2.2 Competitive Analysis

7/31/2019 2.2 Competitive Analysis

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Competitive Analysis

Prof. P.V.S.SAI

SSIM

HYDERABAD


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Why we need to study competition?

Competition implies rivalry betweentwo or more interested parties forsimilar goals.

In business it refers to the drive forthe share of market consisting ofsimilar customers.


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Traditional view of Competition

Has been around variables of marketstrategy like product quality,adherence to delivery schedules,

attractive prices and aggressivepromotion.

This is not sufficient and companies

should focus on deep routed aspectslike Whys and Hows


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Types of Competitive Advantage

Ohmae and others identified twotypes of competitive advantage

1. Operational Competitive Advantage

2. Strategic Competitive Advantage


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Operational CompetitiveAdvantage refers to the short termadvantage of a company over its

competitors

Strategic Competitive Advantagerefers to the competitive advantage

which enhances and ensures longterm profit potential.


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Competition: Some theoretical

constructs

The Economists View Point

The Marketing View Point

Porters Frame workCloser Analysis of competition

Ohmae model of building

Competitive AdvantagePorters model of buildingcompetitive advantage


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The Economists view point

Provides useful insights into thenature of industry structure. This, toa large extent, determines a firms

behaviour in market place. This canbe understood by analyzing IndustryStructure.


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Types of Industry StructureFACTOR PERFECT

COMPETITIONMONOPOLISTICCOMPETITION

OLIGOPOLY MONOPOLY

Number ofPlayers

---------------

ProductDifferentiation

---------------

Entry or Exit

Many

---------

NO

---------

Open

Some

---------

YES

---------

Open

Few

-------

YES

-------

Restricted

One

---------

UNKNOWN

________

Blocked


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Perfectly competitive industry consists of largenumber of sellers, marketing undifferentiatedproducts.The other features are free entry and exit offirms, Perfect knowledge of market conditions,non intervention of the govt.In Monopolistic competition, there are manysellers, many customers and a differentiatedproduct.An Oligopoly situation lies between monopolisticcompetition and monopoly situations.Consolidations, Mergers and Acquisitions will leadto oligopolistic situation.


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The Marketing View PointCompetition is viewed through a buyers viewpoint.The buyer, in his drive to satisfy need, may finddifferent choices.

Ex: Entertainment NeedChoices are:1. Visit to a Park2. A Social call on a friend3. A Visit to a restaurant

4. Listening to music5. Seeing a movie6. Playing cards7. Going for a picnic

8. Watching TV


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Thus, physical products may belongto different industries ortechnologies, they become

competitors to each other.

This view can be perceived asbelonging to four types of

competitors.


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Kotlers Classification

1. Desire Competitors

2. Generic Competitors

3. The Form Competitors4. The Brand Competitors


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Levits Classic Article on MarketingMyopia is an excellent illustration ofshifting the focus from product to

need to ensure long term survivaland growth of a firm.


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Porters Framework to Analyze

Industry Structure

According to Porter the industry structurehas a strong influence in determining thecompetitive rules of the games as well as

strategies potentially available to the firmThe intensity and the state of competitiondepends on five basic forces whichcollectively determine the ultimate profit

potential in industry.


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The Five Forces are

1. Rivalry among the currentcompetitors

2. Threat of new entrants

3. Threat of substitutes

4. Bargaining power of suppliers

5. Bargaining power of buyers


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Industry Rivalry

Determined by1. Number of Competitors2. Industry Growth

3. Asset Intensity4. Product Differentiation5. Exit Barriers

Among them, the number ofcompetitors, and the industry growth aremost influential.


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Industries with high fixed costs arelikely to opt for price wars in case ofstagnant markets.

Perceived or Real productdifferentiation dampens rivalry.

Difficulty to exit intensifiescompetition.


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Threat of New Entrants

The threat is intense in the case of maturemarkets.

In the case of industry which is at

introduction or growth stage, new playersare welcomed as this expands the market.

In case of mature markets, barriers toentry can be due to high capital

requirement, proprietary technology,inaccessibility to distribution. In theabsence of these entry barriers, intensityof competition may be severe. Ex: DotCom Business.


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Substitute Products

Substitutable products satisfyingsimilar needs of the same customergroup can intensify the competition.

The similarity may be in terms offunctional similarity, performancesimilarity or product identity. Ex:Steel tubes and PVC tubes, WoodenDoors and Plastic Doors, Leathershoes and Plastic shoes.


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Bargaining Power of Buyers

Refers to the ability of the industryscustomers to force the industry to reduceprices or supply with extra features at thesame price.

This usually happen when buyers havechoice of substitutes for the same product.High Buyers concentration, threat ofbackward integration and low switching

costs add to the power of the buyers.Ex: Reliance industries entering intocement business.


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Bargaining power of Suppliers

Refers to a situation where suppliers canforce the buyers to pay higher prices andthus effect their profitability.

This would happen if suppliers enjoymonopoly.

Suppliers concentration, Number ofbuyers, Switching costs, Substitute Rawmaterials and Threat of forwardintegration may decide this aspect.


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Competitor Analysis : A Closer

Look

A firm, for a corporate strategy in aworkable time frame, need to have acloser look on the immediate

competitor.

Hence, competitive behaviour ofeach competitor is to be understood.

This can be done by putting thefollowing questions.


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1. What is their competitive strategy?

2. How are they performing?

3. What are their strengths andweaknesses?

4. What actions can be expected from

them in the near future?


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Competitor Strategy1. How is the competitor defining the business in

terms of customer groups, customer functions,technologies and how vertically integrated ishe? How is he segmenting the markets andwhat are his target segments?

2. What are his missions for the specific productlines, business units and firm as a whole?

3. What are the specific contribution expectationsfrom each product line, business unit and forthe total organisation?

4. What are dominant policies for each functionalarea like production, design, marketing and soon?

5. What are his financial resources and how arethey being allocated over various business units

and business functions?


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Competitor Performance

The actual performance of thecompetitor, should be ascertainedwith the help of published

information in terms of sales, profits,return on investment, market share,cash and cash flow situation?

This should be a regular activityrather than a one time or ad hocactivity.


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Competitor Strengths and

Weaknesses

Function Facilitiesandequipment

Personalskills

Organizationalcapabilities

Managementcapabilities

Marketing Warehousing

RetailOutlets

SalesOffices

Trainingfor salesstaff

Door todoor selling

RetailSelling

Advertising

After Sales

service

Directsales

Servicenetwork

Customer loyalty

Industrialmarketing

Householdmarketing

LargeCustomer

Base


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Competitors Reactions

This helps a company to chooseDefense or Offense strategy.

This can be studied at two levels:

1. Reaction to the secular trends.

2. Reaction to the moves of othercompetitors.


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Porters Generic Strategies

Overall Cost Leadership

Differentiation

Focus.


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Overall Cost Leadership

In this strategy, company makes allpossible attempts to achieve thelowest costs in production and

marketing.

Efficiency is the keyword guiding alldecisions to keep the costs low.


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Differentiation

The aim is to achieve classleadership by creating somethingwhich is perceived as unique.

The differentiation may be in termsof design or brand image, customerservice, or dealer network or any

other feasible dimension.


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Focus

The underlying assumptions in Focusis that a firm should be able to servea narrow strategic target effectively

and efficiently.As a result the firm achieves eitherdifferentiation from meeting theneed of a particular target segmentbetter, or lower costs in serving thetarget, on both.


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Documents

2.2 Competitive Analysis