APPROACHES TO COMPETITOR ANALYSIS

INTRODUCTION
 Past 15 years or so have seen the emergence of a new type of

consumer who is characterized by a different value system and higher expectations  A new type of competitor appears to have emerged along with a different type of competitive environment. This new environment is characterized by:
 Generally higher levels and increasing intensity of competition  New and more aggressive competitors who are emerging with ever

greater frequency  Changing bases of competition as organizations search ever harder for a competitive edge  The geographic sources of competition are becoming wider  Niche attacks are becoming frequent  Strategic alliances are becoming more frequent and necessary

The pace of innovation is speeding up Stronger

relationships and alliances customers and distributors are becoming more frequent and necessary Value added strategies are becoming necessary Price competition is becoming ever aggressive

with ever more more

 Long-term differentiation is becoming more difficult to achieve,

with the result that a greater number of enterprises are finding themselves stuck in the marketing wilderness with no obvious competitive advantage
 bad competitors( i.e. those not adhering to the traditional and

unspoken rules of competitive behavior within their industries) are becoming ever more common and difficult to cope with There is a need for detailed understanding of who it is that the enterprise is competing against and their capabilities

y For this market planner needs to focus not just upon the hard factors y Their size y Financial resources y Manufacturing capability y But also upon softer elements y Managerial cultures y Their priorities y Their commitment to particular markets y And their objectives

Competitor Analysis defined

y can be defined as a set of activities which examines the comparative position of competing enterprises within a given strategic sector y Competitor analysis seeks to:
y Provide an understanding of your competitive

advantage/disadvantage relative to your competitors positions; y Help in generating insights into competitors strategies-past, present and potential; y Give an informed basis for developing future strategies to sustain/establish advantages over your competitor

Attitudinal Barriers to undertaking competitor analysis

Less effort put in detailed analysis of competitor than

customers owing to Marketing managers wrong notion that they know enough about their competitors simply as a result of competing against them on a day-by-day basis Some believe that it is rarely possible to understand competitors in detail and that as long as the companys performance is acceptable there is little reason to spend time collecting information. There is only a general understanding of who it is that the company is competing against

y y y y y y y y y y

Competitor analysis is necessary in order to survive to handle slow growth To cope with change To exploit opportunities To uncover key factors To reinforce intuition To improve the quality of decisions To stay competitive To avoid surprises

y A marketing strategist needs to answer five questions: y 1. Against whom are we competing? y 2.What are their objectives? y 3.What strategies are they pursuing and how

successful are they? y 4.What strengths and weaknesses do they possess? y 5.Howare they likely to behave and, in particular, how are they likely to react to offensive moves?

The competitive environment for a selected product

Product Principal Company s Intensity Likelihood COMPANY S Competitor market and bases of of new CORE (s) position competition entrants STRATEGY

Next step: identifying a competitor s response profile

y Strategist begins by focusing upon 1. Current Strategy (How is the

business currently competing and what levels of success are being achieved?)

y 2.Capabilities (What strengths and weaknesses does the competitor

possess and what awareness of these exists within the organization? What are the resource capabilities?

y 3.Assumptions What assumptions does the competitor hold about

itself and the industry? How realistic are these assumptions? What is their source?

y 4.Future goals/ What drives the competitor?

COMPETITOR S RESPONSE PROFILE

y At what point is the competitor likely to respond if y y y y y

challenged and with what level of commitment? Is the competitor satisfied with its current position? How expansionist is the competitor likely to be? What likely move or strategy shifts will the competitor make in short term and the long term? Where is the competitor most vulnerable in the short and the long term? What will provoke the greatest and most effective retaliation by the competitor? Are there areas in which the competitor is unlikely to retaliate?

Porters approach to COMPETITIVE STRUCTURE ANALYSIS

y based on the idea that competition in an industry is rooted in its

underlying economics, and competitive forces that go well beyond the established combatants in a particular industry y the 1st determinant of a firm's profitability is the attractiveness of the industry in which it operates. the second determinant is competition. y the nature and intensity of competition within any industry is determined by the interaction of five key forces:
y y y y y

1.the threat of new entrants; 2. the power of buyers; 3.the threat of substitutes; 4. the extent of competitive rivalry; 5. the power of suppliers.

Checklist for assessing the strategic implications of competitive structures of an industry

y 1.Potential Entrants. The concept of entry barrier implies that there y y y y

are substantial costs involved in entering into a new industry. The entry barriers may arise as a consequence of several factors such as: Economies of scale in production or sale of products leading to lower costs for existing firms Capital requirements being very high may prevent new entrants from making investments Switching costs from the existing products or services to a new one may discourage customers from making new commitments owing to the costs incurred in buying new ancillary equipments, retraining employees or establishing new networks of relationships

Threat of new entrants

y Product differentiation by existing firms based on the distinctness perceived by the customers through effective advertising, reputation as a service provider, the brand royalty of customers towards existing firms, or some other such factor y Access to the distribution channel can be monopolized by the existing firms on the basis of their long term relationship with distributors y Cost disadvantages independent of scale may arise from proprietary products technology, exclusive access to raw materials, favorable location, and benefit of govt. subsidies y Government policies through licensing and other means can prevent the entry of new firms into an industry

Rivalry among competitors

y The extent of rivalry among competitors in an industry affects the

competition within that industry. y When the rivalry is weak, there is likely to be lesser competition and vice versa major dimensions of rivalry are described below: y Competitive structure refers to the number of competitors, their size, and their diversity different types of competitive structures have different implications for the existing firms and for the new entrants. Structures vary from being fragmented to consolidated y A fragmented structure means there are a large number of small or medium-sized companies, none of them in a position to dominate the industry. This structure characterized by low entry barriers, less or no differentiation, leading to products becoming commodities. Competition is intense.
y A consolidated structure consists of a few large companies (an

oligopolistic market) or just one large firm(a monopoly)

y Such a struture has a closely knit group of companies whose actions

and reactions are matched: the actions of one lead to reaction from others y Diversity among competitors means that the different firms in an industry have different ideas on the basis of which to compete, different sets of goals to achieve, or different organizational cultures. Greater diversity poses higher challenge to existing firms or new entrants for devising competitive strategies y Demand conditions refer to the nature of customer demand existing in an industry. A high demand or a growing demand tends to moderate competition as each firm has enough for itself and need not grab it from others y Exit barriers restrict the firms in an industry and prevent them from leaving even though the returns might be low or might even be sometimes negative

y The exit barriers are the economic, strategic or

emotional factors which prevent companies from moving out after the divestment of their businesses. Strategic factors could be inter linkages between the different businesses of a company such as a firm being its own supplier or buyer, or different businesses which share a common pool of resources.

y The three factors of competitive structure, demand

conditions and exit barriers constitute the force of competitive rivalry within an industry.

Bargaining power of buyers

y Constitutes the ability of the buyers, individually or collectively, to y y y y y y y

force a reduction in the price of products or services, demand a higher quality or better service, or to seek more value for their purchases in any way. A higher buyer bargaining power constitutes a negative feature for existing firms or new entrants of an industry. The bargaining power of buyers is high under these conditions: When the buyers are few in number When the buyers place large orders When alternative suppliers are present and are willing to supply at a lower price for its products and is sensitive to price increases When the purchased product constitutes a high percentage of a buyer s costs making it look around for lower priced supplies When the buyer itself has the ability to integrate backwards and create its own captive supply source.

Bargaining power of suppliers

y Constitutes their ability, individually or collectively, to force an increase in the y y y y y y y y y

price of the products or services, or make buyers accept a lower quality of product or level of service. A high supplier bargaining power constitutes a negative feature for existing firms or new entrants of an industry. The bargaining power of suppliers is high under these conditions: When the suppliers are few and the buyers are many When the products or services are unique and are not commonly available When the substitutes of the products or services supplied are not freely available When the switching costs of a supplier from one buyer to the other is low When the supplier is not critically dependent on the products or services supplied When the buyer buys in small quantities and, therefore, is not important to the supplier. When suppliers have the ability to integrate forward

Threat of substitute products

y Substitute products or services are those that

apparently are different but satisfy the same set of customer needs y The availability of close substitutes constitutes a negative competitive force in an industry y Those industries which have no close substitutes are more attractive than those that have one or more of such substitutes y For industries where close substitutes are available the level of price chargeable is restricted by the price of substitutes available

Against whom are we competing?

y The range of actual and potential competitors faced

by a company is often far broader than appears to be the case at first sight y Avoid competitive myopia (overestimate capabilities of large competitors and underestimate or ignore smaller ones y Astute Strategists have long acknowledged the difficulties of defining boundaries of an industry and that companies are more likely to be hit hard by latent competitors than by current competitors (pattern of mktg behavior predictable)

Competition operates at four levels

y 1. Competition consists only of those companies offering a similar product or service to the target market, utilizing a similar technology, and exhibiting similar degrees of vertical integration y 2.Competition consists of all companies operating in the same product or service category y Competition consists of all companies manufacturing or supplying products which deliver the same service y Competition consists of all companies competing for the same spending power eg. Harley Davidson executive we are competing against conservatories and swimming pools, not other bikes

Abell & Hammond : various points for newcomer s entry into a market
y They already sell to your customers, but expand their participation to

include new customer functions which you currently satisfy (one component of computer system into other system components their participation into your customer market from activities in other customer markets (from pumps for oil exploration into marine pump business) semi conductor manufacturer enters calculators or calculator manufacturers integrate backwards into the manufacture of semiconductors)

y They already satisfy customer functions which you satisfy but expand

y They already operate in an upstream or downstream business (eg

y Enter as a result of unrelated diversification

Two distinct viewpoints of competition

y Industry point of view and market point of view y Industry Perspective Of Competition y An industry is seen to consist of firms offering a product

or class of products or services that are close substitutes of one another y A close substitute is seen to be a product for which there is high cross-elasticity of demand. y A the starting point for competitor analysis involves understanding the industrys competitive pattern, since it is this which determines the underlying competitive dynamics

The competitive dynamics of an industry

Underlying Structural conditions Market & Industry Structure

Industry conduct

Industry performance

Underlying structural conditions

Supply Raw materials unionization Technology Product durability Business attitudes Public policies Demand Price elasticity The existence of substitutes Rates of market growth Market seasonality and cyclicality Economic Performance Purchase methods

Market and Industry Structure

y Number of sellers and buyers y Barriers to entry, exit, shrinkage and mobility y Patterns of ownership y The existence of joint ventures y Cost structures y Degree of horizontal and vertical integration y Market share and the degree of competitive balance y Product differentiation y Patents

Industry conduct
y Attitudes and objectives y Competitive cultures y Product strategies y Patterns of investment in new plant y Pricing behavior y Advertising strategies y Distribution relationships y Legal tactics

Industry Performance
y Production efficiency y Margins y Profit levels y Progress y Employment levels

Five industry structure types

Differentiated Products NUMBER OF SELLERS One Few Undifferentiated Products 1. Pure Monopoly 2. Differentiated Oligopoly 3.Pure oligopoly 5.Pure Competition

Many 4.Monopolistic Competition

Pure Monopoly in which because of patents, licenses, scale economics, or some other factor, only one firm provides the product or service Differentiated Oligopoly where a few firms produce products that are partially differentiated

Characteristics and Marketing Implications

y A pure Oligopoly in which a few firms produce the same commodity y Monopolistic competition in which numerous firms offer broadly the same product or service y Pure competition in which numerous firms offer broadly the same product or service y Pure monopoly: prices tend to be high, little advertising, service level tends to be low, and barriers to industry often exist y Differentiated oligopoly : differentiation achieved by pursuing a strategy of quality, adding features or styling. The extent to which leadership or premium pricing can be achieved is a measure of the success of strategy

Marketing implications
y Pure oligopoly : differentiation is difficult to achieve and prices are set at going rate. The only way to achieve a sustainable competitive advantage is by means of cost reduction. y Monopolistic competition: companies typically focus on particular market segments where scope exists either for minimizing the degree of direct competition or in which scope for premium pricing exists y Pure competition: no scope for differentiation and prices are at same level. Profit levels determined by each company s ability to manage costs

Factors causing change in competitive structure

y y y y

Changes within distribution channel Change in supplier base Legislation The emergence of new technology

MARKET PERSPECTIVE OF COMPETITION y Companies trying to satisfy the same customer needs or which serve the same customer groups y Theodore Levitt s Marketing Myopia y The essence of market perspective of competition therefore involves giving full recognition to the broader range of products or services which are capable of satisfying customer needs

Evaluating Competitive Relationships and Analysing How Organizations Compete

Analysis of how firms compete falls into four parts 1. How is each competitor s current strategy? 2.How are competitors performing? 3.What are their strengths and weaknesses? 4.What can we expect from each competitor in future? Failure to collect , disseminate or make full use of competitive information is, for the majority of organizations, a perennial problem y Often the same information is collected more than once
y y y y y y

y It is essential that each competitor is analysed

separately, since any general analysis provides the strategist with only a partial understanding of competitors, and tells little either about potential threats which might emerge, or opportunities which can be exploited y What competitors have done in the past can often provide a strong indication of what they will do in future y Other factors that need to be borne in mind include

y Patterns of investment in plant y Link with other competitors y Patterns of advertising expenditure y Relative cost positions y Major changes in senior management structure and in

particular the appointment of a new chief executive who might act as an agent for change

Identifying strategic groups

y In majority of industries competitors can be

categorized, at least initially, on the basis of the similarities and differences that exist in the strategies being pursued y Strategic group can be seen to consist of those firms within the market which are following a broadly similar strategy

y After identifying the strategic group, strategist needs

to identify the relative position and strength of each competitor y This can be done by categorizing of firms on the basis of whether their position within the market overall and within the strategic group is dominant, strong, favorable, tenable weak or non viable y Next the strategist needs to consider the bases of any competitive advantage that exists, illustrated in figure

5 types of competitive status and the implications for competitive advantage

Level 1 2 3 4 Competitive status One or more sizable advantage A series of small advantage which combine to form one large advantage Advantages exist but these are either not recognized or not fully exploited fully No obvious or sustainable competitive advantages Petrol retailers, estate agents and high street banks Eastern European car manufacturer s Examples Sony, Honda McDonald s

Competitive disadvantages because of the organization s limited size, inflexibility, inefficient manufacturing practices, distribution networks, cost structures, culture lack of skills or poor images

y Several points emerge from identifying strategic groups in this way. The

first is that height of the barriers to entry and exit can vary significantly from one group to another. y The second is that the choice of a strategic group determines which companies are to be the firms principal competitors y Recognizing this, a new entrant would then have to develop a series of competitive advantages to overcome, or at least to neutralize, the competitive advantages of others in the group. y There is competition not just within strategic groups but also between them since not only will target markets develop or contract over time and hence prove to either more attractive or less attractive to other firms, but customers might not fully recognize major differences in the offers of each group

Some characteristics for identifying strategic groups

y y y y y y y y y y y y y y y

Size and relative share The extent of product or service diversity The degree of geographic coverage The no and type of market segments served The type of distribution channels used The branding philosophy Product or service quality Market position (leader or follower) Technological position R&D capability Performance Cost structure and behavior Patterns of ownership Organizational culture Degree of vertical integration

Abell and Hammond framework for strategic decision process

y How does the competitor define business in terms of customer groups, customer functions, and technologies, and how vertically integrated he is? y What mission does this business have in this overall portfolio of businesses?Is it being managed for sales growth? Market share? Net profit? ROI? CASH? What goals does he appear to have for each major segment of the business? y What is his marketing mix, manufacturing policy, R&D policy, purchasing policy, physical distribution policy, etc.? y What size are his budgets and how are they allocated?

The character of Competition

y competition within a market is influenced to a very high degree

by the nature of customer behavior, the character of competition not only takes many forms but is also likely to change over time. Two ways of examining competition y One way of examining is by means of an analysis of the changes taking place in the composition of value added by different firms y The term value added is used to describe the amount by which selling prices are greater than the cost of providing the bought out goods or services embodied in market offerings. y An analysis of changes in value added component can give an understanding of the relative importance of such factors as product and process development, selling, after sales service, price as the product moves through the life cycle

y Another way to measure the character of competition by

considering the extent to which each competitor develops new total industry demand(primary demand) or quite simply competes with others for a share of existing demand (selective demand). demand, it is likely that efforts will focus upon identifying and developing new market segments.

y When a competitor s objective is the simulation of primary

y Conversely, when a competitor concentrates upon stimulating

selective demand, the focus shifts to an attempt to satisfy existing customers more effectively than other companies. The consequence is that the intensity of competition on a day-to-day basis is likely to increase significantly

Identifying Competitor s Objectives (What drives each competitor s behaviour?)

y Staring point is to assume that each competitor will aim for profit maximization either in the short term or the long term. y In practice maximization is an unrealistic objective which many companies are willing to sacrifice y Another assumption can be that each competitor has a variety of objectives, each of which has a different weight. y A firm pursuing market share growth is likely to react far more quickly and aggressively to a price cut or to a substantial increase in advertising than a firm which is aiming for technological leadership.

y Company objectives are influenced by a wide variety of factors, but y y y y y y y

particularly the organization s size, history, culture and the breadth of operating base. Marketing strategist should give explicit consideration to the relative importance of each marketer to a competitor in order to understand the probable level of commitment that exists. Factors likely to influence the level of commitment are 1.the proportion of company profits which this market sector generates 2.the managerial perceptions of the market s growth opportunities 3.The levels of profitability that exist currently and which are expected to exist in the future; 4.Any interrelationships between this and any other product or market sector in which the organization operates 5.Managerial cultures- in some companies any threat will be responded to aggressively almost irrespective of whether it is cost effective.

y Marketing strategist needs to collect information under a number of headings as a prelude to a full comparative assessment. These include: y Sales y Market share y Cost and profit levels and how they appear to be changing over time y Cash flows y Return on investments y Investment patterns y Production processes y Levels of capacity utilization y Organizational culture y Products and the product portfolio y Size and pattern of customer base y The levels of brand loyalty y Dealers and distribution channels y Marketing and selling capabilities y Ownerships patterns and, in the case of divisionalized organizations, the expectations of corporate management

Signs of competitive strength in a company s position are

y y y y y y y y y y y y y

Important core competencies Strong market share (or a leading market share A pace setting or distinctive strategy Growing customer base and customer loyalty Above average market visibility In a favourably situated strategic group Concentrating on fastest growing market segments Strongly differentiated products Cost advantages Above average profit margins Above average technological and innovational capability A creative entrepreneurially alert management I n a position to capitalize on opportunities.

y Need for a clearly developed competitive information system which channels information under a variety of headings to a central point y This information needs to be analysed and disseminated as a prelude to being fed into the strategy process y Sources of information include sales force, trade shows, industry experts, the trade press, distributors, suppliers and customers y Current and potential buyers have been asked to rate the organization and its four major competitors on a series of attributes

The comparative assessment of competitors

Significant buying factors Product Product design Product quality Product performance Breadth of product line Depth of product line Reliability Promotion & Pricing Advertising/sales promotion Image and reputation Product literature Price Fair Fair Poor Equal Exc Exc Exc Fair Fair Poor Poor Good Good Exc Good Equal Good Good Good Fair Fair Good Exc Exc Good Fair Fair Exc Fair Fair Fair Poor Poor Fair Good Exc Good Good Good Exc Our company Competitor 1 Competitor 2 Competitor 3

The comparative assessment of competitors

Significant buying factors Selling and Distribution Sales force calibre Sales force experience/knowledge Geographical coverage Sales force/customer relations Service Customer service levels Performance against promise Fair Fair Exc Exc Poor Poor Exc Exc Fair Fair Good Fair Good Good Good Exc Poor Fair Poor Poor Good Exc Good Exc Our company Competitor 1 Competitor 2 Competitor 3

Variation of the discussed approach : Unweighted competitive strength assessment

Rating scale: 1 = Very weak; 10= very strong
Key success factors/ strength measure ABC Co Rival 1 Quality/product performance Reputation/image Raw material access/cost Technological skills Advertising effectiveness Distribution Financial Strength Relative cost position Ability to compete on price Unweighted overall strength rating 8 8 2 10 9 9 5 5 5 61 5 7 10 1 4 4 10 10 7 58 Rival 2 10 10 4 7 10 10 7 3 10 71 Rival 3 1 1 5 3 5 5 3 1 1 25 Rival 4 6 6 1 8 1 1 1 4 4 32

Weighted competitive strength assessment Rating scale: 1 = Very weak; 10= very strong
Key success factors/ strength measure Quality/product performance Reputation/image Raw material access/cost Technological skills Advertising effectiveness Distribution Financial Strength Relative cost position Weight
0.10 0.10 0.10 0.05 0.05 0.05 0.10 0.30

ABC Co
8/0.80 8/0.80 2/0.20 10/0.50 9/0.45 9/0.45 5/0.50 5/1.50 5/0.75

Rival 1
5/0.50 7/0.70 10/1.0 1/0.05 4/0.20 4/0.20 10/1.0 10/3.0 7/1.05

Rival 2
10/1.0 10/1.0 4/0.40 7/0.35 10/0.5 10/0.5 7/0.70 3/0.90 10/1.5

Rival 3
1/ 1/ 5/ 3/ 5/ 5/ 3/ 1/ 1/

Rival 4
6/ 6/ 1/ 8/ 1/ 1/ 1/ 4/ 4/

Ability to compete on price 0.15 Sum of weights Weighted overall strength rating
1.00

5.95

7.70

6.85

2.10

3.70

Competitive Product Portfolio

y Portfolio Analysis helps gaining insight into a competitor s strengths, y y

y y y

weaknesses and general level of capability The marketing strategist needs to plot each major competitor s portfolio and consider a series of questions Which competitors, for example, appear to have few, if any, cash cows but a surfeit of question marks or dogs ? Which of the competitors appear to have one or more promising stars which might in the future pose a threat? What are likely cash flow implications for each competitor s portfolio? Does it appear likely , for example that he will be vulnerable in the near future because of cash demands of a disproportionate number of question marks and stars ? Which trends are apparent in each portfolio? Which competitors products look suited for growth and which for harvesting? Which competitor appears to be the most vulnerable to an attack? Which competitor looks likely to pose threat in future

Davidson: What makes a Competitor vulnerable?

y y y y y y y y y y y y y y y

A lack of cash Low margins Poor growth High cost operations or distribution Overdependence on one market Overdependence on one account Strength in falling sectors Short term orientation People problems Taking their eyes off the ball Predictability Product or service obsolence/weakness Premium price positioning Low market share Slow moving/bureaucratic structures

Identifying Competitors likely response profile

y Factors to be noted include- competitor s size, objectives and

y y y

y y

capability provide a fair idea of possible responses to company moves such as price cuts, launch of new products and so on Organization culture also needs to be examined as it determines how the firm will do business and how it will act in future How a competitor is likely to behave in future has two components 1) how is a competitor likely to respond to the general changes taking place in the external environment and in particular in the market place? 2) how is the competitor likely to respond to specific competitive moves that we, or any other company might make? 3) how likely is it that the competitor will initiate an aggressive move, and what form this move be most likely to take?

Kotler s 4 common reaction profiles among competitors

y The laid back competitor : do not react quickly or strongly

to a given competitor move. They may feel their customers are loyal; they may be harvesting the business; they may be slow in noticing the initiative, they may lack the funds to react. y The selective competitor. A competitor might react to certain types of assault and not to others. It might always respond to price cuts in order to signal that these are futile;might not respond to advertising expenditure increases believing these to be less threatening.

y The tiger competitor this company reacts swiftly and strongly to any assault on its terrain. y The stochastic competitor. Some competitors do not exhibit a predictable reaction pattern. Such a competitor might or might not retaliate on any particular occasion, and there is no way to foresee what it will do base on its economics, history etc y Bruce Henderson (1982)of BCG argues that much depends on the competitive equilibrium y 1. If competitors are nearly identical and make their living in the same way, then their competitive equilibrium is unstable. Commodity industries where sellers have not found any major way to differentiate their costs or their efforts frequent price wars

y 2. If a single major factor is the critical factor, then

competitive equilibrium is unstable. This describes industries where cost differentiation opportunities exist through economies of scale, advanced technology, experiences curve learning, etc. In such industries y 3. If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differentially attractive to some customers. The more the multiple factors that may provide an advantage, the more the number of competitors who can coexist. Each competitor has his competitive segment defined by the preference for the factor trade-offs that he offers

y 4. The fewer the number of competitive variables that are critical, the fewer the number of competitors. If only one factor is critical, then no more than two or three competitors are likely to coexist. Conversely, the larger the number of competitive variables, the larger the number of competitors, but each is likely to be smaller in its absolute size. y 5.A ratio of two to one in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share

The significance of costs

y Structure of competition defined by cost structures and cost y y y y y

behaviors Cost structure is defined as the ratio of variable to fixed costs and is typically capable of exerting a significant influence upon competitive behavior. In businesses where fixed costs are high profits are sensitive to volume. Companies are forced to behave in such a way that plants operate as near to full capacity as possible Where demand is price sensitive, industry is characterized by periodic bouts of aggressive price wars Where variable costs are high, profits are influenced far more directly by changes in margins( firms need to focus on differentiating the product in such a way that prices and hence margins can be increased

y The second cost dimension is that of its behavior over

time and how organisation can make use of learning and experience effects

The influence of PLC

y PLC can be used for examining probable competitive behavior y It can help strategist to anticipate changes in the character of y y

y y

competition In early stages of life cycle advertising and promotion is generally high, and prices and margins are able to support this. The natural growth of market allows firms to avoid competing in an overtly direct way. As maturity approaches and rate of growth slows, firms are forced into more direct forms of competition, a situation which in turn exacerbated by the often generally greater number of companies operating within the market. This intensity of competition manifests itself in price reductions. Advertising changes with greater emphasis on search for differentiation Final stages some firms opt to leave the market, some engage in greater price competition as they fight for a share of a declining sales curve.

Competitive Information system (CIS)

y In establishing such a system, there are 5 principal y y y y y

steps: 1.Setting up the system and deciding what information is needed 2. collecting the data 3. analysing and evaluating the data 4.disseminating the conclusions 5.incorporating these conclusions into the subsequent strategy and feeding back the results so that the information system can be developed further

Davidson: mechanics of an effective CIS

y select key competitors to evaluate. focus on 3 or 4 per y

y y y

market at most Select and brief data collectors in each department. This should include people in sales, purchasing, engineering, marketing, R&D and finance. Apply the right resource levels to the task. Have a competitive analyst Insist on regular returns from data collectors Publish regular tactical and strategic reports on competition

Major sources of competitive data

Recorded data Market research Secondary data sources Business Press Technical journals Govt. sector reports Credit reports Annual Reports Observable data Competitors pricing Promotions Patent applications Competitive advertising Planning applications Sales force feedback Buying competitors products and taking them apart to determine costs of production and manufacturing methods Opportunistic data Raw material suppliers Equipment suppliers Trade shows customers Packaging suppliers distributors Placing ads and holding interviews for jobs that do not exist in order to entice competitors employees to spill the beans Sub contractors Internal newsletters Disgruntled employees Poaching competitors employees conferences

Public documents

What companies need to know about their competitors

Sales No of units sold Sales by product lines Sales trends Market shares Share trends Price Cost levels, cost structures List prices & discounts by product& customer types Special terms Products
Distribution & sales force

Breadth & depth of product Types of distribution range networks used Comparative product performance level New product policies Investment in R& D New product intro & modifications Size assortments New packaging Relationships & balance of power Cost structures flexibility Special terms & existence of agreement Dealer objectives Distributors performance levels

What companies need to know about their competitors

Customers Customer profiles Buying motives Patterns of usage New accounts/buyers Lost accounts Proportion of repeat business/degree of brand loyalty Identity & image among buyers Satisfaction levels with product design, performance, quality and reliability Advertising & promotion effectiveness Expd. levels & patterns Product literature Image & levels of recognition Sales promotions Customers brand preferences Distribution& sales force Location of warehouses Size, calibre & experience of sales force Sales force customer coverage Levels of technical assistance available Stock levels Dealer support llevels & capabilities Shelf facings Customer service philosophy, degree of customer satisfaction

What companies need to know about their competitors

Finance Performance levels margins Depth of financial resources Patterns of ownership & financial flexibility Management Objectives (short & long term) Philosophy & culture Expectations Other Sales per employee Plant capacity utilisation Type of equipment used

Attitudes to risks

Labour rates & relationships

Identity of key executives, Skills & special expertise Key success factors Competitive strategies Ownership of strategies & commitment to them Organizational structures

Raw material purchasing methods Principal suppliers Commitment to market sectors Degree of vertical & horizontal integration

y Weak competitors- most vulnerable, but potential pay-offs need to be examined y Strong competitors require firms to be far leaner, fitter & more aggressive y Close v/s distant competitors y Good competitors adhere to rules, avoid aggressive price moves, favour a healthy industry, make realistic assumptions about industry growth prospects y Bad competitors violate unspoken and unwritten rules, engage in unnecessarily aggressive moves, expand capacity in large steps, slash margins, take significant risks

Benefits from competitors to a company

y They lower antitrust risk y They may increase total demand y They lead to more differentiation y They provide a cost umbrella for the less efficient

producers y They share the cost of market development and legitimize a new technology y They improve bargaining power versus labour or regulators y They may serve less attractive segments