What operation was performed in the competition analysis

Core problem

 

 

 


 

Competitor Analysis

 

By Oliver Recklies

 

Core problem .. 1

Who are the competitors. 1

Target analysis. 4th

Strengths and weaknesses. 4th

The likely strategies of the competitors. 5

Develop a suitable reaction to the actions of the competition. 5

 

 

 

 

For a successful company it is not enough to fulfill the wishes of its customers; it is also crucial to achieve this better than its competitors. In the following I would like to prefer the term “competitor” to the term “competitor”. The latter is a little too "powerless" for my taste and diminishes the view and attitude to the competition in which companies find themselves. The Anglo-Saxon management literature also largely uses the term “competitor”.

 

Just like customers, the actions and intentions of competitors must be analyzed and understood. In view of oversaturated markets (e.g. automotive market, market for mobile phones), the competition analysis must be given greater importance, as the company can often only grow at the expense of the competition. Some governments have also deregulated the legal framework in recent years in order to increase competition between the existing companies (e.g. telecommunications). In addition, the EU has successfully reduced or eliminated trade barriers between its member states, with the result that only the strongest European company will survive.

 

The competition analysis focuses on 5 questions:

§ Who are the competitors?

§ What are your goals?

§ What are your strengths and weaknesses?

§ What strategy are you pursuing?

§ What answer should be developed with regard to the strategy of the competition?

 

 

There is no simple and lasting answer to this question. The illustration below distinguishes 4 types of competitors.

 

Types of Competitors

 

Direct competitors offer the same services or products to the same customer. Product competitors offer the same product to at least two different customer groups. Indirect competitors, on the other hand, sell different products to the same industry. Last but not least, there are the implied competitors: These encompass a very broad set of possibilities in terms of the use of financial resources. (Example: A family may consider a new car, vacation, or home investment as alternatives on a budget.)

 

A set of direct competitors is also often referred to as a strategic group. Michael Porter also believes that competitors in most industries fall into a small number of strategic groups. Competitors within this strategic group concentrate on the same market segments and pursue similar strategies.

 

Strategic groups using the example of retail in Great Britain

 

 

Research by Michael Porter and the McKinsey Group suggests that this picture should be generalized. They argue that the competitors in a market can be divided into 3 strategic groups based on the strategies they pursue:

§         Cost leadership: Companies that try to minimize manufacturing and distribution costs. Objective: To gain market share through prices that are lower than those of the competition.

§         differentiation: Companies achieve a special performance in the production of goods and services, which give their target customers a very special advantage / value (performance, equipment, design, brand image).

§         focus: The companies here focus on a specific customer segment or region. When a very specific knowledge of the customers and their needs is achieved, a cost leadership strategy or a differentiation strategy is then pursued for this specific customer segment.

 

The ability of a competitor to switch from one group to the other is limited by the "mobility barriers". Such barriers include brand image, low cost manufacturing and customer loyalty.

Most competitor analyzes focus on direct competitors or competitors in the same group. This reduces the number of competitors to be analyzed to a manageable level. However, one must be aware that indirect competitors with substitutes can also pose a risk. Even competitors are able to acquire new skills over time and thus move into a new strategic group that is more interesting or more profitable for them.

 

The next step is to interpret the goals of each individual competitor and evaluate the dangers that may arise from them. Are there appealing goals for aggressive market share expansion? Two decisive factors have a decisive influence on these goals: the composition of the portfolio of its businesses and the financial position of the competitor. If the product in question is a “star” in the competitor's portfolio, it is very likely that the competitor will act aggressively. The second factor is the competitor's financial situation. If profitability and cash flow are inadequate, it is very likely that management will be forced to improve earnings and reduce costs rather than increase the company's market share. A trade analysis and a detailed analysis of the annual accounts of the competitors are a sufficient basis for making these assessments and assessments.

 

 

Does a competitor pose a great threat to your own company? To answer this question, management must compare the strengths and weaknesses of each competitor with its own company profile. Dimensions of this comparison should include:

§ Marketing strengths

o Image among customers

o market share

o Reputation in terms of quality and service

o Effectiveness of communication

o Distribution

o Geographic coverage

§ Financial strengths

o profitability

o Cash flow

o indebtedness

§ Operational strengths

o costs

o capacities

o Technical skills

o On-time delivery

§ Organizational strengths

o corporate governance

o Employee motivation

o flexibility

o Entrepreneurial skills

 

In doing this analysis, it is very important to have an independent look at these factors. In general, managers tend to overestimate the reputation of their own products and employees with customers and underestimate that of their competitors.

 

 

  

 

In order to find out the likely strategies of the competitors, it is necessary to have analyzed and understood their goals and their strengths / weaknesses (see previous steps). A strategy that has been successfully pursued so far has a high probability of being pursued in the future. In the event that the competitor has fully exploited the chances of the previously served market segment, it is just as obvious that he will now move on to new market segments or new market areas.

Niche providers in the high-end market segment are relatively easily vulnerable to attacks from mass producers looking for further growth opportunities. Their access to resources and their ability to take advantage of economies of scale can, over time, overcome the mobility barriers that protect smaller businesses. An attack by a competitor is also possible where it has its particular strengths. For example, a low-cost manufacturer can attack a high-priced niche provider and use the price as a weapon of attack.

 

Naturally, it is not possible to develop a general answer to measures taken by competitors without taking the specific situation into account. The following explanations should therefore relate to the aspects that must be pursued regardless of the respective situation.

Ideally, the competition analysis carried out so far will allow the company to carry out a proactive response. Sometimes, however, such an - unexpected - response will require a quick response.

 

A proactive strategy has several components:

§ Dealing with the weaknesses of your own company that have emerged from the SWOT analysis.

§ Reinforcement and marketing of the areas in which there are strengths with the aim of improving one's own position in the strategic group.

§ Exploitation of opportunities to raise the barriers to mobility and to make the penetration of new competitors more difficult, if not even to prevent it completely. Possible actions:

o Strengthening of the marketing activities to improve the image

o Expansion of the product range to fill any gaps that may exist

o Patent protection

o Control of the sources of raw material

o Exploitation of economies of scale

 

Another possibility to influence or control the competition is to use market signals. Such market signals can be either aggressive or defensive in intent.

 

Defensive signals:

Public announcement of measures and goals

Example: A company does not want to increase its market share, but wants to expand its profit margin

Objective: to keep competitors from price wars

Aggressive signals

Public announcement of new products

Example: Introduction of a brand for the lower price segment

Objective: To prevent competition from attacking

 

 

 

© Oliver Recklies, May 01

 

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