Competitor analysis

1 Introduction

One of Porter’s five forces is competitive rivalry, and competitors have a profound effect on any organisation’s success. Competitors will affect:

• The prices that can be charged. In a perfect market, all suppliers are locked to the market price.

• The market share and sales volumes that can be expected. The more competitors, the more thinly spread the market, and this will limit profits.

• The cost base to which the company must aspire if it is to earn good profits. A competitor with a low cost base — particularly a cost leader — can earn sufficient profits even at lower prices, putting other suppliers under pressure.

• The technology that can or must be used. Smartphone technology led to the demise of Nokia, which stayed committed to older technology for too long.

• Innovation and new product launches. A competitor’s launch creates marketing opportunities for them which may have to be matched.

• The conventions of the business. If one airline suddenly stopped charging for checked baggage, how would the others have to respond?

• Special offers and publicity campaigns. Almost all retail organisations have to hold sales early in the New Year, because their rivals do.

• How your own initiatives will be countered — retaliation. A price cut will usually provoke matching cuts, and everyone’s revenue simply falls.

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2 What is competitor analysis?

CIMA’s Official Terminology describes competitor analysis as identifying and quantifying your organisation’s strengths and weaknesses relative to its competitors and potential competitors, in the areas that matter for developing a successful competitive strategy. In practice it means understanding and analysing the businesses that compete with yours, directly or indirectly, in at least one market, product category or service.

Competitor analysis should:

• Identify the firm’s competitive advantages and disadvantages relative to its competitors

• Provide information about competitors’ strategies — past, present and future

• Assist in developing future competitive strategies that establish advantages over competitors

• Assist in developing strategies that reduce your vulnerability to competitor action

In summary: it identifies the strengths and weaknesses of competitors, and the opportunities and threats for your own business — feeding directly into the SWOT analysis of Chapter 8.

3 Who are your competitors?

Kotler identifies four types of competitor, from the closest to the most remote:

All four categories provide competition, but the most serious and cut-throat rivalry is usually between brand competitors: BMW and Mercedes-Benz monitor each other carefully, but neither keeps Suzuki under such close scrutiny.

Watching only current brand competitors is not enough, however, because other competitors and technologies emerge. Shell and BP are brand competitors, but both must watch form competitors such as battery and charging-infrastructure companies whose technology substitutes for petrol. The most dangerous competitor is often one you did not classify as a competitor at all — Chapter 1’s cases (Netflix versus broadcasters, fintechs versus banks) all involve outsiders, and in platform ecosystems the boundaries blur further: a marketplace can be a company’s sales channel and its competitor at the same time, as when the platform launches own-brand products alongside its sellers (see Chapter 4). Analysts call this mixture of co-operation and competition co-opetition — Samsung supplies components for the very iPhones that compete with its own handsets.

4 Building a competitor response profile

Porter suggests the following approach to determining what information is needed to anticipate a competitor’s behaviour:

A competitor is driven by:

• Its objectives — such as market share, growth rate or share price. A rival chasing volume behaves very differently from one chasing margin: mass market versus differentiated luxury implies different prices, products and reactions to our moves.

• Its assumptions — its beliefs about industry trends, how the market and technology will develop, and what its own experience with a product has taught it. Wrong assumptions can be as revealing as right ones: a competitor that believes demand will stay strong will keep investing even as the market turns.

What a competitor is capable of doing depends on:

• Its current strategy — current product range, pricing and market positioning. It has presumably proved that it is competent here.

• Its resources and capabilities — current and future strengths, and its weaknesses. Judge whether the competitor’s objectives and strategy are actually achievable with what it has. If a rival has bitten off more than it can chew, the right response may simply be to wait: a failed expansion exhausts its resources and leaves its disappointed customers looking for an alternative.

5 The 4Cs of competitor analysis

The 4Cs are a useful way of remembering the process needed to complete competitor analysis:

• Collecting the information. It is essential to think about what information is needed and to plan its collection; random collection is pointless.

• Converting information into intelligence — which breaks down into CIA:

  • Collate the information: store and catalogue it so it can be retrieved and used

  • Integrate the various elements of information

  • Analyse and interpret the information

• Communicating the intelligence to the people who need it, such as the board, marketing staff and sales staff.

• Countering any adverse competitor actions — actually using the intelligence.

Information about competitors can be obtained from a wide range of sources, some internal and some external:

• Sales representatives deal frequently with customers and may hear about competitors’ offers and products

• The R&D department can identify new patents filed by competitors, giving warning of future developments

• The purchasing department may learn that a supplier is now also supplying a competitor

• Published financial statements reveal competitor profitability and financial strength

• Trade association data gives market sizes, from which competitor market shares can be deduced

• Trade exhibitions allow examination of competitors’ products; mystery shopping reveals how they treat customers

• Competitors’ websites, apps and social-media channels show product specifications, prices and marketing emphasis; customer reviews reveal their weaknesses

• Job advertisements signal expansion plans and new capabilities being built (a rival suddenly hiring AI engineers is telling you something)

• Newspaper and trade-press articles, and statements by directors in annual reports

A vast quantity and variety of data can be collected in this way, and it must be indexed, collated and stored so that it is accessible to users — databases and analytics tools make diverse data far easier to hold and interrogate than it once was. The data must also be scrutinised for inaccuracy: competitors are under no obligation to make life easy, and public statements may be deliberately misleading.

Reports on each major competitor should be produced and distributed to the relevant decision-makers, and kept up to date — intelligence goes stale quickly. Finally, remember the objective of the whole process: to use the intelligence to counter threats and exploit opportunities. If it becomes clear that a competitor’s new product has hit development problems and its launch will be delayed, that may be the moment to bring forward the launch of your own product and take the lead position.

6 Test your knowledge

Two short exercises close the chapter in the online notes: ten flashcards on the terms and frameworks above, and ten practice questions with worked feedback on every option. Work through the cards first, then the questions.