Competitor Analysis

• Any organization is most concerned about the

intensity of competition in its business / industry.

• The degree of this intensity of competition

determines the profit potential of the company in the
long run (return on investment capital)
 Rivalry/Competition can be characterized as:
a. Cutthroat or brutal when competitors engage in protracted price wars or
habitually employ other aggressive tactics that are mutually destructive to
profitability
b. Fierce to strong when the battle for market share is so vigorous that the profit
margins of most industry members are squeezed to bare bones levels
c. Moderate or normal when the maneuvering among industry members still allows
most members to earn acceptable profits
d. Weak when most companies are relatively well satisfied with their sales growth
and market shares, rarely undertake offensive maneuvers to steal customers away
from one another, and have comparatively attractive earnings and returns on
investments
Intensity of competition/rivalry
in the Industry
• Previously believed to be associated with rivals in the industry and
their actions only.
• Recently four more factors have been recognized to influence the
intensity of competition.
• Collectively they are called the Five Forces Model of Competitive
intensity.
The Five Forces Model of Competition (determinants of intensity
of competition)
• The individual strength of each of the force will contribute to the
intensity of competition.

• A stronger one will be a threat and a weaker one an opportunity

• It is still possible for the company to convert its threat into an

opportunity in the long run.

• By analyzing each of these force an organization can determine the

amount of competition it will have to face .
Analyzing the Five Competitive Forces: How
to Do It
Step 1: Identify the sub factors contributing to competitive pressure associated
with each of the five forces.

Step 2: Evaluate the strength of each competitive force by rating each

corresponding sub factor on a five point scale.

Step 3: Determine whether the collective strength of the five competitive forces is
conducive to earning attractive profits.
Factors Contributing to Rivalry
• Exit Barriers
• Industry Concentration
• Industry growth
• Fixed Costs
• Overcapacity
• Product Differences
• Switching Costs
• Brand Identity
• Diversity of Rivals
• Corporate Stakes
Factors contributing to competitive pressure of
Suppliers
• Supplier Concentration
• Importance of Volume
• Input Differenciation
• Input effect on company differenciation
• Switching Costs
• Presence of substitute inputs
• Threat of forward integration
• Cost relative to total purchase
Factors Contributing to Competitive
pressure of buyers
• Buyer concentration
• Importance of buyers
• Perceived differentiation
• Switching cost of customers
• Presence of substitutes
• Threat of backward integration
• Price sensitivity
• Buyer information
Factors contributing to competitive
pressures of substitutes
• Switching cost
• Buyer inclination to substitute
• Price-performance tradeoff of substitute
• Variety of substitutes
• Necessity of product and service
Factors contributing to competitive pressure
of New Entrants
• Average profitability of incumbents
• Incumbents have cost advantage
• Learning curve advantage of incumbents
• Access to inputs
• Regulatory policies
• Economies of scale
• Capital requirements
• Brand identity
• Switching cost
• Access to distribution
• Proprietary products
Calculation:
• Give values to sub factors from 1 to 5. Give 0 to no impact
1= very weak/negligible
2= weak
3= moderate
4= strong
5= very strong
Contd.
• Find average value for each force
• Determine strategic priority
• Find average of values of all five forces.
• Value gives the level of competitive intensity in industry.
Less than 2 = weak to moderate
2 to 4 = moderate to strong
More than 4 = very strong
 Strategic Implications of the
Five Competitive Forces
• Competitive environment is ideal from
a profit-making standpoint when
• Rivalry is moderate
• Entry barriers are high
and no firm is likely to enter
• Good substitutes
do not exist
• Suppliers and customers are
in a weak bargaining position