Chapter 5

Industry and Competitor Analysis

Industry trends analysis, Five
competitive forces model, the value
of the five forces model, industry
types and the opportunities,
identifying competitors, sources of
competitive intelligence, completing a
competitive analysis grid.
 Industry Trends Analysis
• An industry is a group of firms producing similar product or service,
such as airlines, cold drinks, furniture, sports products, educational,
etc..
• It is a collection of competitors that produces similar or substitute
product or services that fulfill same needs in a defined market.
• Industry analysis is a business research that focuses on the potential
of an industry.
• Industry analysis is a tool that facilitates a company's understanding
of its position relative to other companies that produce similar
products or services. 
• Once it is determined that a new venture is feasible in regard to the
industry & the target market, a more in-depth analysis is needed.
• This analysis helps the firms to determine if the niche market it
identified during feasibility analysis is favorable for the new firm.
• Industry analysis enables business owners to identify the threats &
opportunities facing their businesses, & to focus their resources on
developing unique capabilities that could lead to a competitive advantage.
• An industry analysis is a business function completed by business owners
and other individuals to assess the current business environment.
• This analysis helps businesses understand various economic pieces of the
marketplace and how these various pieces may be used to gain a
competitive advantage.

• When studying an industry, an entrepreneur must answer three questions

before pursuing the idea of starting a firm
1. Is the industry accessible - in other words, is it a realistic place for a new
venture to enter?
2. Does the industry contain markets that are ripe for innovation or are
underserved?
3. Are there positions in the industry that avoid some of the negative
attributes of the industry as a whole?
• Industry trend analysis begins by discussing the major trends in the
industry in which the firm intends to compete, along with important
characteristics of the industry, such as its size, attractiveness, and profit
potential.
• By studying past trends, decision-makers can get a better idea of where
they are going in the future. It also analyzes the barriers, target market,
competition, strengths of the firm, etc..
• Industry trends are examined to make predictions.
• The study includes trends related to consumer behavior, employment,
technological advancements, new product development, competition,
government norms and other factors that impact the industry.
• The overall attractiveness of an industry should be considered when an
entrepreneur decides whether to pursue a particular opportunity.
An attractive industry is the one which is
a) Large and growing, b) important to customers,
c) Not matured & Not crowded d) Operating in high margins,
e) High growth f) Low barriers to entry, etc.
• Industry trend analysis and the five competitive forces
model are two techniques entrepreneurs undertake to assess
industry attractiveness.
• Industry Trend Analysis can be evaluated in terms of
Environmental Trends and Business Trends, as depicted under:

Industry Trend Analysis

Environmental Trends Business Trends

Economic Trends
Social Trends
Technological Advances
Political Changes
Regulatory Changes
Trade Publication
Economic Newsletters
Government Publication
 1. Environmental Trends
• Environmental trends include economic trends, social
trends, technological advances, political and regularity
changes that are happening at national and international
levels that may influence the future of the business.
• The strength of an industry often increases or decreases
as environmental trends shift in favor or against the
products or services sold by the firms in the industry.
• For example, industries that sell products to seniors are
benefiting by the aging of the population; high prices of
cars in Nepal work to the advantage of motorcycle
industry.
• What key political & regulatory developments are taking place now? How
do these changes affect your market and customers? How do these trends
affect your industry, suppliers, partners & customers? Focus your analysis
on tax regulations, trade rules, environmental legislation, etc.
• Are economic changes affecting your company, your customers or your
suppliers? Does this create opportunities, or does it threaten your market
potential? Focus your analysis on economic growth rate, interest rates,
currency changes, inflation, etc.
• What social & cultural changes are occurring? And how they impact the
potential of your startup in the short & long term. Focus your analysis on
demographic trends such as birth rates, aging, & migration; attitudes
towards healthy lifestyles, organic foods, security, & terrorism, etc.
• What key technological trends impact your business? Consider also
technology advances that affect your customers and suppliers. Do any of
these changes create opportunities or threaten your potential? Focus your
analysis on specific technological breakthroughs, the launch of innovative
new products, areas that undergo much research & development, etc.
 2. Business Trends
• Business trends is a general change in the way business is
developing. Such changes impacts an industry.
• Business trends involve looking at the statistical analysis of
historical data over a selected time frame & charting the
progression. If the data suggests consistent increases, decreases or
even flatness, there exists a trend.
• Businesses of all sizes use this kind of data to help predict the
future & help shape strategic decisions.
• Other trends for example, are profit margins in the industry
increasing or falling? Is innovation accelerating or weakening? Are
input costs going up or down? etc.. Such trends have an impact in
the industry.
• Some firms in the industry benefit from increasing ability to
outsource to lower-cost foreign labor markets; while other firms
don’t share this advantage.
• Understanding of business trend helps you understand how
your business has performed & predict where current business
operations & practices will take you.
• Done well, it will give you ideas about how you might change
things to move your business in the right direction.
• You can use trend analysis to help improve your business by:
– identifying areas where your business is performing well so you can
duplicate success
– identifying areas where your business is underperforming. Etc.
• This guide explains how you can use historical data to analyze
trends and improve your business.
• Entrepreneurs can also obtain current information about
business trends by regularly reading trade publications,
economic newsletters, government publication, listening to
your customers, observing competitors, being up-to-date with
industry research & publication, etc.
 Invention & Innovation

Differences
• Invention: the creation of a product or introduction of a process for the first
time.
• Innovation: is when someone improves on or makes a significant contribution to
an existing product, process or service.
• Invention refers to the creation of a brand new product or device. Innovation is
an act of making changes to the existing product or the process by introducing
new ways or ideas.
• Invention refers to the occurrence of an idea for a product or process that has
never been made before.
• Innovation implies the implementation of idea for product or process for the
very first time.
• Invention is creation of a new product. Innovation is adding value to something
already existing.
• Invention is an original idea and its working in theory. Innovation is the practical
implementation of new idea.
• Invention requires scientific skills. Innovation requires set of marketing,
technical & strategic skills.
 Five Competitive Forces Model
• Michael Porter’s Forces is a model of industry analysis.
• Porter's Five Forces of Competitive Position Analysis were
developed in 1979 by Michael E Porter of Harvard Business
School as a simple framework for assessing and evaluating the
competitive strength and position of a business organization.
• This theory is based on the concept that there are five forces
that determine the industry profitability, competitive intensity
& attractiveness of the industry.
• The five competitive forces are:
1. Threat of New Entrants (Competitors)
2. Threat of Substitutes
3. Rivalry among Existing Firms
4. Bargaining Power of Suppliers
5. Bargaining Power of Buyers.
 I. Threat of New Entrants
• New entrants bring additional production capacity, and can threaten the
market share & profit of the existing competitors.
• If the industry is highly profitable, the industry becomes a magnet to
attract new entrants.
• Industry is more attractive when the threat of new entrant is low.
Profitable markets attract new entrants, which erodes profitability.
• The profitability of the existing firms will decline, unless incumbents
(occupants/existing firms) have strong & durable barriers to entry, for
example, patents, economies of scale, capital requirements or
government policies, etc..
• Low barriers to entry reduce profitability of the existing firms in the
industry. Larger the pool of potential new entrants to an industry, the
greater is the threat to existing firms.
• Competitors can easily enter the industry if capital requirement is low, if
no specialized knowledge is needed, if access to distribution channel is
easy, etc..
• Firms in an industry try to keep the number of new entrants low by
erecting barriers to entry.
• A barrier to entry is a condition that creates a disincentive
(discouragement) for new firms to enter an industry.

According to Porter, there are seven major sources of barriers to entry,

as under
1. Supply Side Economies of scale: Economies of scale occur when mass-
producing a product results in lower average costs. Industries
characterized by large economies of scale are difficult for new firms to
enter, unless they are will to accept a cost disadvantage.
2. Demand Side (Benefits) Economies of scale: It is the willingness of
customers to buy from a newcomer. Demand side economies of scale,
or “network effects,” is the theory that the value of a product is
dependent on the others using the same product. For example, a
competitor to Microsoft’s Excel is highly unlikely to emerge because of
the huge network of business consumers that currently utilize the
program.
3. Customer Switching Cost (Product Differentiation):
Switching costs are the fixed cost that a buyers face when
they change sellers. Any additional cost the consumer bears
to switch to a new product, increases the price of the new
product. This creates an additional barrier to entry for the
entering firm. The larger the switching costs, the harder it
will be for an entrant to gain customer.
In industries in which there is high product differentiation,
there is more consumer loyalty to the product. This creates
an entry barrier for new entrants.
4. Capital Requirement:  Some industries require a large
financial outlay in order to enter the industry. The need to
invest large amounts of money to gain entrance to a
industry is another barrier to entry. The need to invest large
financial resources in order to compete can discourage new
entrants.
5. Cost advantage independent of size: No matter what the size of the firm,
incumbents (existing firms) may have cost or quality advantages, which
may not be available to new entrants. E.g.. existing firm in the industry may
have purchased land & equipment in the past when cost was far less, or
have favorable access to raw materials, desirable location or government
subsidies. Such cost advantages create entry barriers to new firms.
6. Unequal Access to distribution channel: Competition for space on a
grocery store shelf is a zero-sum game, if one product wins access to the
shelf, another product loses. Access to distribution channels can be a
strong entry barrier for new entrants, particularly with consumer
nondurable goods. Without access to distribution channel it is difficult to
gain sufficient shelf space when large number of products are displayed.
7. Restrictive Government Policy: In certain industries, the government will
erect barriers to protect the industry from competition or to protect
consumers from the industry, which is called “natural monopolies”.
Government control entry into an industry through licensing & permit
requirements. Some industries, such as broadcasting, pharmaceutical,
banking, liquor retailing, etc. require license by public authority to
compete.
 II. Threat of Substitutes
• A substitute product are goods or services that perform similar
functions or fulfill the same need as the industry’s product. E.g..
Plastic substitute aluminum, online news substitute newspaper,
coffee substitute tea, etc..
• Where close substitute products exist in a market, it increases the
likelihood of customers switching to alternatives 
• In general, product substitutes pose a strong threat to a firm
when switching costs are low & when price of substitute product
is lower but have similar quality & performance.
• When threat of substitutes is high, industry profitability & entry
of new firms will not be encouraging. Or, industries are more
attractive when the threat of substitutes is low.
• Many firms in an industry often offer facilities to customers to
decrease the possibility of customer switching to substitute
products, even in light of price increase.
 III. Rivalry Among Existing Firms
• In most industries, the major determinant of industry
profitability is the level of competition among existing firms.
• The main driver is the number & capability of competitors in the
market.
• If the competitors are of equal size or market share, then the
intensity of rivalry will increase.
• Many competitors offering undifferentiated products & services,
intensifies competition & thus reduce market attractiveness.
• In an industry, the firms normally compete for the same market
and same customer.
• Competitive rivalry takes many forms, like, price discounting,
new product introduction, advertising campaign, service
improvements, etc..
• High competitive rivalry limits profitability of the industry & the
reduces industry attractiveness.
• Competitive rivalry is highest, if
– The number of competitor is large
– Competitors are equal in size or capability
– The industry is growing slow
– No opportunity to sell a differentiated product or
service
– Exit barriers are high
– Rivals are highly committed
– Price competition exists.
 There are 4 primary factors that determine the nature and strength of
the competition among existing firms in an industry:
a. Number and Balance of Competitors: When all the competitors are
about the same size then there are higher chances of competitive
rivalry.
b. Degree of Difference between Products: When degree of differences
between products of competitors is low competition rivalry is high.
c. Growth Rate of Industry: The competition among firms in a slow
growth industry is stronger than among those in fast growth industries.
d. Level of Fixed Costs: High fixed costs are common in manufacturing,
communications, & transportation industries. Firms with high fixed
costs make every effort to recover at least a portion of those fixed
costs & may resort to offering buyers a range of incentives, from
drastic price cuts to rebates (refund). These incentives are often met
with a swift competitive responses. These competitive actions can
drive all profits out of the industry. Thus entrepreneurs prefer to avoid
with industries with high fixed costs.
 IV. Bargaining Powers of Suppliers
• The Bargaining Power of Suppliers refers to the pressure
suppliers can put on companies by raising their prices, lowering
their quality, or reducing the availability of their products.
• Powerful suppliers capture more value for themselves by
charging higher prices, limiting quality or services, or shifting
costs (like insurance, transportation costs) to industry
participants. They (suppliers) can lower down the profitability
of the business.
• If suppliers increase price or decrease quality of raw materials
then production cost increases or product quality decreases.
This reduces the competitive strength of the firm.
• Industry with high bargaining power of suppliers are considered
as an unattractive industry.
 Factors that have an impact on the ability of suppliers to exert
pressure on buyers are,
1. Supplier Concentration: The suppliers have an advantage when
there are few suppliers & large number of industries (buyers) or
when suppliers have monopoly.
2. Switching Costs: If switching cost is high, a buyer is less likely to
switch suppliers. Hence suppliers become powerful.
3. Attractiveness of Substitutes: Supplier power is enhanced if
there are no attractive substitute for the products or services
the supplier offers.
4. Threat of Forward Integration: The power of supplier is
enhanced if there is a trustworthy possibility that the supplier
might enter the buyer’s industry. It refers to a supplier choosing
to become a competitor of the firm itself.
(A good example of forward integration is when a farmer sells
his crops at a local grocery store rather than to a distribution
center that controls grocery store placement.)
 V. Bargaining Power of Buyers
• It is the analysis of the power of customers towards the firm.
• Buyer bargaining power refers to the pressure consumers can exert
on businesses to provide higher quality products, better customer
service, & lower prices.
• Bargaining power of buyers makes the firm to force down prices, or
buyers demand better quality or more services.
• Buyers can suppress the profitability of the industries from which
they purchase by demanding price concessions or quality
improvement.
• The bargaining power of buyers will determine the degree of
competitiveness of an industry. By nature, buyers want to receive the
maximum benefits possible by paying the lowest price.
• Thus, the greater the bargaining power of buyers, the lower the
competitiveness of a company competing in that industry. Thus the
industry is unattractive when bargaining power of buyers is high.
 Factors that have impact on the ability of buyers to exert pressure on
suppliers are:
1. Buyer Group Concentration: If there are few large buyers, & they buy
from a large number of suppliers, they can pressure the suppliers to
lower costs or improve quality, & thus affect profitability.
2. Buyers Costs: The greater the importance of an item is to a buyer, the
more sensitive the buyer will be to the price it pays. The buyer will
bargain hard to get the best price for that component.
3. Degree of standardization of supplier’s products: The degree to which
a supplier’s product differs from its competitors affect the buyer’s
bargaining power. If there is no product differentiation among
competitors product, then buyer power enhances.
4. Threat of backward integration: The power of buyers is enhanced if
there is a credible threat that the buyer might enter the supplier’s
industry. Backward integration is when a business takes on activities
"upstream” in the supply chain. E.g. of backward integration is when a
bakery business moves up the supply chain to purchase a wheat
processor or a wheat farm.
 The Value of the Five Forces Model
• Five forces model is the most used business strategy tool to
determine industry attractiveness, industry profitability &
competitor analysis.
• It is used to maximize the firms value creation.
• It helps the firm to understand about the position it would occupy
in the industry.
• Porter's five forces determine a company's competitive
environment, which affects profitability.
• The bargaining power of buyers may force a company (seller) to
reduce prices & the bargaining power of suppliers allow the
supplier to raise prices.
• Low-entry barriers attract new competition, while high-entry
barriers discourage it.
• Industry rivalry is likely to be higher when several companies are
competing for the same customers, and intense rivalry leads to
lower prices and profits.
 The value or application of Five Forces Model can be
used in two ways.
1. To help a firm determine whether it should enter a
particular industry:
• Five Forces Model can be used to assess the
attractiveness of an industry.
• It helps the firm to analyze the level of several threats
(threats of substitute product, threat of new entrants,
competitive rivalry, etc.) to industry profitability and
come up with start up and operational strategy.
• If the threats are high the firm may want to reconsider
entering the industry.
2. Whether the firm can carve out an attractive position in
that industry:
• The new firm can apply the Five Forces Model to assess
the specific position the firm would hold in the industry.
• The model helps the new firm to determine its potential
success in a particular industry by answering questions
like,
• Is the industry a realistic place for new venture?
• Are there areas in which we can avoid factors that
suppress industry profitability? etc..

• If the threats are high the firm may want to think

carefully about the position it would occupy.
• Porter’s five forces model is a good tool to understand the degree of
competitiveness in a specific market.
• How likely it is for new competitors to enter the market?
• Who holds (price) power? customers or suppliers?
• It can be used to make decisions such as
– how to price a product?
– what are the important routes to market?
– who are the future likely competitors?
– How many firms are there?
– Who are the major players & who are my competitors? Etc.
• Porter's five forces model gives a systematic way for anyone to figure
out what's going on in their industry, and what to do next.
• It allows you to analyze a business or industry from multiple angles to
determine whether entering into that business is lucrative or not.
• Analyzing the barriers to entry, power of suppliers/buyers, substitutes
& competition allows you to look at the market environment & make
strategic decisions based on those measurements.
 The analysis of Five Forces Model contributes the
following understanding:
• Overall attractiveness of an industry & assessing the
window of opportunity (a favorable opportunity for
doing something that must be seized immediately).
• Potential performance of the firm in future.
• Avoiding or diminishing the impact of the forces that
suppress industry profitability.
• Unique position in the industry that avoids or diminishes
the forces that suppress industry profitability.
• Come up with superior business model that can be put in
place that would be hard for industry incumbents to
duplicate.
 Industry Types and the Opportunities
• It is important & more helpful for a new venture to
study industry types to determine the opportunities
they offer.
• The five most important types are:
1. Emerging Industries
2. Fragmented Industries
3. Mature Industries
4. Declining Industries
5. Global Industries.
 1. Emerging Industries
• An emerging industry is a group of companies in a line of business formed
around a new product or idea that is in the early stage of development.
• An emerging industry typically consists of just a few companies & is often
centered around new technology.
• Emerging industry is a new industry in which standard operational
procedure is yet to be developed.
• They have recent changes in demand or technology.
• Research & development expenses will comprise the bulk of early
operating expenses of companies in the industry.
• Marketing expenses will be high because the product or service is largely
unknown & unproven, so companies in an emerging industry must
convince both investors & consumers that the product or service will be
valuable.
• Barriers of entry is usually low in emerging industries & there is no
established pattern of rivalry.
• It may take years for an emerging industry to reach
profitability. Hence high level of uncertainty exists.
• When a firm takes lead to establish this industry, it will be
able to harness the first-mover advantage.
• A firm has first-mover advantage if it is the first entrant &
gains a competitive advantage through control of resources,
technological leadership, or early purchase of resources.
• The growth potential in emerging industries is high though
risks are also high.
• Investing in an emerging industry is a high risk-reward
proposition.
• However, many entrants will rush into the space in an
attempt to gain an early advantage.
• The first-movers can be rewarded with huge profit margins
and monopoly-like status.
• Any opportunity that is captured is short-lived.
• Eg. Medical marijuana, Telemedicine, 3D printing,  artificial
intelligence, virtual reality and self-driving vehicles, AI
healthcare like automated health apps, personal coaches,
drones, etc.
• Its features are,
-New and unproven market,
-Proprietary technology, (protected by trademark or patent or
copyright)
-Low entry barriers,
-Buyers are first time users.
- Marketing involves inducing initial purchase
-overcoming customer concerns
- Possible difficulties in securing raw materials
-Firms struggle to fund R&D
 2. Fragmented Industries
• Fragmented industry is an industry in which no single enterprise
has large enough share of the market.
• It is characterized by a large number of firms of approximately
equal size & no firm is able to influence the industry.
• It is the industry in which many companies compete & there is no
single or small group of companies which dominate the industry.
• There is an opportunity for product/service differentiation.
• In a fragmented industries there is often fewer barriers to entry
than consolidated industries.
• Due to this fragmented nature of the industry, there is no
monopolistic pressure. So, anybody even new entrants have a
place in the industry & have opportunity to lead the industry.
• The primary opportunity for start-ups in fragmented industries is
to consolidate (mergers & acquisitions) the industry & establish
industry leadership.
• No company is in an overly strong or influential position in
fragmented industry.
• There is no clear leader in market & no one company
determines the direction in which the industry is going.
• Features of fragmented industries are,
– No firm has significant market share
– All firms are of equal size & scope
– No firm can significantly influence industry outcomes.
– Low entry barriers than consolidated industry
– Low level of product innovation
– No real economies of scale
– Examples include, Barber shop, Book publishing, Restaurant ,
Women dresses, Furniture, etc. industries.
 3. Mature Industries
• The industry which has passed emerging & growth phases of
industry is a mature industries.
• A market is mature when it has reached a state of equilibrium or
when there is an absence of significant growth or lack of innovation.
• Mature industry experience slow or no increase in demand, sales &
profit.
• Earnings & sales grow slower in mature industries than in growth &
emerging industries.
• It has no or limited product innovation.
• A mature industry may be at its peak or just past it.
• While earnings may be stable, growth prospects are few.
• Mature industry are often large industry with vast potential if
innovations can be effectively introduced, so that the industry can
be refreshed.
• Come up with superior product, technology, that
differentiates your product with that of
incumbent, so that you can lead the industry.
• Features of matured industry are:
– Slow or no growth of demand
– Large repeat customers
– Technology standard exists
– Increasing competition
– Limited product innovation
– Industry exit is beginning
– Industry-wide profits declining.
The automotive, petroleum, tobacco, banking,
bakery, etc. industries are some examples of
matured industry.
 4. Declining Industries
• When an industry starts to experience negative growth (or
remains stagnant), it is said to be a declining industry.
• Demand is reducing in declining industries. 
• An industry is said to be in decline when it does not keep
pace with the rest of the country's economic growth, or
when its rate of growth contracts.
• Declining industries may be the result of declining
economy, downgrade/upgrade of a product, technological
innovations, increase in input costs, changes in customer
taste & preferences, emerging substitute products, etc.
• When the growth rate of an industry stagnates or starts to
shrink, for any of these reasons, it is said to be in decline.
• A declining industry is an industry where growth is either
negative or is not growing at the broader rate of economic
growth.
• Eg. Audio cassette, film (reel) camera, compact disc, wired
telecommunication, video rentals, cyber cafe, costume rental,
MP3, etc. industry.
• Entrepreneurs fear to enter declining industries as it may not give
an attractive opportunity.
• It may provide opportunities to adopt a leadership strategy &
become a dominant player (which is rare for start-ups).
• Establish a niche market, where your caliber matches the
requirement of the market.
• Pursue cost reduction strategy through process innovation or
finding an economic supplier.
• Developing & disclosing credible information which reduces
uncertainty.
 5. Global Industries

• Industries that are experiencing significant international sales are

global industries.
• These industries appeal & cater international rather than just
domestic markets.
• The term "global industry" refers to industries that effectively
operate in all, or most, of the markets across the world.
• The industry offers roughly equivalent products or services to
customers in every market, & the competitive position of companies
in that industry depends on performance across all markets.
• The basic features of the global industry include the interconnection
of communication networks & databases around the world through
information technology & communication infrastructure that spans
the globe.
• They may even compete for raw materials, finance, man-power
worldwide.
• The opportunities in global industries is that there is
access to global technology, global finance, global
resources & global customers.
• The whole world is considered as one market.
• Two common strategies (opportunities) adopted by global
industries are:
• Multi-domestic strategy and Global strategy
• Multi-domestic strategy compete for market share by
differentiating their product/services on a country-by-
country basis.
• In Global strategy firms use the same basic strategy in all
foreign markets.
• Cold drinks (Coke, Pepsi) industry, vehicle industry (Honda,
Mercedes), mobile industry (iphone, Samsung), etc. are
some examples of global industries.
 Identifying Competitors

• Competitors analysis is a detail analysis of competition of a

firm which helps to identify potential and actual
competitors.
• It is essential to identify competitors before moving up
with a business idea.
• It helps the firm to understand the positions of its major
competitors and the opportunities that are available.
• The purpose of the competitive analysis is to determine
– the strengths & weaknesses of the competitors within your
market,
– strategies that will provide you with a distinct advantage,
– the barriers that can be developed in order to prevent
competition from entering your market, and
– any weaknesses that can be exploited, etc. 
• Competitor analysis helps an you to find answer to following
question & develop strategies accordingly:
• Who are your competitors?
• What products or services do they sell?
• What is each competitor's market share?
• What are their past strategies?
• What are their current strategies?
• What type of media are used to market their products or
services?
• How many hours per week do they purchase to advertise
through the media used in this market?
• What are each competitor's strengths and weaknesses?
• What potential threats do your competitors pose?
• What potential opportunities do they make available for you?
• A competition analysis grid is a tool for organizing
the information a firm collects about its
competitors, in order to assess the strengths and
weaknesses of current and potential competitors.
• It helps in identifying your competitors &
evaluating their strategies to determine their
strengths & weaknesses relative to those of your
own product or service.
• A business faces different types of competitors as
under
1. Direct Competitors
2. Indirect Competitors
3. Future Competitors
 1. Direct Competitors
• Direct competitors are businesses that offer products & services
identical or similar to those of the firm & compete for the same
potential market/target customers.
• Eg. Apple’s ‘iphone’ and Samsung’s ‘Galaxy’ are direct competitors in
smart phone industry. ‘Coke’ & ‘Pepsi’ are direct competitors in cold
drink industry.
• Direct competitors may have same advertisement campaign, pricing
strategies, distribution model & other promotional strategies.
• Entrepreneurs keep track of any significant technological innovations at
any direct competitor that might put them at a competitive
disadvantage.
• Direct competition is a situation in which two or more businesses offer
products or services that are essentially the same; as such, the
businesses are competing for the same potential market.
• This means that your direct competitors are targeting the same
audience as you, selling the same products as you, in a similar
distribution model as you.
 2. Indirect Competitors
• Indirect competitors are businesses that offer slightly different
products and services, but close substitutes to the product of the firm.
Like eyeglass & contact lenses manufacturer.
• They provide products & services which are not same but satisfy the
same customer need or to the same customer group.
• Indirect competitors are those who attract same customers but offer
different products & services to customers aiming to satisfy the same
customer need.
• Eg. a pizza shop competes indirectly with a fried chicken shop. But
directly with another pizza shop.
• A car rental company and bus service company may be indirect
competitors.
• Indirect competition is competition between companies that
make slightly different products but target the same customers. Apart
from targeting the same group of customers, they also aim to satisfy
the same needs.
 3. Future Competitors
• Future competitors are businesses that are not yet direct or indirect
competitors but could be a competitor any time in future.
• A firm that has business capabilities that would allow them to quickly
take market share if they entered your market.
• E.g. a large technology firm may be perceived as a (future) competitor
of smaller technology firm even if it hasn’t entered the market yet.
• Firms are always concerned about strong competitors moving into their
markets.
• It is impossible for a firm to identify all its direct, indirect and future
competitors. However, identifying 5-10 direct, indirect and future
competitors makes it easier for the firm to compete its competitive
analysis grid.

• Knowing who your competitors are, what they are offering , can help
you make your products, services and marketing stand out or superior.
 Sources of Competitive Intelligence

• Competitive intelligence (CI) is the action of defining,

gathering, analyzing, & distributing intelligence about
products, customers, competitors & any aspect of the
environment needed to support executives & managers in
strategic decision making for an organization.
• Competitive intelligence refers to information collected by a
company about rival businesses and markets, which may
then be analyzed to create more effective business strategies
moving forward.
• By definition, competitive intelligence assembles actionable
information from diverse published & unpublished sources,
collected efficiently & ethically.
• Competitive intelligence transcend (rise above/go beyond)
the simple phrase "know your enemy."
• The information gathered by a firm to learn about its
competitors is known as competitive intelligence.
• Competitive intelligence essentially means understanding
and learning what's happening in the world outside your
business so you can be as competitive as possible.
• It means learning as much as possible--as soon as possible--
about your industry in general, your competitors, or even
your county's particular zoning rules.
• In short, it empowers you to anticipate and face challenges
head on.
• To complete a competitive analysis grid, a firm must first
understand the strategies and behaviors of its competitors.
• A competitive intelligence source is a medium that provides
relevant insights about competitors.
• Processing real-time & up-to-date data is crucial.
• A new venture should take care that it collects competitive intelligence
in a professional and ethical manner.
• A typical competitive intelligence study includes information and
analysis from various disparate sources, including the news media,
customer and competitor interviews, industry experts, trade shows &
conferences, government records, & public filings.

• Ethical ways to obtain information about competitors are:

1. Attend conference and trade shows.
2. Purchase competitors products.
3. Explore and study competitors websites.
4. Read industry-related books, magazines, and websites.
5. Interaction with customers about likes and dislikes of the firms
products.
6. From channel members like wholesalers & retailers.
7. Set up Google and Yahoo! e-mail alerts.
1. Attend Conference and Trade Shows
Information on latest trends in the industry and
current products can be obtained in conference
and trade shows. Many companies attend trade
shows not only to display their products, but to
see what their competitors are up to.
2. Purchase Competitor’s Product
Another way of collecting the information is
purchasing and using the competitor’s products.
This can provide understanding of their products,
their benefits and shortcomings, so that products
better than competitors can be developed.
3. Explore and Study Competitors Websites
Competitors websites provide a lot of information
about the various aspect of the competitor, like
their products, services, latest news of the
company, management team, promotional
activities, etc..
4. Reading industry-related Books, Magazines, and
Websites
Industry related books, magazines, newspaper,
websites, etc., contain information about the
competitors, which can be collected.
5. Interaction with Customers about likes and dislikes
Customers can provide abundance of information
about the advantages & disadvantages of
competing products. Talk to customers about what
motivated them to buy your product as opposed to
your competitor’s product.
6. Set up Google and Yahoo! e-mail alerts
E-mail alerts are updates of the latest Google or
Yahoo! results, including press releases, news
articles, and blog posts, on any keywords of
interest. One can set up e-mail alerts using the
company’s name or the name of the competitor.
Completing a Competitive Analysis Grid
• A competitive analysis grid is a tool for organizing the
information about the competitors.
• It helps the firm to understand the strength & weakness
of the competitors, how it stands up against the
competitors and how it counters the competitors.
• Further it provide ideas for markets to pursue, and
identify its primary sources of competitive advantage.
• To be a feasible company, a new venture must have at
least one clear competitive advantage over its major
competitors.
 An example of Competitive Analysis Grid is
presented below,
Name Company Company Company Company Own Venture
1 2 3 4 Company 5
Products Adv Even Even Even Even

Services Even Disadvantage Even Even Disadvantage

Quality Advantage Disadvantage Disadvantage Disadvantage Disadvantage

Price Disadvantage Advantage Advantage Advantage Advantage

Packaging Even Disadvantage Even Even Disadvantage

Location Advantage Even Even Even Even

Years in Business Disadvantage Advantage Advantage Even Even

Financial Strength Advantage Disadvantage Disadvantage Disadvantage Disadvantage

Image Disadvantage Disadvantage Advantage Disadvantage Even

Customer Advantage Even Even Advantage Even

Strength Advantage Advantage Disadvantage Disadvantage Disadvantage

Weakness Advantage Disadvantage Disadvantage Disadvantage Disadvantage