position at any cost
Wipro versus Infosys

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Competitor analysis
Feasibility of technological innovations
Frequent innovations
Do their best in short time
Intensity is higher

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Competitor analysis
Scale economies
Economies of scale benefits are high
Will do everything to get volume
Aggressive competition for market share
Escalates pressure
Airlines industry
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Competitor analysis
Economic climate
Boom times
Relatively moderate
Recession
Companies bite each other
Intensity is higher
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Competitor analysis
Diversity of firms
Old players in the industry
Display a predictable behavior
New participants
Can do many unconventional behavior to
upset existing players
Dells model
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Competitor analysis
Competitive intelligence
Three types
Defensive
Passive
Offensive

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Competitor analysis
Defensive
Gathered to avoid getting caught offbalance
Keep track on moves

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Competitor analysis
Offensive
Identify new opportunities
Most relevant

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Competitor analysis
Strategic relevance of competitive
intelligence
Ford Motor companys competitive
product tear-down process
Purchase the product
Tear the product down-literally
Reverse-engineer the product
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Competitor analysis
Strategic relevance of competitive
intelligence
Ford Motor companys competitive
product tear-down process
Build up costs
Establish economies of scale
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Competitor analysis
Ford Motor companys competitive
product tear-down process
Purchase the product
High cost of teardown
Value competitors place on the knowledge
they gain

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Competitor analysis
Ford Motor companys competitive
product tear-down process
Tear the product down-literally
Every component is unscrewed

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Competitor analysis
Ford Motor companys competitive
product tear-down process
Passive
Adhoc information for a specific decision

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Competitor analysis
Ford Motor companys competitive
product tear-down process
Reverse-engineer the product
Car dismantled
Drawings made of parts
Analysis of production processes
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Competitor analysis
Ford Motor companys competitive
product tear-down process
Build up costs
Parts are costed out in terms of make-or-buy
Costs estimated
Direct and indirect
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Competitor analysis
Ford Motor companys competitive
product tear-down process
Establish economies of scale
Individual costs known
Link with volume
Likely volumes of competitor
Determine breakeven and profits
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Competitor analysis
Ford Motor companys competitive
product tear-down process
How it helped Ford
Tearing down of Leyland Mini
Leyland not making money at current prices
Fords decision not to make trucks
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Competitor analysis
Against whom are we competing
- Looks straight forward
- Is not usually the case
E.g: Bajaj Auto
1.Underestimation of LML
2.Undermining the strengths of Hero Honda
- Gestetner underestimation of Xerox
- Extinction of British and U.S television companies by
Japanese organizations
- Sharp attack by Symphony aesthetic coolers over
traditional coolers
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Competitor analysis
Earlier clarity was high
Now blurred
Poor anticipation
VCR industry in 80s
decline

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Competitor analysis
Marketing Myopia
Theodore Levitt
Marketing Guru
How business is defined
Why American rail business a massive
decline
Onslaught of airlines
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Competitor analysis
THE COURIER MARKET
came in 70s
Launch of fax
Later email
How players handled competition

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Competitor analysis
Two approaches
Adopt new products
Strengthen existing business

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Competitor analysis
Adopt new products
IBM
Hardware in 70s
Threat from low-cost producers
Shifted focus to software

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Competitor analysis
Strength existing business
FED EX
Earlier couriers
Competition from fax, email
Shifted focus on parcel market
Physical distribution required
Offered door-to-door delivery
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Competitor analysis
FED EX
Offer complete logistics solutions
Found existing players not offering these
solutions
Gradually left the space for document
courier to smaller companies

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Competitor analysis
MOSQUITO REPELLANT DEVICES
BALSARA
Launched ODOMOS in 1964
Unattended need
Cream based product
Inhouse R & D
Earlier smoke sensing devices were used
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Competitor analysis
MOSQUITO REPELLANT DEVICES
Now creams
Held 97% share of the cream market
What are the concerns
Later Tortoise was launched
Used smoke concept
Economical
Gained 70% market share
Odomos 20% share
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Competitor analysis
MOSQUITO REPELLANT DEVICES
1984
Goodknight brand
No use of cream or coil
Value proposition
Cleaner
Less messy
Convenient
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Competitor analysis
MOSQUITO REPELLANT DEVICES
By late 90s
Mats/liquid-70%
Coils-22%
Creams-9%
Balsara tried to launch mats/liquid
BALSARA lost the market which it created
in 1964
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Competitor analysis
Poor understanding of the competition
Decline
Air coolers
Mopeds
Soya-based drinks

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Competitor analysis
Competition happens at four levels
1.Companies offering only similar products
- Kitkat versus Perk
- Nescafe versus Bru
2.Companies consisting of all companies operating in the
same category
- Cadbury's Eclairs versus. Nestle Kitkat
- Canada Dry versus Pepsi Cola

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Competitor analysis
Competition at four levels(Contd.,)
3. Competitor consists of all companies manufacturing
or supplying products which deliver the same service
- Airlines versus Railways
- Second hand cars versus scooters versus Tata Nano
4. Competition consists of all companies competing for
the same spending power
- Dishwasher versus Microwave oven
- Designer jewellery versus Ritu Beri's fabrics
- Debeers versus Nokia mobile phones
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Competitor analysis
Harley Davidson perception of competition
Last American motorcycle
Symbol of freedom and adventure
Technically antiquated
Not seen as form of transport
Social statements
Compete against various recreations
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Competitor analysis
IDENTIFYING COMPETITORS LIKELY
RESPONSE PROFILES
Three issues
How competitor is likely to respond to the general
changes taking place in the external environment?
How competitor is likely to respond to specific
moves that we make?
Is the competitor likely to initiate an aggressive
move?
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Competitor analysis
COMPETITOR PROFILES
The laid-back competitor
The selective competitor
The tiger competitor
The unpredictable competitor

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Competitor analysis
The laid-back competitor
Competitors do not react
Feel customers may stay loyal
Lack resources to react

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Competitor analysis
The selective competitor
React to selective moves of competitor
Cost of responding
Modi Xerox versus HCL copiers

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Competitor analysis
The tiger competitor

React swiftly
Strong reply
Signal that it is going to fight
Surf versus Ariel
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Competitor analysis
The unpredictable competitor
Do not exhibit any predictable pattern
No trends available
Could exhibit any type of competitor

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Competitor analysis
COMPETITIVE EQUILIBRIUM
Five scenarios
If competitors are nearly identical and make their
living in the same way, then the competitive
equilibrium is unstable.
Identical products
Commodity industries
Competitive equilibrium gets upset if one cuts
prices
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Competitor analysis
If a single major factor is the critical factor, then
competitive equilibrium is unstable
Differentiation is possible
Breakthrough in technologies
Cut costs
Change habits of consumers
Apples Iphone
Amazon.com
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Competitor analysis
If multiple factors may be critical factors, then
it is possible for each competitor to have some
advantage and be differentially attractive to
some customers. The more the multiple factors
that may provide an advantage, the more the
number of competitors who can coexist. Each
competitor has his competitive segment defined
by the preference for the factor trade-offs that
he offers.
Retailing industry in India
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Competitor analysis
The fewer the number of competitive
variables that are critical, the fewer the
number of competitors.
If one factor is critical, fewer competitors.
More variables, larger number of
competitors, but smaller in size.
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Competitor analysis
Is it always prudent to increase your market
share?

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Competitor analysis
A ratio of 2 in 1 in market share between
two competitors seems to be the
equilibrium point at which it is neither
practical nor advantageous for other
competitor to increase or decrease share.

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Competitor analysis
INDUSTRY STRUCTURE TYPES
Five types
Pure monopoly
Differentiated oligopoly
Pure oligopoly
Monopolistic competition
Pure competition
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Competitor analysis
Pure monopoly
High prices
Little advertising
Low service levels
Barriers to entry exist

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Competitor analysis
Differentiated oligopoly
Differentiation through quality, features
Reflected by the price premium which is
available
INTEL experience

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Competitor analysis
Pure oligopoly
Differentiation is difficult
Going-rate pricing
Sustainable competitive advantage is
through cost-reductions

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Competitor analysis
Monopolistic competition
Organizations look for markets where scope
of competition minimizes
Pricing premium can be attained
Retailing in India

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Competitor analysis
Pure competition
No scope for differentiation
Same prices
Psychological differentiation
Profits determined by cost management

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