Analyzing Competition

Competitor analysis considers the companies and brands that compete in the product-market of interest.

Defining the Competitive Arena

Competition often includes more than the firms that are considered to be direct competitors, like Coke and Pepsi.

The industry identification is based on product similarity, location at the same level in the value chain (e.g., manufacturer, distributor, retailer), and geographical scope. The industry analysis consider:

· Industry size, growth, and composition.

· Typical marketing practices.

· Industry changes that are anticipated (e.g., consolidation trends).

· Industry strengths and weaknesses.

· Strategic alliances among competitors.

Analysis of the Value-Added Chain. The study of supplier and distribution channels is important in understanding and serving product-markets.

Competitive Forces. Michael porter’s five competitive forces that impact industry performance:

1. Rivalry among existing firms.

2. Threat of new entrants.

3. Threat of substitute products.

4. Bargaining power of suppliers.

5. Bargaining power of buyers.

Key Competitor Analysis

Competitors analysis is conducted for the firms directly competing with each other (e.g., Nike and Reebok) and other companies that management may consider important in strategy analysis (e.g., potential market entrants).

We now look at two major aspects of competitor analysis: (1) preparing a descriptive profile for each competitor, and (2) evaluating the competitor’s strengths and weaknesses (Step 2 and 3 of Exhibit 3.7).

Describing and Evaluating the Competitor. A key competitor is any organization going after the same market target as the firm conducting the analysis.

Anticipating Competitor’s Actions

The information obtained in the previous steps of the analysis should be helpful in estimating future trends, although possible strategy shifts by competitors may occur.

Estimating Competitors’ Future Strategies. Competitors’ future strategies may continue the directions that they have established in the past, particularly if no major external influences require changing their strategies.

Identifying New Competitors. Market entry by a new competitor is more likely under these conditions:

· High profit margins are being achieved by market incumbents.

· Future growth opportunities in the market are attractive.

· No major market-entry barriers are present.

· Competition is limited to one or a few competitors.

· Gaining an equivalent (or better) competitive advantage over the existing firms(s) serving the market is feasible.