UNDERSTANDING COMPETITORS

2011

UNDERSTANDING COMPETITORS
A business is an organized effort to sell products and services on a regular basis. Competitions between manufacturers consist of developing products that retail stores want to stock. Competition between businesses or stores consists of trying to get the customer to buy their product instead of the one offered by the competitor. In such cases, there is a clear winner and loser. But in the larger picture, businesses compete to see which has the greater market share and is more successful. Some of the interesting quotes about the competition are

Competition is not only the basis of protection to the consumer, but is the incentive to progress. -Herbert Hoover.

If you're not making mistakes, you're not taking risks, and that means you're not going anywhere. The key is to make mistakes faster than the competition, so you have more changes to learn and win. -John W. Holt, Jr.

The principle advantage of competition is efficient allocation of resources. When many suppliers compete for the business of consumers, prices gravitate toward costs of production and scarce resources are used for those goods and services for which there is real demand. Competition thereby produces maximum economic value from given resources, and uses minimum resources to supply a given demand. To understand the strengths of your own business, you must understand your competition and youre positioning. Who competes with you for customers time and money? Are they directly selling competitive products and services, substitutes or possible substitutes? What are their strengths and weaknesses? How are they positioned in the market?

Before entering a market, managers need to decide if they will be able to compete with the established providers of goods and services. They also need to be aware of potential threats from new entrants to the market. Understanding the business's competitors and developing ways to distinguish it from them, is a critical factor influencing the development of the business's competitive strategy. Knowledge of the competitive market in which the business operates will help managers make informed decisions about business development. A competitive analysis should be done to learn more about your competitors and to rethink your strategy. A good competitive analysis varies according to what industry youre in and your specific marketing plan and situation. A comprehensive competitive analysis does have some common themes. COMPETITOR ANALYSIS: Competitor Analysis is an important part of the strategic planning process. This revision note outlines the main role of, and steps in, competitor analysis Why bother to analyze competitors? Some businesses think it is best to get on with their own plans and ignore the competition. Others become obsessed with tracking the actions of competitors (often using underhand or illegal methods). Many businesses are happy simply to track the competition, copying their moves and reacting to changes. Competitor analysis has several important roles in strategic planning: To help management understand their competitive advantages/disadvantages relative to competitors To generate understanding of competitors past, present (and most importantly) future strategies To provide an informed basis to develop strategies to achieve competitive advantage in the future To help forecast the returns that may be made from future investments (e.g. how will competitors respond to a new product or pricing strategy? A competitor analysis should focus on, and revolve around, where competitors are most vulnerablein other words where natural marketing opportunities exist. One of the best ways to begin this analysis is to write a history of your industry and your

competitors. This history will illuminate your competitor's goals, strategies, beliefs, and capabilities, and challenge your assumptions. Are you facing a particularly difficult and confusing competitive situation? A competitor analysis begins with an understanding of competitor behavior in your market. Try getting a handle on the situation by writing a history of your market. Questions to ask: What questions should be asked when undertaking competitor analysis? The following is a useful list to bear in mind: Who are our competitors? What threats do they pose? What is the profile of our competitors? What are the objectives of our competitors? What strategies are our competitors pursuing and how successful are these strategies? What are the strengths and weaknesses of our competitors? How are our competitors likely to respond to any changes to the way we do business? Determine where your competitors are most vulnerable. While writing the history, focus on extracting and assembling your competitor analysis by building a framework of their History, Goals, Strategies, Beliefs, and Capabilities. History: A history of your industry is a key component of understanding your current situation, and the trend and possibilities for moving forward. Goals: This is basically a summary of how competitors are currently operating in your industry. Now, from your history, you should begin to notice obvious competitor trends. Your assumptions about future goals should take on additional significance. Try to understand the competitors' assumption of risk, corporate values, and long term commitments. Beliefs: What do your competitors believe about the issues in your market? What are the differences in beliefs between competitors? Are competitor beliefs uniform or are they different in your industry? How have these beliefs changed over time? Most importantly, can you find gaps or dogmatic misconceptions? Strategy: From this point, you begin to understand your competitor's strategies. This is a

synopsis of what competitors are trying to accomplish during the next five years. Test your assumptions. Check literature and attend some conferences or trade shows. Talk with others who may have information. Capabilities: How have competitor capabilities changed over time? Does this yield any additional clues into their financial resources? Will they be able to sufficiently respond to any changes in paradigm that you might create? A competitor analysis provides you with details about your competitors' product strategies. This information is essential to the formulation of your own strategy. The five forces that drive the competitor analysis are:

Your competitor analysis should answer the following questions: * Do their products address specific segments? How well do they reach their segments? How closely does their product match the description conveyed by the publisher's marketing efforts? * How big is their budget? How is it allocated? * What is their marketing mix? Sales policy? Distribution policy? * How will they respond to your actions?

* How will their actions affect your growth rate, market share, and profitability? * How well are your competitors doing in terms of sales growth, market share, profit margins, net income, return on investment, etc.? * What are their strengths and weaknesses - product quality, positioning, distribution, marketing and selling ability, operational skills, financial ability and constraints, pricing, etc.? How sustainable are their advantages? How easily can their weaknesses be exploited? * What kind of personalities do your competitors' key people have? * What are the major obstacles for each of your competitors in gaining market share? What are your own major obstacles? * What stage of the life cycle are their products in? Most of this information will be difficult to obtain. Your competitors, obviously, aren't going to openly provide it. Instead, you're going to have to acquire it through careful examination of their public actions and statements. Study telltale cues. Examine their documentation, advertising (if any), product descriptions, public commentary, and competitive actions. Talk to users as well - both yours and theirs. Make sure all the information you gather is relevant and usable. Don't fall into the trap of collecting information just for the sake of collecting it. The information should be precise enough to be of use, but not so precise that the 'big picture' is lost. Concentrate on the trends, not the level of detail. Being able to calculate your market share to the 5th decimal point isn't as important as being able to recognize the trend reflected in the data. Keep your focus on the market as a whole and not just on a few key competitors. One of the major benefits of market analysis is the ability to spot new rivals and developing trends early on. For example, if a lot of minor competitors are suddenly dropping out of the market, there's probably something going on that you should be aware of - a contracting user base, a change in technology, or some other sweeping change. The earlier you recognize such changes, the better you'll be able to adapt. INFORMATION GATHERING TECHNIQUES: Davidson (1997) described how the sources of competitor information can be neatly grouped into three categories: Recorded data: this is easily available in published form either internally or externally. Good examples include competitor annual reports and product brochures; Observable data: this has to be actively sought and often assembled from several sources. A good example is competitor pricing; Opportunistic data: to get hold of this kind of data requires a lot of planning and organization. Much of it is anecdotal, coming from discussions with suppliers, customers and, perhaps, previous management of competitors. The table below lists possible sources of competitor data using Davidsons categorization:

Recorded Data Annual report & accounts Press releases Newspaper articles Analysts reports Regulatory reports Government reports Presentations / speeches

Observable Data Pricing / price lists Advertising campaigns Promotions Tenders Patent applications

Opportunistic Data Meetings with suppliers Trade shows Sales force meetings Seminars / conferences Recruiting ex-employees Discussion with shared distributors Social contacts with competitors

In his excellent book [Even More Offensive Marketing], Davidson likens the process of gathering competitive data to a jigsaw puzzle. Each individual piece of data does not have much value. The important skill is to collect as many of the pieces as possible and to assemble them into an overall picture of the competitor. This enables you to identify any missing pieces and to take the necessary steps to collect them. Gathering information on your competitors is a difficult but not impossible process. The following are some basic techniques you can use: Talk To Your Local Librarian: Most major libraries have reference librarians whose job it is to assist patrons in performing high quality, complex searches. Most libraries will do this for you at cost. For searches of fee-based databases, reference librarians can save you money due to their considerable skill in quickly locating information. Make it a point to cultivate a relationship with your reference librarians. They're a valuable and often under-used resource. Inquire: Call the company and simply request the information. You'll be surprised at what people will tell you. Look Around: Examine what your competitors are doing and extrapolate information from that. Is the competitor suddenly running expensive display ads? Have they hired a new receptionist or support person (phone calls can usually determine this)? And so on. Track Public Commentary: What are your competitors saying about themselves? Check Usenet postings, interviews, etc. Don't forget to keep an eye out for press releases or product reviews. These often contain a wealth of competitive information. Examine Product Literature: For shareware publishers, examine the documentation provided with both the shareware and registered versions of the program. Look for sales information on other products. Which products are they pushing hardest? Least? What announcements are they making? What information are they sending their users? Examine Promotional Tools: What are they saying in their advertising and other promotional tools? Obtain their newsletters; read their sales letters examine their order forms, and so on.

Search the Internet: If your competitor is active on the Internet, there is a good chance a search will show you how. Regularly scan newsgroups, mailing lists, and the WWW. There are growing selections of powerful Internet search tools for exactly this purpose. However, keep in mind that how a person uses the Internet affects how likely they are to appear in newsgroups. Many people are very active but not in ways that show up using the common search tools. ESTABLISHING COMPETITOR PROFILES: Competitor profiles are concise descriptions of each of your competitors. Keep each profile to one to three pages in length, outlining in them most of the topics covered in this handbook. Place the emphasis on what distinguishes the competitor from others. The purpose of competitor profiles is to provide a good summary of each competitor for day to day reference when making tactical decisions. When you need to quickly determine what makes that competitor 'special' it should only take a casual glance over the profile. Don't try to maintain all the profiles in your head. You'll miss an essential point just when you need it most. While you need a printed version of your profile, the essential information should all be held in a 'competition database'. This database organizes all the information you've gathered about your competitors, breaking it down into as much detail as possible. This allows you to perform complex searches through all of your data looking for interesting trends and anomalies. Whenever possible, structure the information so that it is represented numerically. A little advance thought when designing the database and when gathering your information can make this easy. For example, you might record information on the reputation of each of your competitors by ranking them as "Excellent", "Good", "Average", "Poor", or "Terrible". Your database might track this as '5' for "Excellent" to '1' for "Terrible". A second field in the database might contain notes or keywords relating to the reputation. Set boundary flags throughout your database to automatically warn you of unusual results. While boundary flags help you catch errors, their main purpose is to recognize interesting patterns or correlations. Keep your database up to date. Competitor analysis isn't something you do once a year. It's an ongoing process requiring your constant attention. Purge outdated information regularly and always question the assumptions used in gathering the data. Spending hours upon hours analyzing your competition isn't anybody's idea of a good time. However, it is an essential task. A thorough understanding of your competition provides you with important competitive advantages. You need the information if you are to have a usable product strategy. It's easy to put off competitor analysis and you'll find yourself tempted to do just that. Don't give in to the temptation. What you learn from the analysis is simply too valuable.

CASE STUDY DESCRIBING THE PROCESS OF COMPETITOR ANALYSIS

MAIA STRATEGY GROUP: Maia Strategy Group is a boutique strategy consultancy that specializes in conducting customized market research and analysis to support organizations with their mission-critical decisions. Maia supports clients by filling in their gaps of knowledge through its study of critical external market environment competitors, customers, partners and suppliers. CLIENT: Major Franchisor of Quick Service Restaurants PRODUCTS/SERVICES: Quick service food provider and franchisor CHALLENGE: Decreased market share and difficulty acquiring franchises owners due to a new competitors marketing and sales efforts. BACKGROUND: Maias client, a major franchisor of quick service restaurants, was experiencing challenges in the United States due to a small competitor that was growing rapidly in certain regions. The competitor had been very successful in increasing market share by providing a differentiated food offering versus our client and through aggressive franchise development efforts. In specific regions, our client was losing market share and experiencing difficulty in acquiring franchise owners due to the competitors efforts. Maias client required a greater understanding of the competitors business to support the development of a more comprehensive competitive response. Since the competitor was a privately owned organization, knowledge of the competitors future plans was not readily available. To improve its overall understanding of the competitor, the major franchisor contracted Maia Strategy Group to conduct an exhaustive analysis of the competitors business, including its franchising strategy, operations model, marketing efforts, growth plans, organizational structure, product development strategy, and overall revenue and cost model.

This new competitor entered our space with a differentiated offering and was very successful not only in terms of impacting our revenue but also in our overall ability to develop franchises It was a major challenge, and we needed to quickly develop a plan to minimize this threat, which is why we used Maia VP of Franchise Development. APPROACH: Maias approach consisted of a competitive analysis whereby it would gather and analyze primary research from the competitors employees, franchisee owners and business suppliers to develop a thorough understanding of the competitors business model. A key element of Maias approach consisted of building a financial model to understand the competitors overall financial performance, including the typical revenue and cost model of its franchises. To support the client in developing an effective competitive response, Maia suggested that its analysis include a scenario planning exercise as well as recommendations based on the different growth scenarios of the competitor. For each scenario, Maia would provide the client with methods to determine if the scenario was occurring based on the detection of sign-posts as well as strategic and tactical recommendations to address the threats posed by each growth scenario. RECOMMENDATIONS: Maias recommendations included a variety of strategies based on three different growth scenarios the competitor may experience: Slow Growth, Moderate Growth, and Fast Growth. For each scenario, the strategic recommendations were prioritized based on the ease of implementation and the possibility it would minimize the competitors growth. Maias also provided tactics to minimize the overall financial performance of the competitors franchises based on an understanding of its revenue and cost model. These tactics were employable regardless of the growth scenario and were easily executed across the clients franchises. For instances, Maia understood that many of the competitors franchises were in their infancy and were operating at minimal or negative profit margins. Maia recommended a price war through heavy promotions in specific regions where many of the competitors franchises were concentrated. RESULTS: By employing Maias tactical recommendations immediately, the client was able to increase the revenue growth of franchises competing directly against the competitor by 5% within four months of the completion of the study. In addition, Maias tactics decreased customer volume at the competitors franchises which severely impacted the near-term viability of the competitors franchises in their infancy. Within twelve months of the projects completion, the client implemented certain recommendations resulting in a 7% increase in the number of new client franchises in the regions where the competitor was most heavily concentrated.

We noticed some immediate results in terms of revenue growth for our franchises competing directly against the competitor. Over the long term, we also experienced some positive results due to the pricing strategy Maia recommended VP of Franchise Development. From the above case study we can know that the Maia Strategic Group used Comprehensive Competitive Analysis and Scenario Planning exercise for analyzing the situation and position of the franchisor and it recommended some ideas for the development of the franchisors business. Results obtained from the recommendations of the Maia Strategic Group are: Reduced success rate of competitors franchises via targeted pricing strategy. Increased revenue and number of new franchises.

SUMMARY ON COMPETITIVE ANALYSIS: A good analysis and subsequent report can provide the necessary information to influence a decision regarding Web site deployment. Done right, a competitive analysis can steer a team in the right direction, as well as lend credibility to your career and position in the company. Writing a competitive analysis can be a challenging and interesting piece of work. You'll learn a lot about your industry and in the process become a more valuable resource for your company or clients. By understanding competitors and their business ideals a company should acquire the strategies of outwitting, outmaneuvering and outperforming the competitors to win the race. It is necessary for the successful business companies to look for such a place of business that provides them more location advantage and hold the customers for their goods and services. The driving forces of competing firms, their organization and micro-economic environment need to be studied carefully by the company planning to overtake competitors in the business. Further in the process of winning the battle of rivals, it would be helpful for a company to understand the changing stakes of the competitors and forces after such developments. It is necessary to build-up strong, comprehensive and reliable database for capturing the activities of any business rival or competitor.

QUESTIONAIRE:

1. Gathering competitive intelligence about rival firms can provide strategically useful clues and predictions about (a) How a rival will likely react to industry trends and broader environmental conditions. (b) Which rivals will initiate what kinds of fresh strategic moves and why. (c) What each rival would probably do in response to certain strategic moves of other firms. (d) The meaning and intent of a new strategic move by a particular rival and how seriously it should be taken. (e) All of these. 2. one of the benefits of doing first-rate competitor analysis is to (a) Learn who the industry's current major contenders are. (b) Ascertain which rivals are favorably or unfavorably positioned to gain market ground, why there is potential for some firms to do better or worse than other rivals, and what moves various rivals are likely to make next. (c) Determine which company has the best strategy and how it can copy most of what the strategy leader is doing. (d) Determine which rival has the worst strategy and how it can avoid making the same strategy mistakes. (e) All of these

3. The manner in which rival firms employ various competitive weapons to try to outmaneuver one another (a) Helps determine whether the industry's driving forces will be strong or weak. (b)Shapes the "rules of competition" in the industry and determines the requirements for competitive success. (c) Determines which rivals will be in which strategic group. (d) Depends on how much bargaining power that suppliers and customers have. (e) Varies according to the strength of the five competitive forces.

4. The best test of whether potential entry is a strong or weak competitive force is (a) To determine how loyal buyers are to existing brands. (b) To consider whether the industry's driving forces make it harder or easier for new entrants to be successful. (c) To determine how closely the strategies of industry rivals match the industry's key success factors. (d) To see whether there are any vacant spaces on the industry's strategic group map.