COMPETITOR ANALYSIS

 Competitor analysis is an assessment of the strengths and weaknesses of current and potential
competitors.
 Competitors are analyzed along various dimensions such as their size, growth and profitability,
reputation, objectives, culture, cost structure, strengths and weaknesses, business strategies,
exit barriers, etc.
 It is the process of identifying the competitors and evaluating their strengths and weaknesses
against our own products or services. This forms an indispensable part of any company’s
marketing strategy. Doing a competitor analysis helps a company, recognize it’s competitors
and their products. This enables it to position it’s own products in a manner that attracts
customers.
 Process: To do a competitive analysis, firstly all the competitors are identified by the
company. Next, these are classified in strategic groups based on factors like market share,
similar target market etc. Secondly, for every competitor, we list down the products, market
share, power, profit, strategies followed, strengths, weaknesses etc. This is generally done in a
grid. Based on competitive analysis, the company can make sound strategies to tackle the
competitors.

Example: If you plan to open a new restaurant in a locality, you will have to analyse what other
restaurants are present nearby. Further we will also analyse what cuisine they are known for. Also,
we will analyse their prices before making our price list.

The main objectives of competitor analysis can be summarized as follows:

To study the market;

To predict and forecast organization’s demand and supply;

To formulate strategy;
 To increase the market share;

To study the market trend and pattern;

To develop strategy for organizational growth;

When the organization is planning for the diversification and expansion plan;

To study forthcoming trends in the industry;

Understanding the current strategy strengths and weaknesses of a competitor can suggest
opportunities and threats that will merit a response;
Insight into future competitor strategies may help in predicting upcoming threats and
opportunities.

MICHAEL E. PORTER’S FIVE-FORCES MODEL

Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks
for developing an organization’s strategy. One of the most renowned among managers making
strategic decisions is the five competitive forces model that determines industry structure. According
to Porter, the nature of competition in any industry is determined by the following five forces:

i. Threat of new potential entrants

ii. Threat of substitute product/services
iii. Bargaining power of suppliers
iv. Bargaining power of buyers
v. Rivalry among current competitors
The five forces mentioned above are very significant from point of view of strategy formulation. The
potential of these forces differs from industry to industry. These forces jointly determine the
profitability of industry because they shape the prices which can be charged, the costs which can be
borne, and the investment required to compete in the industry. Before making strategic decisions, the
managers should use the five forces framework to determine the competitive structure of industry.

The five factors of Porter’s model in detail:

1. Risk of entry by potential competitors: Potential competitors refer to the firms which are not
currently competing in the industry but have the potential to do so if given a choice. Entry of
new players increases the industry capacity, begins a competition for market share and lowers
the current costs. The threat of entry by potential competitors is partially a function of extent of
barriers to entry. The various barriers to entry are-
 Economies of scale
 Brand loyalty
 Government Regulation
 Customer Switching Costs
 Absolute Cost Advantage
 Ease in distribution
 Strong Capital base
2. Rivalry among current competitors: Rivalry refers to the competitive struggle for market
share between firms in an industry. Extreme rivalry among established firms poses a strong
threat to profitability. The strength of rivalry among established firms within an industry is a
function of following factors:
 Extent of exit barriers
 Amount of fixed cost
 Competitive structure of industry
 Presence of global customers
 Absence of switching costs
 Growth Rate of industry
 Demand conditions
3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product
or the firms who distribute the industry’s product to the final consumers. Bargaining power of
buyers refer to the potential of buyers to bargain down the prices charged by the firms in the
industry or to increase the firms cost in the industry by demanding better quality and service of
product. Strong buyers can extract profits out of an industry by lowering the prices and
increasing the costs. They purchase in large quantities. They have full information about the
product and the market. They emphasize upon quality products. They pose credible threat of
backward integration. In this way, they are regarded as a threat.
4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the
industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the
prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways.
Strong suppliers can extract profits out of an industry by increasing costs of firms in the
industry. Supplier’s products have a few substitutes. Strong suppliers’ products are unique.
They have high switching cost. Their product is an important input to buyer’s product. They
pose credible threat of forward integration. Buyers are not significant to strong suppliers. In
this way, they are regarded as a threat.
5. Threat of Substitute products: Substitute products refer to the products having ability of
satisfying customer’s needs effectively. Substitutes pose a ceiling (upper limit) on the potential
returns of an industry by putting a setting a limit on the price that firms can charge for their
product in an industry. Lesser the number of close substitutes a product has, greater is the
 opportunity for the firms in industry to raise their product prices and earn greater profits (other
things being equal).

The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these five
forces influence the profitability as they affect the prices, the costs, and the capital investment essential
for survival and competition in industry. This five forces model also help in making strategic decisions
as it is used by the managers to determine industry’s competitive structure.

What benefits does Porter’s Five Forces analysis provide?

Five forces analysis helps organisations to understand the factors affecting profitability in a specific
industry, and can help to inform decisions relating to: whether to enter a specific industry; whether to
increase capacity in a specific industry; and developing competitive strategies.

Actions to take / Dos Actions to Avoid / Don'ts

 Use this model where there are at  Avoid using the model for an
least three competitors in the individual firm; it is designed for
market use on an industry basis
 Consider the impact that
government has or may have on
the industry
 Consider the industry lifecycle
stage – earlier stages will be more
turbulent
 Consider the dynamic/changing
characteristics of the industry

COMPETITIVE STRATEGIES / COMPETITIVE ADVANTAGE

  Once competitor analysis is complete, it is time to implement a strategy to expand your
competitive advantage.
 Competitive advantage is the advantage a company has over its competitors which helps it to
sell more products or generate more revenue. Competitive advantages require delivering more
value and satisfaction to target consumers than competitors do.
 Competitive marketing strategies are how companies analyze their competitors and develop
value- based strategies for profitable customer relationships.
 To be successful, you need to be able to articulate the benefit you provide to your target
market that's better than the competition. That's your competitive advantage.

In 1985, Harvard Business School professor Michael Porter wrote ‘Competitive Advantage’.  Porter
outlined the three primary ways or strategies by which companies achieve a sustainable competitive
advantage. They are cost leadership, differentiation, and focus.

Cost leadership

There are two main ways of achieving this within a Cost Leadership strategy:

 Increasing profits by reducing costs, while charging industry-average prices.

  Increasing market share through charging lower prices, while still making a reasonable profit
on each sale because you've reduced costs.

Differentiation

To implement this strategy, make the company's products significantly different from the competition,
improving their competitiveness and value to the public. It requires both good research and
development and effective sales and marketing teams.

Focus

A successful implementation means the company selects niche markets in which to sell their goods. It
requires intense understanding of the marketplace, its sellers, buyers and competitors.

The focus strategy has two variants – Cost Focus & Differentiation Focus

(a) In cost focus, a firm seeks a cost advantage in its target segment, while in 

(b) Differentiation focus, a firm seeks differentiation in its target segment.

Both variants of the focus strategy rest on differences between a focuser's target segment and other
segments in the industry. The target segments must either have buyers with unusual needs or else the
production and delivery system that best serves the target segment must differ from that of other
industry segments. Cost focus exploits differences in cost behaviour in some segments, while
differentiation focus exploits the special needs of buyers in certain segments.

COMPETITIVE POSITIONS

Competitive Position is the position that a firm has already acquired or is trying to acquire, relative to
its competitor. A competitive position gives a firm an advantage over its competitors, thus allowing it
to retain/attract more customers, gain mindshare of customers and market share etc.

A firm is said to have an acquired competitive position if

 • Prices are competitive and attract customers

• Product and service quality is better than competitors

• The firm is seen as a preferred choice over another

• Market share is constantly increasing

 For example: Johnson’s & Johnson’s catering specifically to babies need gives it an edge over others.
Parent’s first choice for their babies is always Johnson’s and Johnson’s product.

 Market leader is the firm with the largest market share and leads the market price changes,
product innovations, distribution coverage, and promotion spending
 Market challengers are firms fighting to increase market share
 Market followers are firms that want to hold onto their market share
 Market nichers are firms that serve small market segments not being pursued by other firms
 BALANCING CUSTOMER AND COMPETITOR ORIENTATIONS

Companies need to continuously adapt strategies to changes in the competitive environment.

Companies can change their orientations in three ways:

1. Competitor- centered company

2. Customer- centered company
3. Market- centered company

Competitor-centered company spends most of its time tracking competitor’s moves and market
shares and trying to find ways to counter them. Advantage is that the company is a fighter.
Disadvantage is that the company is reactive.

Customer-centered company spends most of its time focusing on customer developments in

designing strategies. Provides a better position than competitor-centered company to identify
opportunities and build customer relationships

Market-centered company spends most of its time focusing on both competitor and customer
developments in designing strategies.