Approaches to Competitor Analysis 0750659386-Chap06 10/13/2004 10:50Am Page 223

0750659386-Chap06 10/13/2004 10:50am Page 221 Chapter 6 Approaches to competitor analysis 0750659386-Chap06 10/13/2004 10:50am Page 223 APPROACHES TO COMPETITOR ANALYSIS 223 6.1 Learning objectives When you have read this chapter you should be able to understand: (a) the importance of competitor analysis; (b) how firms can best identify against whom they are competing; (c) how to evaluate competitive relationships; (d) how to identify competitors’ likely response profiles; (e) the components of the competitive information system and how the information generated feeds into the process of formulating strategy. 6.2 Introduction We suggested in Chapter 5 that the last 10 years have seen the emergence of a new type of consumer who is characterized by a very different type of value system and far higher expectations. At the same time, 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 an increasing intensity of competition ➡ New and more aggressive competitors who are emerging with ever greater fre- quency ➡ Changing bases of competition as organizations search ever harder for a competitive edge ➡ The wider geographic sources of competition ➡ More frequent niche attacks ➡ More frequent and more strategic alliances are necessary ➡ A quickening of the pace of innovation ➡ The need for stronger relationships and alliances with customers and distributors ➡ An emphasis upon value-added strategies ➡ Ever more aggressive price competition ➡ The difficulties of achieving long-term differentiation, with the result that a greater number of enterprises are finding themselves stuck in the marketing wilderness with no obvious competitive advantage ➡ The emergence of a greater number of ‘bad’ competitors (i.e. those not adhering to the traditional and unspoken rules of competitive behaviour within their industries). The implications of these changes, both individually and collectively, are significant and demand far more from an enterprise if it is to survive and grow. Most obviously, there is a need for a much more detailed understanding of who it is that the enterprise is competing against and their capabilities. However, in coming to terms with this, the 0750659386-Chap06 10/13/2004 10:50am Page 224 224 STRATEGIC MARKETING MANAGEMENT marketing planner needs to focus not just upon the ‘hard’ factors (e.g. their size, finan- cial resources, manufacturing capability), but also upon the ‘softer’ elements (such as their managerial cultures, their priorities, their commitment to particular markets and market offerings, the assumptions they hold about themselves and their markets, and their objectives). Without this, it is almost inevitable that the marketing planner will fail to come to terms with any competitive threats. Given the nature of these comments, the need for, and advantages of, detailed competitive analysis should be apparent and can be summarized in terms of how it is capable of: ➡ Providing an understanding of your competitive advantage/disadvantage relative to your competitors’ positions ➡ Helping in generating insights into competitors’ strategies – past, present and potential ➡ Giving an informed basis for developing future strategies to sustain/establish advantages over your competitors. Although the vast majority of marketing planners and strategists acknowledge the importance of competitive analysis, it has long been recognized that less effort is typ- ically put into detailed and formal analysis of competitors than, for example, of customers and their buying patterns. In many cases this is seemingly because marketing managers feel that they know enough about their competitors simply as the result of competing against them on a day-by-day basis. In other cases there is almost a sense of resignation, with managers believing that it is rarely possible to understand competitors in detail and that, as long as the company’s performance is acceptable, there is little reason to spend time collecting information (see Figure 6.1). In yet others, there is only a general understanding of who it is that the company is competing against. The reality, however, is that competitors represent a major determinant of corporate success, and any failure to take detailed account of their strengths, weaknesses, strategies and areas of vulnerability is likely to lead not just to a sub-optimal performance, but also to an unnecessarily greater exposure to aggressive and unexpected competitive moves. Other probable consequences of failing to monitor competition include an increased likelihood of the enterprise being taken by surprise, its relegation to being a follower rather than a leader, and to a focus on short-term rather than more fundamental long-term issues. Complacency It can‘t happen here I don‘t want to hear it We have the information already Preconceived assumptions Figure 6.1 Attitudinal barriers to undertaking competitor analysis 0750659386-Chap06 10/13/2004 10:50am Page 225 APPROACHES TO COMPETITOR ANALYSIS 225 There are numerous examples of organizations having been taken by surprise by new competitors who introduce and then play by very different rules of the game (think, for example, of the way in which BA and the other major European flag carriers have been hit by new entrants such as easyJet and Ryanair; how Hoover and Electrolux were hit by Dyson; and how the major clearing banks were seemingly taken by surprise by the telephone and Internet bankers). It is apparent from these sorts of examples and the points made above that competitor analysis is not a luxury but a necessity in order to: ➡ Survive ➡ Handle slow growth ➡ Cope with change ➡ Exploit opportunities ➡ Uncover key factors ➡ Reinforce intuition ➡ Improve the quality of decisions ➡ Stay competitive ➡ Avoid surprises. (See Kelly, 1987, pp. 10–14.) It follows from this that competitive analysis should be a central element of the marketing planning process, with detailed attention being paid to each competitor’s apparent objectives, resources, capabilities, perceptions and competitive stance, as well as to their marketing plans and the individual elements of the marketing mix. In this way, areas of competitive strength and weakness can more readily be identified, and the results fed into the process of developing an effective marketing strategy. Better and more precise attacks can then be aimed at competitors and more effective defences erected to fight off competitors’ moves. An additional benefit of competitor analysis, in certain circumstances at least, is that it can help in the process of understanding buying behaviour by identifying the particular groups or classes of customer to whom each competitor’s strategy is designed to appeal. This can then be used as the basis for deter- mining the most effective probable positioning strategy for the organization. Recognition of these points leaves the strategist needing to answer five questions: 1 Against whom are we competing? 2 What strengths and weaknesses do they possess? 3 What are their objectives? 4 What strategies are they pursuing and how successful are they? 5 How are they likely to behave and, in particular, how are they likely to react to offen- sive moves? Taken together, the answers to these five questions should provide the marketing strategist with a clear understanding of the competitive environment and, in particular, against whom the company is competing and how they compete. An example of this appears in Figure 6.2. 0750659386-Chap06 10/13/200410:50amPage226 Kodak‘s Principal Kodak‘s market Intensity and bases Likelihood of Kodak‘s core strategy products competitor(s) position of competition new entrants Instant cameras Polaroid Challenger to a well- High and increasing High Penetration pricing to sell and instant film established leader with greater emphasis cameras as fast as possible being placed on to build a base for the innovation sales of film Photographic Fuji Photo Film Co Leader but being High – the attack is Medium Share maintenance by paper threatened by Fuji based on lower prices emphasizing the quality of and other Japanese and statements of Kodak paper and making companies quality consumers aware that some processors do not use Kodak paper Office copiers Xerox, IBM, 3M Late entrant to a Very high with ever Very high The establishment of a highly competitive greater emphasis (particularly from separate sales and service market in which being given to Japanese firms) network utilizing the firm‘s Xerox held a 75 innovation, cost and image and marketing per cent share service capabilities in the microfilm equipment area Figure 6.2 The competitive environment for selected Eastman Kodak products in the late 1970s (adapted from Business Week, 20 June 1977) 0750659386-Chap06 10/13/2004 10:50am Page 227 APPROACHES TO COMPETITOR ANALYSIS 227 It is then against the background of the picture that emerges from this sort of analysis that the marketing strategist can begin to formulate strategy. In the example cited in Figure 6.2, for example, the central issue for Kodak revolved around the costs, risks, and possible long-term returns from penetrating new markets in instant cameras and office copiers, as opposed to sustaining and defending the company’s position as the market leader in the photographic paper market. The principal environmental inputs to the company’s strategic planning process at this time were therefore competitive forces and new technology. Having developed a picture of the market in this way, the analysis can then be taken a step further by a compilation of each competitor’s likely response profile; the various inputs needed for this are illustrated in Figures 6.3–6.5. The analysis in Figure 6.3, in turn, provides the basis for completing the framework that appears in Figure 6.4. Here, each competitor’s particular strengths and weaknesses can be shown and their competitive profiles developed. This information is then used to develop a competitive response profile for each competitor: the framework for this is illustrated in Figure 6.5.

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