Competitor Analysis

INTRODUCTION This article focuses on the key aspects ofcompetitor analysis. It defines competitor analysis and gives suggestions on how to write a good competitor analysis. The article identifies sources on where to find information for a goodcompetitor analysis, and also gives organisational examples to provide good illustrations of utilising information for competitor analysis. Competitor analysis is a critical part of a firm's activities. It is an assessment of the strengths and weaknesses of current and potential competitors, which may encompass firms not only in their own sectors but also in other sectors. Directly or indirectly, competitor analysis is a driver of a firm's strategy and impacts on how firms act or react in their sectors. Gluck, Kaufman and Walleck (2000) showed that competitor analysis is one of two components that give a firm a strong market understanding (see figure 1). This drives the formulation of a strategy and it applies whether a firm formulates a strategy through strategic thinking, formal strategic planning, or opportunistic strategic decision making. Competitor analysis, together with an understanding of major environmental trends, is a key input in strategy formulation and should be developed properly. In utilising competitor analysis as part of strategy formulation, firms are able to adapt or build their own strategies and be able to compete effectively, improve performance and gain market share in their businesses. In a large number of instances, firms are able to tap new markets or build new niches. For example, after European air travel was deregulated in the mid-1990s,Ryanair and Easyjet focused on the no-frills market and provided low-cost travel across Europe after figuring out through competitor analysis, where the opportunities were emerging (Binggeli and Pompeo, 2002). The authors showed that, at the point in time, Ryanair andEasyjet were performing better than their competitors with operating margins of 26% and 9.5% respectively, which were significantly better than the operating margins achieved by the traditional airlines. MAIN ASPECTS OF COMPETITOR ANALYSIS The key objectives in competitor analysis are to develop a greater understanding of what competitors have in place in terms of resources and capabilities, what they plan to do in their businesses, and how the competitors may react to various situations in reaction to what the firm does. Michael Porter has defined a competitor analysis framework that focused on four key aspects (Porter, 1980 cited in netmba.com):competitor's objectives, competitor's assumptions, competitor's strategy, andcompetitor's resources and capabilities. These four aspects of competitor analysis are the areas critical for a firm to understand and they should pursue this knowledge not only for current competitors but also for other potential

The key aspects of competitor analysis and the resulting competitor response profile are defined further below. Slater and Narver (1994) looked at this through the value to customers and identified three components in the analysis: customer orientation. 1994). The first factor is to know the actual objectives of a competitor. there would be no doubt that Apple would be able to achieve this. Some of the questions to ask for the competitor's strategic objectives are: What are the short-term and long-term objectives? What are the financial objectives? Where is the competitor investing? . competitor focus and cross-functional coordination. one could sense that the eventual goal of Apple would be to have a product that combines the iPhone capabilities and theiPod features. in Denmark's telecommunications sector in 2000.competitors in the business. The second factor is to know if the competitor is actually achieving their stated (or sometimes unstated but implied) objectives. the focus from hereon is Porter's framework (see figure 2) for competitor analysis. The competitor's objectives and assumptions drive the competitor while the competitor's strategy and resources and capabilities define what the competitor is doing or is capable of doing. Together. a new entrant Telmore targeted college students with a specific promotion catering to their requirements (Dahlstrom. 2007). Deprez and Steil. For example. Others focus on specific components and thus become a subset of the framework. Telmore already captured about 20% of the national mobile market. or have an iPhone with other capabilities such as a global positioning system (Baig. Looking at these two factors will provide a firm with an opinion on a competitor's potential actions to changes in the sector. An example is an international competitor analysis framework presented by Garsombke (1989) but the foundations follow Porter's framework with additional components relating to the understanding of the "international" marketplace. There are other competitor analysis frameworks that firms can utilise. This should also look at not only current competitors but also potential competitors. and provides the firm with a basis for developing their strategy and actions. Taking this analysis across a firm's key competitors will give the firm a viewpoint on where the sector is heading. The authors mentioned that by 2004. Knowing the innovation in Apple. firms should identify their key competitors and be able to define the objectives of each competitor and their likelihood of achieving their objectives. Rather than compare various competitor analysis frameworks. entering a new market or even just maintaining profitability. This could range from building market share in a specific market or overall business. With the recent success of Applein various markets. An example we can look at is Apple which recently launched its iPhone product. For example. these four aspects define a competitor response profile which gives the firm an understanding of what actions a competitor may take. As part of a comprehensive competitor analysis piece. This framework is broken into two parts. Competitor's Objectives In competitor analysis there are two key factors to note in building knowledge of a competitor's objectives.

shipping companies such as China Cosco (largest shipping line in China) tends to invest and order new ships when the industry is at its peak. bookmaker Ladbrokes has clearly been expanding their international presence through joint ventures in other markets. For a proper competitor analysis work. However. products.Competitor's Assumptions Another key aspect in competitor analysis is an understanding of competitors' assumptions about the overall market (trends in the market. investments decided by players in the industry should be driven by when competitors expect the industry to be at their peak. Another example is Southwest Airlines. For example. they assumed that demand would reach high levels and that it would change the mail-and-package delivery industry (Courtney. industry-changing and value-creating strategy" (Courtney. In this example. In other cases. 2000). For example. by the time the ships are ready. This strategy was pursued after the firm split from theHilton Group in 2006 (Attwood. When FedEx considered overnight delivery. this is not what usually happens. the assumptions made by competitors on the industry and other players should be indicated. By observing Ladbrokes' activities. but as seen in the example. point-to-point service and which turned out to be a highly innovative. this strategy will be defined and stated. and financing is not an issue (Stanley. competitors could define their actions based on what their assumptions are on the growth of the market. which pursued a "no-frills. In most cases. it may not be openly stated what competitors' strategies are but these can be understood by utilising a number of sources available to firms from analysing a competitor's behaviour in certain situations to discussing with industry experts to get their viewpoints. Kirkland and Vihuerie. In a cyclical industry (say pulp and paper or shipping sectors). 2006). and consumers). 2007). as timing is critical for players in the industry to meet demand. the validity of these assumptions should be challenged. Kirkland and Viguerie. A number of questions that need to be addressed are: What are the strategy and plans of competitors in their key markets? Which markets and products will the competitor focus on? Competitor's Resources and Capabilities Finally. a competitor analysis should also include an understanding of a competitor's . 2000). FedEx turned out to be correct and this changed the industry with other competitors following suit to offer the same service. one can determine what the firm's strategy has been since the split. particularly for public firms. Some questions to address for this aspect include: What is the competitor's viewpoint on the market and development? Who are the key consumers or clients who the competitor feels will be most profitable? Competitor's Strategy A third aspect in competitor analysis is the understanding of a competitor's strategy. As shipbuilding takes a number of years. Typically. the industry is at the other end of the cycle or in decline already. FedEx made a strong assumption on the industry behaviour and was able to establish a presence in overnight delivery quickly. Federal Express is a good example to highlight. These two examples indicate the value of having an understanding of competitors' strategies and their focus.

An example is the increase in orders of the Airbus A380. For example.2% does not mean anything on its own. with further analysis explaining these. the firm leveraged its marketing strength to successfully expand into another product. The key point is to ensure that the relevant ones are included for the specific analysis needed. This could be as specific as defining a competitor's strategy. word processors. Another example is Lanier Business Products. and their strengths. which they sourced from another firm (Bales et al. Several questions that can be raised in this respect are: What is the level of resources available to the competitor for their investments? What are the areas of strength for the competitor? Competitor Response Profile The results of the analysis from the four aspects of competitor analysis. A leading manufacturer of dictating machines. as defined above. HOW TO WRITE A GOOD COMPETITOR ANALYSIS There are several principles to follow in writing a good competitor analysis. or just keeping management informed of any recent developments that need to be highlighted. For this aspect. . by Dubai-based Emirates Airlines from the current 55 to double the number (Dow Jones. a firm can define its thoughts on what actions competitors may purse depending on the understanding given by the competitor analysis. the largest commercial aircraft in the world.resources and capabilities as these would give a firm an idea of how a competitor can achieve its strategy and objectives. It can only become an important figure when presented versus other benchmarks or information from competitors (see figure 3). These principles are: • • • Understand the key aims in pursuing a competitor analysis – While these follow the objectives mentioned in the previous section. a competitor analysis can be pursued with a specific aim in mind. In this profile. Analyse the information relative to the firm and also relative to other competitors – It is important to analyse the information within the context of the sector or the other players. and also give a firm a timeline for when it would expect competitors to pursue certain activities. This provides a firm with a better grounding and preparation to react to competitor actions. 2007). and (2) Emirates Airlines will be expanding its international business and presence once these aircraft are received.. lead to a competitor response profile. Utilise comprehensive sources of information relevant to the particular aim – As will be discussed in the next section. understanding a firm's competitive advantages versus a particular competitor. there is much information available for carrying out a competitor analysis. 2000). having a pre-tax ROIC of 27. This shows how important it is to understand a competitor's resources and capabilities. a large part of information can be gleaned from press articles and news. This indicates several thoughts: (1) Emirates Airlines has large funding capability.

Possibly up to approximately 90% of the information needed for a proper competitor analysis and related assessment and decisions already exists in the public domain (McGonagle and Vella. and resources and capabilities. financials). The information can be organised across a number of different groupings. While this would comprise only a small part of the competitor analysis.g. network is a source that will require interaction as this requires getting the viewpoints of other people. patent applications Company advertisements – TV and print advertisements. 2002). most of the other printed information shows historical information and may not necessarily give a good indication of a competitor going forward. patent applications. government publications External. with the exception of a few information sources (e. forecast financial statements). One way is to look at what the competitor presents about them and what other sources external to the competitor present about the competitor. industry experts Most of the information mentioned above can be accessed through the internet already. but common. their strategy. More specifically. general news articles External reports – equity/analyst reports (for public companies). product literature Company news – press releases. instead of including all the information that's retrieved from various sources. CONCLUSION Competitor analysis is an important part of a firm's development of its strategy. company website. regulatory filings (e. Its importance lies in the understanding of competitors.g. This is particularly the case if there are a lot of structural changes happening in a sector and all players are expected to have dynamic strategies to capture their market. a good competitor analysis would analyse the information and pull out the key points. FINDING INFORMATION FOR A GOOD COMPETITOR ANALYSIS There are good sources of information existing already in order to do a good competitor analysis. Limitations The limitations of competitor analysis are linked to the information gathered from various sources and the interpretation of the information. this may actually prove to be quite insightful as different viewpoints are received from other people who would have had interaction as well with the competitor. Also. sales literature. investor presentations. network – buyers and suppliers. industry associations. The last point on external.• Summarise key points of analysis – Finally. but common. ratings agencies reports (for credit-rated companies). competitor analysis also allows a firm to assess its own firm versus competitors and plan for what competitors' actions may be as a reaction to actions the firm may take. third-party affiliates. . Some examples of these are shown below: • • • • • Company reports – annual reports.

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