Competitor Analysis

Competitor Analysis

“Some businesses get on with their own plans and ignore the competition…others become

obsessed with tracking the actions of competitors…others simply copy and react to

the competitor’s moves…”

22

Table of Contents

33

Introduction Slide 04Why bother to analyze competitors? Slide 06Sources of Information for Slide 08

Competitor AnalysisCompetitor Analysis Framework Slide 14

IntroductionQuestions to ask about your competitors:

1. Who are your competitors?2. What customer needs and preferences are you

competing to meet?3. What are the similarities and differences

between their products/services and yours?4. What are the strengths and weaknesses of each

of their products and services?5. How do their prices compare to yours?6. How are they doing overall?

44

IntroductionQuestions to ask about your competitors:

7. How do you plan to compete?8. Offer better quality services?9. Lower prices?10. More support?11. Easier access to services?12. How are they uniquely suited to compete with

them?

55

Why bother to analyze competitors? Some businesses think its best to get on with

their own plans and ignore the competition. Others become obsessed with tracking the

actions of competitors (often using illegal methods).

Many businesses are happy simply to track the competition, copying their moves and reacting to changes.

66

Why bother to analyze competitors?

Competitor analysis has several important roles in strategic planning:

To help management understand their competitive advantages/disadvantages relative to competitors;

To generate understanding of competitors’ past, present (and most importantly) future strategies;

To provide an informed basis to develop strategies to achieve competitive advantage in the future;

To help forecast the returns that may be made from future investments (ex. How will competitors respond to a new product or pricing strategy?)

77

Competitive Strategies

88

Sources of information for Competitor Analysis

Davidson (1997) describes how the sources ofcompetitor information can be neatly grouped intothree competitors:

1. Recorded Data – this is easily available in published form either internally or externally.

Annual report & accounts Press releases Newspaper articles Analysts reports Government reports Presentations/Speeches

99

Sources of information for Competitor Analysis Davidson (1997) describes how the sources ofcompetitor information can be neatly grouped intothree competitors:

2. Observable Data – this has to be actively sought and often assembled from several sources, such as:

Pricing / Price lists Advertising campaigns Promotions Tenders Patent applications

1010

Sources of information for Competitor Analysis Davidson (1997) describes how the sources ofcompetitor information can be neatly grouped intothree competitors:

3. Opportunistic Data – to get hold of this kind of data requires a lot of planning and organisation…

Meetings with suppliers Trade shows Seminars / Conferences Recruiting ex-employees Discussions with shared

distributors Social contacts with competitors

1111

Sources of information for Competitor Analysis

Davidson likens the process of gathering competitive data to a jigsaw puzzle.

Each individual piece of data does not have much value.

The important skill is to collect as many of the pieces as possible and to assemble them into an overall picture of the competitor.

This enables you to identify any missing pieces and to take the necessary steps to collect them.

1212

What businesses probably already know about their competitors Overall sales and profitsSales and profits by marketSales by main brandCost structureMarket shares (revenues

and volumes)Organisation structure Identity (Profile of senior

management)Advertising strategy and

spending

Customer / consumer profile & attributes

Customer retention levels

1313

What businesses would really like to know about their competitors Sales and profits by

productRelative costsCustomer satisfaction and

service levelsCustomer retention levelsDistribution costsNew product strategiesSize and quality of

customer databasesAdvertising effectivenessFuture investment strategy

Contractual terms with key suppliers

Terms of strategic partnerships

1414

Competitor Analysis Framework Michael Porter presented a framework for

analyzing competitors. This framework is based on the following four key aspects of a competitor:

1. Competitor’s Strategy2. Competitor’s Objectives3. Competitor’s Assumptions4. Competitor’s Capabilities

1515

Competitor Analysis Framework 1. Competitor’s Strategy (1 of 2)

The two main sources of information about a competitor’s strategy is what the competitor says and what it does.

What a competitor is saying about its strategy is revealed in:

Annual shareholder reports Interviews with analysts Statements by managers Press releases

1616

Competitor Analysis Framework 1. Competitor’s Strategy (2 of 2)

However, this stated strategy often differs from what the competitor actually is doing.

What the competitor is doing is evident in where its cash flow is directed, such as in the following tangible actions:

R & D projects Capital investments Promotional campaigns Strategic partnerships Mergers and acquisitions

1717

Competitor Analysis Framework 2. Competitor’s Objectives (1 of 3)

Knowledge of a competitor’s objectives facilitates a better prediction of the competitor’s reaction to different competitive moves.

For example, a competitor that is focused on reaching short-term financial goals might not be willing to spend much money responding to a competitive attack.

On the other hand, a company that has no short term profitability objectives might be willing to participate in destructive price competition in which neither firm earns a profit.

1818

Competitor Analysis Framework 2. Competitor’s Objectives (2 of 3)

Competitor objectives may be financial, or other types.

Some examples include growth rate, market share, and technology leadership.

Goals may be associated with each hierarchical level of strategy – corporate, business unit, and functional level.

The competitor’s organizational structure provides clues as to which functions of the company are deemed to be more important.

1919

Competitor Analysis Framework 2. Competitor’s Objectives (3 of 3)

Other aspects of the competitor that serve as indicators of its objective include risk tolerance, management incentives, backgrounds of the executives, composition of the board of directors, legal or contractual restrictions, and any additional corporate-level goals that may influence the competing business unit.

Whether the competitor is meeting its objectives provides an indication of how likely it is to change its strategy.

2020

Competitor Analysis Framework 3. Competitor’s Assumptions (1 of 3)

The assumptions that a competitor’s managers hold about their firm and their industry help to define the moves that they will consider.

For example, in the past the industry introduced a new type of product that failed, the industry executives may assume that there is no market for the product.

Such assumptions are not always accurate and if incorrect may present opportunities.

2121

Competitor Analysis Framework

3. Competitor’s Assumptions (2 of 3)

For example, new entrants may have the opportunity to introduce a product similar to the previously unsuccessful one without retaliation because some firms may not take their threat seriously.

Honda was able to enter the U.S. motorcycle market with a small motorbike because U.S. manufacturers had assumed that there was no market for small bikes based on their past experiences.

2222

Competitor Analysis Framework

3. Competitor’s Assumptions (3 of 3)

A competitor’s assumptions may be based on a number of factors, including any of the following:

Beliefs about its competitive position Past experience with a product Regional factors Industry trends Rules of thumb

A thorough competitor analysis also would include assumptions that a competitor makes about its competitors, and whether that assessment is correct.

2323

Competitor Analysis Framework

4. Competitor’s Resources and Capabilities (1 of 2)

In understanding how the competitor might want to respond to a competitive attack.

However its resources and capabilities determine its ability to respond effectively.

A competitor’s capabilities can be analyzed according to its strengths and weaknesses in various functional areas, as is done in a SWOT analysis

A financial analysis can be performed to reveal its sustainable growth rate.

2424

Competitor Analysis Framework

4. Competitor’s Resources and Capabilities (2 of 2)

Since the competitive environment is dynamic, the competitor’s ability to react swiftly to change should be evaluated.

Some firms have heavy momentum and may continue for many years in the same direction before adapting.

Others are able to mobilize and adapt very quickly.

Factors that slow a company down include lo cash reserves, large investments in fixed assets, and an organizational structure that hinders quick action

2525

Competitor Analysis Framework

Conclusion Information from analysis of the competitor’s

objectives, assumptions, strategy, and capabilities can be compiled into a response profile of possible moves that might be made by the competitor.

This profile includes both potential offensive and defensive moves.

The specific moves and their expected strength can be estimated using information gleaned from the analysis

2626

Competitor Analysis Framework

Conclusion Collecting Information on competitors can be

likened to prospecting for gold. Nuggets are a rarity. The prospector will need to sift through a lot of soil, to find the few grains of gold which make the task worthwhile.

Similarly, some of what is collected on competitors will turn out to be useless. Sometimes the information may be completely wrong and lead the unaware on the wrong path.

2727

ExercisePick any two Competitor Maltese web-sites

(e.g. di-ve.com vs timesofmalta.com)Goto : http://www.seomoz.org/RegisterRun the SEO ToolsRecord ResultsCompare and discuss results

2828

Case StudyAXA Canada management develop a

comprehensive e-Business strategy Case Study

2929