Competitor analysis
Encyclopedia
Competitor analysis in marketing
and strategic management
is an assessment of the strengths and weaknesses of current and potential competitors
. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.
Competitor analysis is an essential component of corporate strategy. It is argued that most firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is called “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” As a result, traditional environmental scanning places many firms at risk of dangerous competitive blindspots due to a lack of robust competitor analysis.
This can best be displayed on a two dimensional matrix - competitors along the top and key success factors down the side.
An example of a competitor array follows:
In this example competitor #1 is rated higher than competitor #2 on product innovation ability (7 out of 10, compared to 4 out of 10) and distribution networks (6 out of 10), but competitor #2 is rated higher on customer focus (5 out of 10). Overall, competitor #1 is rated slightly higher than competitor #2 (20 out of 40 compared to 15 out of 40). When the success factors are weighted according to their importance, competitor #1 gets a far better rating (4.9 compared to 3.7).
Two additional columns can be added. In one column you can rate your own company on each of the key success factors (try to be objective and honest). In another column you can list benchmarks
. They are the ideal standards of comparisons on each of the factors. They reflect the workings of a company using all the industry's best practices.
Clearly, those firms practicing systematic and advanced competitor profiling have a significant advantage. As such, a comprehensive profiling capability is rapidly becoming a core competence required for successful competition. An appropriate analogy is to consider this advantage as akin to having a good idea of the next move that your opponent in a chess match will make. By staying one move ahead, checkmate is one step closer. Indeed, as in chess, a good offense is the best defense in the game of business as well.
A common technique is to create detailed profiles on each of your major competitors. These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies. This involves:
message can reveal new product offerings
, new production processes, a new branding strategy
, a new positioning strategy
, a new segmentation strategy
, line extensions
and contractions, problems with previous positions, insights from recent marketing or product research
, a new strategic direction
, a new source of sustainable competitive advantage
, or value migration
s within the industry. It might also indicate a new pricing strategy
such as penetration
, price discrimination
, price skimming
, product bundling
, joint product pricing, discounts, or loss leaders. It may also indicate a new promotion strategy
such as push, pull, balanced, short term sales generation, long term image creation, informational, comparative, affective, reminder, new creative objectives, new unique selling proposition, new creative concepts, appeals, tone, and themes, or a new advertising agency. It might also indicate a new distribution strategy
, new distribution partners, more extensive distribution, more intensive distribution, a change in geographical focus, or exclusive distribution. Little of this intelligence is definitive: additional information is needed before conclusions should be drawn.
A competitor's media strategy reveals budget allocation, segmentation and targeting strategy
, and selectivity and focus. From a tactical perspective, it can also be used to help a manager implement his own media plan. By knowing the competitor's media buy, media selection, frequency, reach, continuity, schedules, and flights, the manager can arrange his own media plan so that they do not coincide.
Other sources of corporate intelligence include trade shows, patent filings, mutual customers, annual reports, and trade associations.
Some firms hire competitor intelligence professionals to obtain this information. The Society of Competitive Intelligence Professionals
http://www.scip.org maintains a listing of individuals who provide these services.
The entrance of new competitors is likely when:
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
and strategic management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
is an assessment of the strengths and weaknesses of current and potential competitors
Competition (economics)
Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services...
. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.
Competitor analysis is an essential component of corporate strategy. It is argued that most firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is called “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” As a result, traditional environmental scanning places many firms at risk of dangerous competitive blindspots due to a lack of robust competitor analysis.
Competitor array
One common and useful technique is constructing a competitor array. The steps include:- Define your industry - scope and nature of the industry
- Determine who your competitors are
- Determine who your customers are and what benefits they expect
- Determine what the key success factors are in your industry
- Rank the key success factors by giving each one a weighting - The sum of all the weightings must add up to one.
- Rate each competitor on each of the key success factors
- Multiply each cell in the matrix by the factor weighting.
This can best be displayed on a two dimensional matrix - competitors along the top and key success factors down the side.
An example of a competitor array follows:
| Key Industry Success Factors | Weight ing | Competitor #1 rating | Competitor #1 weighted | Competitor #2 rating | Competitor #2 weighted |
|---|---|---|---|---|---|
| 1 - Extensive distribution | .4 | 6 | 2.4 | 3 | 1.2 |
| 2 - Customer focus | .3 | 4 | 1.2 | 5 | 1.5 |
| 3 - Economies of scale | .2 | 3 | .6 | 3 | .6 |
| 4 - Product innovation | .1 | 7 | .7 | 4 | .4 |
| Totals | 1.0 | 20 | 4.9 | 15 | 3.7 |
In this example competitor #1 is rated higher than competitor #2 on product innovation ability (7 out of 10, compared to 4 out of 10) and distribution networks (6 out of 10), but competitor #2 is rated higher on customer focus (5 out of 10). Overall, competitor #1 is rated slightly higher than competitor #2 (20 out of 40 compared to 15 out of 40). When the success factors are weighted according to their importance, competitor #1 gets a far better rating (4.9 compared to 3.7).
Two additional columns can be added. In one column you can rate your own company on each of the key success factors (try to be objective and honest). In another column you can list benchmarks
Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
. They are the ideal standards of comparisons on each of the factors. They reflect the workings of a company using all the industry's best practices.
Competitor profiling
The strategic rationale of competitor profiling is powerfully simple. Superior knowledge of rivals offers a legitimate source of competitive advantage. The raw material of competitive advantage consists of offering superior customer value in the firm’s chosen market. The definitive characteristic of customer value is the adjective, superior. Customer value is defined relative to rival offerings making competitor knowledge an intrinsic component of corporate strategy. Profiling facilitates this strategic objective in three important ways. First, profiling can reveal strategic weaknesses in rivals that the firm may exploit. Second, the proactive stance of competitor profiling will allow the firm to anticipate the strategic response of their rivals to the firm’s planned strategies, the strategies of other competing firms, and changes in the environment. Third, this proactive knowledge will give the firms strategic agility. Offensive strategy can be implemented more quickly in order to exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be employed more deftly in order to counter the threat of rival firms from exploiting the firm’s own weaknesses.Clearly, those firms practicing systematic and advanced competitor profiling have a significant advantage. As such, a comprehensive profiling capability is rapidly becoming a core competence required for successful competition. An appropriate analogy is to consider this advantage as akin to having a good idea of the next move that your opponent in a chess match will make. By staying one move ahead, checkmate is one step closer. Indeed, as in chess, a good offense is the best defense in the game of business as well.
A common technique is to create detailed profiles on each of your major competitors. These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies. This involves:
- Background
- location of offices, plants, and online presences
- history - key personalities, dates, events, and trends
- ownership, corporate governance, and organizational structure
- Financials
- P-E ratios, dividend policyDividend policyDividend policy is concerned with taking a decision regarding paying cash dividend in the present or paying an increased dividend at a later stage. The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors, however, it ensures...
, and profitability - various financial ratios, liquidity, and cash flow
- Profit growth profile; method of growth (organic or acquisitive)
- P-E ratios, dividend policy
- Products
- products offered, depth and breadth of product line, and product portfolio balance
- new products developed, new product success rate, and R&D strengths
- brands, strength of brand portfolio, brand loyalty and brand awareness
- patents and licenses
- quality control conformance
- reverse engineeringReverse engineeringReverse engineering is the process of discovering the technological principles of a device, object, or system through analysis of its structure, function, and operation...
- Marketing
- segments served, market shares, customer base, growth rate, and customer loyalty
- promotional mix, promotional budgets, advertising themes, ad agency used, sales force success rate, online promotional strategy
- distribution channels used (direct & indirect), exclusivity agreements, alliances, and geographical coverage
- pricing, discounts, and allowances
- Facilities
- plant capacity, capacity utilization rate, age of plant, plant efficiency, capital investment
- location, shipping logistics, and product mix by plant
- Personnel
- number of employees, key employees, and skill sets
- strength of management, and management style
- compensation, benefits, and employee morale & retention rates
- Corporate and marketing strategies
- objectives, mission statement, growth plans, acquisitions, and divestitures
- marketing strategies
Media scanning
Scanning competitor's ads can reveal much about what that competitor believes about marketing and their target market. Changes in a competitor's advertisingAdvertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
message can reveal new product offerings
New product development
In business and engineering, new product development is the term used to describe the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible or intangible...
, new production processes, a new branding strategy
Brand
The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
, a new positioning strategy
Positioning (marketing)
In marketing, positioning has come to mean the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization....
, a new segmentation strategy
Market segment
Market segmentation is a concept in economics and marketing. A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function...
, line extensions
Product lining
Product lining is the marketing strategy of offering for sale several related products. Unlike product bundling, where several products are combined into one, lining involves offering several related products individually. A line can comprise related products of various sizes, types, colors,...
and contractions, problems with previous positions, insights from recent marketing or product research
Marketing research
Marketing research is "the function that links the consumer, customer, and public to the marketer through information — information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve...
, a new strategic direction
Strategic management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
, a new source of sustainable competitive advantage
Sustainable competitive advantage
Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment....
, or value migration
Value migration
In marketing, value migration is the shifting of value-creating forces. Value migrates from outmoded business models to business designs that are better able to satisfy customers' priorities....
s within the industry. It might also indicate a new pricing strategy
Pricing
Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a...
such as penetration
Penetration pricing
Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the lower price...
, price discrimination
Price discrimination
Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...
, price skimming
Price skimming
Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management...
, product bundling
Product bundling
Product bundling is a marketing strategy that involves offering several products for sale as one combined product. This strategy is very common in the software business , in the cable television industry Product bundling is a marketing strategy that involves offering several products for sale as...
, joint product pricing, discounts, or loss leaders. It may also indicate a new promotion strategy
Promotion (marketing)
Promotion is one of the four elements of marketing mix . It is the communication link between sellers and buyers for the purpose of influencing, informing, or persuading a potential buyer's purchasing decision....
such as push, pull, balanced, short term sales generation, long term image creation, informational, comparative, affective, reminder, new creative objectives, new unique selling proposition, new creative concepts, appeals, tone, and themes, or a new advertising agency. It might also indicate a new distribution strategy
Distribution (business)
Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
, new distribution partners, more extensive distribution, more intensive distribution, a change in geographical focus, or exclusive distribution. Little of this intelligence is definitive: additional information is needed before conclusions should be drawn.
A competitor's media strategy reveals budget allocation, segmentation and targeting strategy
Target market
A target market is a group of customers that the business has decided to aim its marketing efforts and ultimately its merchandise. A well-defined target market is the first element to a marketing strategy...
, and selectivity and focus. From a tactical perspective, it can also be used to help a manager implement his own media plan. By knowing the competitor's media buy, media selection, frequency, reach, continuity, schedules, and flights, the manager can arrange his own media plan so that they do not coincide.
Other sources of corporate intelligence include trade shows, patent filings, mutual customers, annual reports, and trade associations.
Some firms hire competitor intelligence professionals to obtain this information. The Society of Competitive Intelligence Professionals
Society of Competitive Intelligence Professionals
The Society of Competitive Intelligence Professionals - is a global nonprofit membership organization designed to enhance the skills of knowledge professionals in order to help their companies...
http://www.scip.org maintains a listing of individuals who provide these services.
New competitors
In addition to analysing current competitors, it is necessary to estimate future competitive threats. The most common sources of new competitors are:-
- Companies competing in a related product/market
- Companies using related technologies
- Companies already targeting your prime market segment but with unrelated products
- Companies from other geographical areas and with similar products
- New start-up companies organized by former employees and/or managers of existing companies
The entrance of new competitors is likely when:
- There are high profit margins in the industry
- There is unmet demand (insufficient supply) in the industry
- There are no major barriers to entry
- There is future growth potential
- Competitive rivalry is not intense
- Gaining a competitive advantage over existing firms is feasible
See also
- marketingMarketingMarketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
- industry or market researchIndustry or market researchIndustry or market research is the acquisition of corporate intelligence on a broad range of issues including:* Macroenvironment**economy**government**law**technology**ecological* Market analysis and competitor analysis**market definition**market size...
- industry informationIndustry informationIndustry classification or industry taxonomy organizes companies into industrial groupings based on similar production processes, similar products, or similar behavior in financial markets....
- marketing managementMarketing managementMarketing management is a business discipline which is focused on the practical application of marketing techniques and the management of a firm's marketing resources and activities...
- marketing planMarketing planA marketing plan may be part of an overall business plan.Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use....
- competitive intelligenceCompetitive intelligenceA broad definition of competitive intelligence is the action of defining, gathering, analyzing, and distributing intelligence about products, customers, competitors and any aspect of the environment needed to support executives and managers in making strategic decisions for an organization.Key...