Competitor analysis

At the end of this module the learning outcomes are: - Importance of understanding competition - Approaches to competitor analysis - Identifying competitors likely response

Competitor analysis
Suggested Readings
Strategic Marketing Management by Wilson & Gilligan (chapter 4) Strategic Marketing by: David Cravens (chapter 7)

Competitor analysis
Importance - Provides an understanding of your competitive advantage / disadvantage relative to your competitors position. - Insights into competitors strategies - Developing future strategies to sustain/establish advantages over your competitors.

Competitor analysis
Porter's approach to competitive structure analysis Nature and intensity of competition within any industry is determined by the interaction of five key forces: 1. The threat of new entrants 2. Power of buyers 3. Threat of substitutes 4. Extent of competitive rivalry 5. Power of suppliers 4

Competitor analysis
1. Threat of new entrants - Depends on barriers to entry - How heavy is the capital investment Intel's huge investment into research - Strong brand image to overcome Coke investments required to build brands - Cost incurred to create distribution channels Hindustan Levers huge investments in distribution in rural areas
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Competitor analysis
2. Power of buyers - Is likely to be higher if: 1. There are large number of suppliers 2. Alternative sources of supply 3. Threat of backward integration Example Reliance Industries 1. Started as textiles company 2. Makes raw materials to produce textiles 3. Vertically integrated 4. Bargains on price for huge quantities it picks 6up.

Competitor analysis
3. Threat of substitutes - Will be more prevalent if: - Customers perceive other offers to perform the same function as ours - Substitute products offer higher value for money - Substitute products earn higher profits

Competitor analysis
Onion versus ready to make paste
Dabur Hommade pastes

Tomato versus tomato puree Scooters versus Motorcycles

Hero Honda sales at the expense of Bajaj

Vanaspati versus edible oils

Competitor analysis
4. Extent of competitive rivalry Intensity of rivalry will be greater if: - Competitors are of equal size and are seeking dominance - High fixed costs provoke price wars to maintain capacity. E.g: Airlines industry

Competitor analysis
New addition of capacity have created excess capacity Hotel industry
Automobile industry

Product homogeneity necessitates activity to maintain share.

Coke versus Pepsi

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Competitor analysis
5.Power of suppliers Is likely to be higher if: - There are few suppliers - Cost of switching from one supplier to another is high E.g: Intel Suppliers are likely to integrate forward Kirloskar compressors into airconditioners. Reliance entry into petroleum products retailing
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Competitor analysis
Against whom are we competing - Looks straight forward - Is not usually the case E.g: Bajaj Auto 1.Underestimation of LML 2.Undermining the strengths of Hero Honda - Gestetner underestimation of Xerox - Extinction of British and U.S television companies by Japanese organizations - Sharp attack by Symphony aesthetic coolers over traditional coolers
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Competitor analysis
Earlier clarity was high Now blurred Poor anticipation
VCR industry in 80s decline

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Competitor analysis
Marketing Myopia Theodore Levitt Marketing Guru How business is defined Why American rail business a massive decline Onslaught of airlines
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Competitor analysis
THE COURIER MARKET came in 70s Launch of fax Later email How players handled competition

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Competitor analysis
Two approaches
Adopt new products Strengthen existing business

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Competitor analysis
Adopt new products IBM Hardware in 70s Threat from low-cost producers Shifted focus to software

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Competitor analysis
Strength existing business FED EX Earlier couriers Competition from fax, email Shifted focus on parcel market Physical distribution required Offered door-to-door delivery
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Competitor analysis
FED EX Offer complete logistics solutions Found existing players not offering these solutions Gradually left the space for document courier to smaller companies

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Competitor analysis
MOSQUITO REPELLANT DEVICES BALSARA Launched ODOMOS in 1964 Unattended need Cream based product Inhouse R & D Earlier smoke sensing devices were used
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Competitor analysis
Now creams Held 97% share of the cream market What are the concerns Later Tortoise was launched Used smoke concept Economical Gained 70% market share Odomos 20% share
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Competitor analysis
1984 Goodknight brand No use of cream or coil Value proposition
Cleaner Less messy Convenient
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Competitor analysis
By late 90s Mats/liquid-70% Coils-22% Creams-9% Balsara tried to launch mats/liquid BALSARA lost the market which it created in 1964
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Poor understanding of the competition Decline

Air coolers Mopeds Soya-based drinks

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Competitor analysis
Competition happens at four levels
1.Companies offering only similar products - Kitkat versus Perk - Nescafe versus Bru 2.Companies consisting of all companies operating in the same category - Cadbury's Eclairs versus. Nestle Kitkat - Canada Dry versus Pepsi Cola

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Competitor analysis
Competition at four levels(Contd.,) 3. Competitor consists of all companies manufacturing or supplying products which deliver the same service - Airlines versus Railways - Second hand cars versus scooters versus Tata Nano 4. Competition consists of all companies competing for the same spending power - Dishwasher versus Microwave oven - Designer jewellery versus Ritu Beri's fabrics - Debeers versus Nokia mobile phones
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Competitor analysis
IDENTIFYING COMPETITORS LIKELY RESPONSE PROFILES Three issues How competitor is likely to respond to the general changes taking place in the external environment? How competitor is likely to respond to specific moves that we make? Is the competitor likely to initiate an aggressive move?
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Competitor analysis
COMPETITOR PROFILES The laid-back competitor The selective competitor The tiger competitor The stochastic competitor

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Competitor analysis
The laid-back competitor Competitors do not react Feel customers may stay loyal Lack resources to react

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Competitor analysis
The selective competitor React to selective moves of competitor Modi Xerox versus HCL copiers

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Competitor analysis
The tiger competitor
React swiftly Strong reply Signal that it is going to fight Surf versus Ariel
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Competitor analysis
The stochastic competitor Do not exhibit any predictable pattern No trends available Could exhibit any type of competitor

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Competitor analysis
COMPETITIVE EQUILIBRIUM
Five scenarios If competitors are nearly identical and make their living in the same way, then the competitive equilibrium is unstable. Identical products Commodity industries Competitive equilibrium gets upset if one cuts prices
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Competitor analysis
If a single major factor is the critical factor, then competitive equilibrium is unstable Differentiation is possible Breakthrough in technologies Cut costs Change habits of consumers Apples Iphone Amazon.com
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Competitor analysis
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. Retailing industry in India
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Competitor analysis
The fewer the number of competitive variables that are critical, the fewer the number of competitors.
If one factor is critical, fewer competitors. More variables, larger number of competitors, but smaller in size.
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Competitor analysis
A ratio of 2 in 1 in market share between two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for other competitor to increase or decrease share.

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Competitor analysis
INDUSTRY STRUCTURE TYPES Five types Pure monopoly Differentiated oligopoly Pure oligopoly Monopolistic competition Pure competition
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Competitor analysis
Pure monopoly High prices Little advertising Low service levels Barriers to entry exist

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Competitor analysis
Differentiated oligopoly Differentiation through quality, features Reflected by the price premium which is available INTEL experience

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Competitor analysis
Pure oligopoly Differentiation is difficult Going-rate pricing Sustainable competitive advantage is through cost-reductions

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Competitor analysis
Monopolistic competition Organizations look for markets where scope of competition minimizes Pricing premium can be attained Retailing in India

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Competitor analysis
Pure competition No scope for differentiation Same prices Psychological differentiation Profits determined by cost management

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