Competitor Analysis

INTRODUCTION

This article focuses on the key aspects ofcompetitor analysis. It defines competitor
analysis and gives suggestions on how to write a good competitor analysis. The article
identifies sources on where to find information for a goodcompetitor analysis, and also
gives organisational examples to provide good illustrations of utilising information for
competitor analysis.

Competitor analysis is a critical part of a firm's activities. It is an assessment of the

strengths and weaknesses of current and potential competitors, which may encompass
firms not only in their own sectors but also in other sectors. Directly or indirectly,
competitor analysis is a driver of a firm's strategy and impacts on how firms act or react
in their sectors. Gluck, Kaufman and Walleck (2000) showed that competitor analysis is
one of two components that give a firm a strong market understanding (see figure 1).
This drives the formulation of a strategy and it applies whether a firm formulates a
strategy through strategic thinking, formal strategic planning, or opportunistic strategic
decision making. Competitor analysis, together with an understanding of major
environmental trends, is a key input in strategy formulation and should be developed
properly.

In utilising competitor analysis as part of strategy formulation, firms are able to adapt or
build their own strategies and be able to compete effectively, improve performance and
gain market share in their businesses. In a large number of instances, firms are able to
tap new markets or build new niches. For example, after European air travel was
deregulated in the mid-1990s,Ryanair and Easyjet focused on the no-frills market and
provided low-cost travel across Europe after figuring out through competitor analysis,
where the opportunities were emerging (Binggeli and Pompeo, 2002). The authors
showed that, at the point in time, Ryanair andEasyjet were performing better than their
competitors with operating margins of 26% and 9.5% respectively, which were
significantly better than the operating margins achieved by the traditional airlines.

MAIN ASPECTS OF COMPETITOR ANALYSIS

The key objectives in competitor analysis are to develop a greater understanding of
what competitors have in place in terms of resources and capabilities, what they plan to
do in their businesses, and how the competitors may react to various situations in
reaction to what the firm does. Michael Porter has defined a competitor analysis
framework that focused on four key aspects (Porter, 1980 cited in
netmba.com):competitor's objectives, competitor's assumptions, competitor's
strategy, andcompetitor's resources and capabilities. These four aspects of
competitor analysis are the areas critical for a firm to understand and they should
pursue this knowledge not only for current competitors but also for other potential
competitors in the business.
There are other competitor analysis frameworks that firms can utilise. An example is an
international competitor analysis framework presented by Garsombke (1989) but the
foundations follow Porter's framework with additional components relating to the
understanding of the "international" marketplace. Others focus on specific components
and thus become a subset of the framework. For example, Slater and Narver (1994)
looked at this through the value to customers and identified three components in the
analysis: customer orientation, competitor focus and cross-functional coordination.
Rather than compare various competitor analysis frameworks, the focus from hereon
is Porter's framework (see figure 2) for competitor analysis. This framework is broken
into two parts. The competitor's objectives and assumptions drive the competitor while
the competitor's strategy and resources and capabilities define what the competitor is
doing or is capable of doing. Together, these four aspects define a competitor response
profile which gives the firm an understanding of what actions a competitor may take.
Taking this analysis across a firm's key competitors will give the firm a viewpoint on
where the sector is heading, and provides the firm with a basis for developing their
strategy and actions. The key aspects of competitor analysis and the resulting
competitor response profile are defined further below.

Competitor's Objectives
In competitor analysis there are two key factors to note in building knowledge of a
competitor's objectives. The first factor is to know the actual objectives of a competitor.
This could range from building market share in a specific market or overall business,
entering a new market or even just maintaining profitability. This should also look at not
only current competitors but also potential competitors. For example, in Denmark's
telecommunications sector in 2000, a new entrant Telmore targeted college students
with a specific promotion catering to their requirements (Dahlstrom, Deprez and Steil,
1994). The authors mentioned that by 2004, Telmore already captured about 20% of
the national mobile market.
The second factor is to know if the competitor is actually achieving their stated (or
sometimes unstated but implied) objectives. Looking at these two factors will provide a
firm with an opinion on a competitor's potential actions to changes in the sector. As part
of a comprehensive competitor analysis piece, firms should identify their key
competitors and be able to define the objectives of each competitor and their likelihood
of achieving their objectives.
An example we can look at is Apple which recently launched its iPhone product.
Knowing the innovation in Apple, one could sense that the eventual goal of Apple would
be to have a product that combines the iPhone capabilities and theiPod features, or
have an iPhone with other capabilities such as a global positioning system (Baig,
2007). With the recent success of Applein various markets, there would be no doubt
that Apple would be able to achieve this.
Some of the questions to ask for the competitor's strategic objectives are: What are the
short-term and long-term objectives? What are the financial objectives? Where is the
competitor investing?
Competitor's Assumptions
Another key aspect in competitor analysis is an understanding of competitors'
assumptions about the overall market (trends in the market, products, and consumers).
For example, competitors could define their actions based on what their assumptions
are on the growth of the market. In a cyclical industry (say pulp and paper or shipping
sectors), investments decided by players in the industry should be driven by when
competitors expect the industry to be at their peak, as timing is critical for players in the
industry to meet demand. However, this is not what usually happens. Typically,
shipping companies such as China Cosco (largest shipping line in China) tends to
invest and order new ships when the industry is at its peak, and financing is not an
issue (Stanley, 2006). As shipbuilding takes a number of years, by the time the ships
are ready, the industry is at the other end of the cycle or in decline already. For a
proper competitor analysis work, the assumptions made by competitors on the industry
and other players should be indicated, but as seen in the example, the validity of these
assumptions should be challenged.
Federal Express is a good example to highlight. When FedEx considered overnight
delivery, they assumed that demand would reach high levels and that it would change
the mail-and-package delivery industry (Courtney, Kirkland and Viguerie, 2000). FedEx
turned out to be correct and this changed the industry with other competitors following
suit to offer the same service. In this example, FedEx made a strong assumption on the
industry behaviour and was able to establish a presence in overnight delivery quickly.
Some questions to address for this aspect include: What is the competitor's viewpoint
on the market and development? Who are the key consumers or clients who the
competitor feels will be most profitable?

Competitor's Strategy
A third aspect in competitor analysis is the understanding of a competitor's strategy. In
most cases, this strategy will be defined and stated, particularly for public firms. In other
cases, it may not be openly stated what competitors' strategies are but these can be
understood by utilising a number of sources available to firms from analysing a
competitor's behaviour in certain situations to discussing with industry experts to get
their viewpoints.
For example, bookmaker Ladbrokes has clearly been expanding their international
presence through joint ventures in other markets. This strategy was pursued after the
firm split from theHilton Group in 2006 (Attwood, 2007). By observing Ladbrokes'
activities, one can determine what the firm's strategy has been since the split. Another
example is Southwest Airlines, which pursued a "no-frills, point-to-point service and
which turned out to be a highly innovative, industry-changing and value-creating
strategy" (Courtney, Kirkland and Vihuerie, 2000). These two examples indicate the
value of having an understanding of competitors' strategies and their focus.
A number of questions that need to be addressed are: What are the strategy and plans
of competitors in their key markets? Which markets and products will the competitor
focus on?

Competitor's Resources and Capabilities

Finally, a competitor analysis should also include an understanding of a competitor's
resources and capabilities as these would give a firm an idea of how a competitor can
achieve its strategy and objectives, and also give a firm a timeline for when it would
expect competitors to pursue certain activities. For this aspect, a large part of
information can be gleaned from press articles and news. An example is the increase in
orders of the Airbus A380, the largest commercial aircraft in the world, by Dubai-based
Emirates Airlines from the current 55 to double the number (Dow Jones, 2007). This
indicates several thoughts: (1) Emirates Airlines has large funding capability, and (2)
Emirates Airlines will be expanding its international business and presence once these
aircraft are received.
Another example is Lanier Business Products. A leading manufacturer of dictating
machines, the firm leveraged its marketing strength to successfully expand into another
product, word processors, which they sourced from another firm (Bales et al., 2000).
This shows how important it is to understand a competitor's resources and capabilities,
and their strengths.
Several questions that can be raised in this respect are: What is the level of resources
available to the competitor for their investments? What are the areas of strength for the
competitor?

Competitor Response Profile

The results of the analysis from the four aspects of competitor analysis, as defined
above, lead to a competitor response profile. In this profile, a firm can define its
thoughts on what actions competitors may purse depending on the understanding given
by the competitor analysis. This provides a firm with a better grounding and preparation
to react to competitor actions.

HOW TO WRITE A GOOD COMPETITOR ANALYSIS

There are several principles to follow in writing a good competitor analysis. These
principles are:

• Understand the key aims in pursuing a competitor analysis – While these

follow the objectives mentioned in the previous section, a competitor analysis can
be pursued with a specific aim in mind. This could be as specific as defining a
competitor's strategy, understanding a firm's competitive advantages versus a
particular competitor, or just keeping management informed of any recent
developments that need to be highlighted.
• Utilise comprehensive sources of information relevant to the particular
aim – As will be discussed in the next section, there is much information
available for carrying out a competitor analysis. The key point is to ensure that
the relevant ones are included for the specific analysis needed.
• Analyse the information relative to the firm and also relative to other
competitors – It is important to analyse the information within the context of the
sector or the other players. For example, having a pre-tax ROIC of 27.2% does
not mean anything on its own. It can only become an important figure when
presented versus other benchmarks or information from competitors (see figure
3), with further analysis explaining these.
 • Summarise key points of analysis – Finally, instead of including all the
information that's retrieved from various sources, a good competitor analysis
would analyse the information and pull out the key points.

FINDING INFORMATION FOR A GOOD COMPETITOR ANALYSIS

There are good sources of information existing already in order to do a good
competitor analysis. Possibly up to approximately 90% of the information needed for a
proper competitor analysis and related assessment and decisions already exists in the
public domain (McGonagle and Vella, 2002). The information can be organised across
a number of different groupings. One way is to look at what the competitor presents
about them and what other sources external to the competitor present about the
competitor. Some examples of these are shown below:

• Company reports – annual reports, regulatory filings (e.g. financials), investor

presentations, patent applications
• Company advertisements – TV and print advertisements, sales literature,
company website, product literature
• Company news – press releases, general news articles
• External reports – equity/analyst reports (for public companies), ratings agencies
reports (for credit-rated companies), industry associations, government
publications
• External, but common, network – buyers and suppliers, third-party affiliates,
industry experts

Most of the information mentioned above can be accessed through the internet already.
The last point on external, but common, network is a source that will require interaction
as this requires getting the viewpoints of other people. While this would comprise only a
small part of the competitor analysis, this may actually prove to be quite insightful as
different viewpoints are received from other people who would have had interaction as
well with the competitor.

Limitations
The limitations of competitor analysis are linked to the information gathered from
various sources and the interpretation of the information. Also, with the exception of a
few information sources (e.g. patent applications, forecast financial statements), most of
the other printed information shows historical information and may not necessarily give
a good indication of a competitor going forward. This is particularly the case if there are
a lot of structural changes happening in a sector and all players are expected to have
dynamic strategies to capture their market.

CONCLUSION
Competitor analysis is an important part of a firm's development of its strategy.
Its importance lies in the understanding of competitors, their strategy, and resources
and capabilities. More specifically, competitor analysis also allows a firm to assess its
own firm versus competitors and plan for what competitors' actions may be as a
reaction to actions the firm may take.
 A competitor analysis provides a firm with the knowledge to leverage its
strengths and address its weaknesses and, conversely, take advantage of weaknesses
of competitors and counter their strengths. Finally, competitor analysis also gives a firm
a better understanding not only of the competitors but also their overall sector and
where the emerging opportunities may be.

BIBLIOGRAPHY AND REFERENCES

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