Competitor Analysis
Competitor Analysis
Competitor Analysis
Learning Objectives
Understand how a company identifies its
primary competitors and ascertains their
strategies.
Review how companies design
competitive intelligence systems.
“Poor firms ignore their
competitors ;
average firms copy their
competitors ;
winning firms lead their
competitors.”
Definitions
Competitive Advantage
An advantage over competitors gained
by offering consumers greater value
than competitors offer.
Competitive Analysis
The process of identifying key
competitors; assessing their objectives,
strategies, strengths and weaknesses,
and reaction patterns; and selecting
which competitors to attack or avoid.
Competitive Markets
Failing to identify competitors can lead to
extinction
Internet businesses have led to
disintermediation of middlemen
Competition can be identified using the
industry or market approach
Competitive Markets
Industries Can Be Classified By:
Number of sellers and degree of
differentiation
Cost structure
Entry, mobility and exit barriers
Degree of vertical integration
Degree of globalization
Industry Structures
Only one firm
Pure Monopoly
offers an
undifferentiated
Pure Oligopoly
product or service
Differentiated
in an area
Oligopoly Unregulated
Monopolistic
Regulated
Competition Example: Most
Pure Competition
utility companies
Competitive Markets
Pure Oligopoly
A few firms produce essentially identical
commodities and little differentiation exists
Lower costs are the key to higher profits
Example: oil
Differentiated Oligopoly
few firms produce partially differentiated items
Differentiation is by key attributes
Premium price may be charged
Example: camera, washing m/c etc.
Competitive Markets
Monopolistic competition
Many firms differentiate items in whole or part
Appropriate market segmentation is key to
success
Example: beauty clinics, restaurants
Pure Competition
Many competitors offer the same product
Price is the same due to lack of differentiation
Example: farmers selling milk, commodity
market etc.
Cost Structure
Each industry has a certain cost burden
that shapes much of its strategic conduct.
E.g. Steel making- heavy manufacturing
and raw material costs
Toy manufacturing –heavy distribution and
marketing costs
Entry, Mobility and Exit Barrier
Entry barrier- high capital requirement,
economies of scale, patents and licensing,
scarce location, raw material etc.
Mobility barriers- when it tries to enter
more attractive market segments
Exit barriers- legal or moral obligations,
low asset-salvage value due to
obsolescence, lack of alternative
opportunities etc.
Porter’s five forces model of
competition
Potential Entrants
(Threat of New Entrants)
Industry Competitors
Suppliers (Segment Rivalry) Buyers
(Bargaining (Bargaining
Power of Rivalry Among Existing Power of
Firms
Suppliers) Buyers)
Substitutes (Threat of
Substitute Products or
Services
Threat of Intense Segment Rivalry
A segment is unattractive
if it already contains numerous, strong or
aggressive competitors.
If it is stable or declining
If plant capacity additions are done in large
increments
If fixed costs are high
If exit barriers are high
If competitors have high stakes in staying in the
segment.
These will lead to frequent price wars, advertising
battles and new product introductions and will
make it expensive to compete.
Threat of new entrants
Exit Barriers
Low High
Those markets with high entry barriers have few players and thus high profit
margins. Those markets with low entry barriers have lots of players and thus low
profit margins. Those markets with high exit barriers are unstable and not self-
regulated, so the profit margins fluctuate very much along time. Those markets with a
low exit barrier are stable and self-regulated, so the profit margins do not fluctuate
along time.
Threat of Substitute Products
A segment is unattractive when there
are actual or potential substitutes for
the product.
Substitutes place a limit on prices and
on profits
If technology advances or competition
increases in these substitute
industries, prices and profits in the
segment are likely to fall.
Threat of buyers’ Growing
Bargaining Power
Buyers’ bargaining power grows
when they become more concentrated or
organised.
When the product is undifferentiated
When the buyers’ switching costs are low
When buyers’ are price sensitive
Threat of Suppliers’ growing
Bargaining Power
A segment is unattractive if the company’s
suppliers are able to raise prices or reduce
quantity supplied.
Suppliers’ tend to be powerful
when they are concentrated
When there are few substitutes
When the suppliers’ product is an important
input
When the cost of switching suppliers’ are high
Competitor Analysis
1.Identifying Competitors
Firms face a wide range of competition
Be careful to avoid “competitor myopia”
Methods of identifying competitors:
• Industry point-of-view
• Market point-of-view
Competitor maps can help
Competitor Map
Analyzing Competitors
Contraction defense :
It is strategic withdrawal. Give up weaker
territories and reassign resources to stronger
territories
Market leaders can improve their profitability by
expanding their market share .
MARKET LEADER STRATEGIES
3) Expanding Market Share :
Identify the most important variables affecting
profits (pursue new marketing strategies)
Higher shares tend to produce higher profits under
two conditions :
(a) unit costs fall with increased market share (b)
company offers a superior quality product and
charges a premium price, that more than covers the
cost of offering higher quality
Share gaining companies typically develop and add
more new products to their line
MARKET LEADER STRATEGIES
(Expanding Market Share)
Co. increase their product quality relative to
competitors’
Increases in sales force expenditures
Increased advertising may also produce share gains
Co. that cut their prices more deeply than
competitors do not achieve significant market-share
gains generally. Presumably, enough rivals may
meet the price cuts partly, and others may offer
other values to the buyers, so that buyers do not
switch to the price cutter.
MARKET CHALLENGER STRATEGIES
4. Bypass Attack
2. Flanking Attack
A
T
T
A 1. Frontal Attack
C DEFENDER
K
E 3. Encirclement
R Attack
Choosing an attack strategy
1. Frontal Attack : Head on attack. Attacks the
opponents strengths rather than its weaknesses.
2. Flanking Attack : Concentration of strengths
against weaknesses.
3. Encirclement Attack : Attempt to capture a wide
slice of the enemy’s territory through a
comprehensive ‘Blitz’ attack.
4. Bypass Attack : Bypassing the main enemy and
attacking easier markets (diversifying into unrelated
products, new geographical markets, new
technologies).
5. Guerrilla Attack : Attacking on different territories
of the opponent, with the aim of harassing and
demoralize the opponent.
MARKET CHALLENGER STRATEGIES
(ATTACK STRATEGIES AVAILABLE TO CHALLENGERS)
Expanding niches
Protecting niches