Competitor Analysis and Strategies : Purpose & Significance

Competitor analysis is a driver of an organization's strategy and effects on how firms act or react in their sectors. The organization does a competitor analysis to measure / assess its standing amongst the competitors. Competitor analysis begins with identifying present as well as potential competitors.

Competition can come in multiple forms and be both strategic and tactical. Tactical actions (small or temporary moves like price promotions or coupons) tend to draw competitive responses quicker than than strategic actions (large moves that change a company’s business model or mix of businesses). Market leaders are more likely to attract responses to their competitive actions than are smaller firms.

Competitive analysis is a system for understanding your business' standing in the marketplace in relation to your competition. It is a strategy for gathering intelligence and putting that information to use. With a thorough competitive analysis as part of the initial business plan, one will be positioned to outshine its rivals and draw loyal customers.

It portrays an essential appendage to conduct an industry analysis. An industry analysis gives information regarding probable sources of competition (including all the possible strategic actions and reactions and effects on profitability for all the organizations competing in the industry). However, a well-thought competitor analysis permits an organization to concentrate on those organizations with which it will be in direct competition, and it is especially important when an organization faces a few potential competitors.

If you really want to get to know the competition, you need to conduct an analysis of your competitors. A competitor analysis in marketing is a strategy where you identify your brand’s main competitors and assess the strengths and weaknesses of their brand, products, sales, and marketing strategies.

A competitor analysis allows you to keep an eye on what similar brands are selling, what value they offer, and how they market to the target audience. In addition to competitor tracking, you can also create a competitor response profile, which allows you to predict what moves your competitors will make in the future based on the insights you’ve gained through research. This information can later help you create your own comprehensive strategy that allows you to improve on what your competitors are doing.

Purposes of Competitor Analysis

 

The main objectives of doing 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.

It doesn’t matter what industry a business is in–marketing is a game of competing for the attention of your audience. With so many marketing channels available today, that competition is often fierce.

Competitor analysis and tools to perform it are an important, but often overlooked area of business. Even if the process seems dull and all but tiresome, it’s the outcome that can give tremendous value. The wisdom of keep your friends close and your enemies closer goes beyond Sun Tzu’s thoughts on war strategy. It’s a school of thought that resonates in business and marketing alike.

Some may wonder is keeping an eye on your competitors a bad thing and the answer is: absolutely not!  It’s the right thing to do for every business that thinks strategically. Competitor analysis and relevant tools have nothing to do with spying or eavesdropping. Competitive analysis is 100% legal and relies on publicly available data. Competitor analysis tools make the process quick and effortless. “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” Although this ancient philosophy is most commonly associated with The Art of War, it applies to modern day business too. 

When it comes to analysing competitors, the importance of being proactive rather than reactive is vital to the business success. Having an in-depth insight into various areas of business and marketing efforts of your competitors has plenty of benefits for your business. Competitive analysis will help you:

• Understand how to differentiate your product and stand out in the market
• Win over your competitors’ customers
• Discover your audience interests
• Spot link building opportunities
• Improve your content strategy
• Track ad campaigns of your competitors
• Avoid losses
• Discover keyword opportunities
• Predict your competitors moves
• Spot emerging threats
• Identify  gaps
• Asses the performance of your business
• Identify market opportunities

There’s plenty of business areas that can be analyzed online. Social media presence, marketing campaigns, brand awareness, sentiment, SEO performance, paid ads, backlinks, or PR activities.

Before any big game, agood sports team spends time studying their opponent. Coaches will do research, watch game footage, and put together a scouting report on each opposing player. A competitor analysis is like a scouting report for your business—a tool for designing a game plan that helps your company succeed.

Competitors should be analyzed along various dimensions such as their size, growth and profitability, reputation, objectives, culture, cost structure, strengths and weaknesses, business strategies, exit barriers, etc.

The aggressiveness of a rivalry is commonly a result of overlaps in interests between multiple firms and their resource and market similarity. Resource similarity occurs when one firm’s tangible and intangible resources look like a competitor’s in both types and amounts. Market commonality happens when a firm and its competitor operate in the same market. For example, in the financial industry, firms compete for access to capital (resource similarity) and in the food industry, firms compete over access to customer groups (market similarity). The more important these resources or markets are to success in the industry, the more likely one firm is to respond when another acts. The more important the resource or market to either firm, the more aggressive the response.

Companies expose themselves to, or mitigate losses from, overlapping interests usingmulti-market competition – that is, through the number of product or geographic markets in which they compete head-to-head. Greater multi-market contact means a firm is less likely to initiate an attack but is more likely to respond when attacked. A greater similarity of resources means a greater similarity in strengths and weaknesses and therefore, in business strategies.

Monitoring and assessing your competitors is important because it allows you to see andrespond to changes in the business landscape while helping you identify gaps in the market and uncover new market trends. Competitor monitoring can also give you insight into new products or services your brand might want to develop and new marketing or sales tactics that resonate with your target audience.

Analyzing competitors is an integral part of strategic planning. Porter’s book, “Competitive Strategy,” gives various insights in Competitor Analysis. In identifying current and potential competitors, firms must consider several important variables:

·         How do other firms define the scope of their market?

·         How similar are the benefits offered by the products and services to those of other firms?

·         How committed are other firms in the industry?

·         What are the long-term intentions and goals of competitors?

The goal of competitor analysis is to be able to predict a competitor’s probable future actions, especially those made in response to the actions of the focal business.  Competitor analysis has two primary activities, 1) obtaining information about important competitors, and 2) using that information to predict competitor behavior.  A competitor analysis should include the more important existing competitors as well as potential competitors such as those firms that might enter the industry.  Two complementary approaches are possible to identify the potential competitors. The first is demand-side based, comprised of firms satisfying the same set of customer needs. The second approach is supply-side based, identifying firms whose resource base, technology, operations, and the like, is similar to that of the focal firm.

 

The strength of competitive analysis is that it provides a systematic way of assessing industries and the strategic options facing strategic business units within those industry.

For public sector applications, the weaknesses of competitive analysis are that (1) it is often difficult to know what the industry is and what forces affect it, and (2) the key to organizational success in the public sector is often collaboration instead of competition.

 

The first step in Competitor Analysis  is to understand the goals of competitors, whether they are satisfied with their current position, whether they are likely to change strategy and also how they will react to competitor’s moves. Porter draws a distinction between threatening and non threatening moves.  Moves are non-threatening if competitors do not notice or are not concerned. In contrast, threatening moves are taken seriously by rivals. Before making such moves, it is important to estimate the likelihood, timing, effectiveness and extent of retaliation and assess whether the retaliation can be countered effectively. The response of a firm which gives importance to profitability is likely to be different from another, which emphasizes market share. Some strategic moves can threaten certain competitors more than the others, given their goals. In that case, there is greater likelihood of retaliation. The stated and unstated financial goals, capabilities and psyche of competitors of the industry must be studied carefully.

Analysis of competitors’ goals helps a firm to avoid retaliatory moves that can trigger off intense rivalry. For instance, a move to gain market share from a firm divesting its business, would not provoke any retaliation. On the other hand, rivalry may intensify if an attempt is made to grab market share from a firm which is trying to build the business. A low cost producer is likely to respond very aggressively to the price cutting moves of a competitor. On the other hand, a firm which focuses on differentiation and customer loyalty is less likely to retaliate.

It is important to understand the capabilities and psyche of competitors thoroughly. These include the competitor’s beliefs about its relative position, historical and emotional identification with particular products/policies, cultural factors, organizational values, the extent to which a competitor believes in conventional wisdom, etc. Historical information on the competitors’ past financial performance, track record in the market place, areas of success, past reactions to strategic moves etc. can also be very useful. It is also important to gain greater understanding about the top management, the types of strategies that have worked for the management in the past, other businesses with which the top management had been earlier associated, the events which have influenced top management in the past, the technical background of the management, etc.

A firm, serious about a competitive move must communicate clearly that it is committed to the move and has the necessary resources. Then rivals are more likely to resign themselves to the new position. Similarly, if a firm says it loud and clear that it will react strongly to moves by competitors, it may be able to deter them from making competitive moves. The greater the certainty with which the competitor sees the commitment being honored, the greater the deterrent value of the commitment. Competitors should understand that the firm has both the resources and resolve to carry out the commitment quickly.

Based on all these considerations, a firm has to select its strategy. An ideal strategy would prevent competitors from reacting. Such a situation arises when the legacy of the past makes some moves very costly for competitors to counter. Small and new firms often have little stake in the strategies practiced by industry leaders. These challengers can benefit substantially by pursuing strategies that penalize competitors for their stake in these existing strategies.

Applications of Competitor Analysis

The competitor Analysis can help you:

• Develop (or validate) your Unique Value Proposition
• Prioritize your product development by focusing on the aspects of competitors’ products customers value the most
• Improve your product by capitalizing on competitors’ weaknesses customers complain about
• Get benchmarks to measure your growth against
• Uncover market segments that aren’t fully served by competitors
• Create a new product category by identifying gaps between what your competitors offer and what the customers need

Significance of Competitor Analysis

Done properly, competitive analysis will give you plenty of quantitative andqualitative data to back your own business decisions

·       Finding Market Gaps

One of the benefits of competitor analysis is that is allows strategic planners to develop matrixes for spotting unserved or underserved gaps in the market. A competitor map is a strategic planning tool that lays out competitors in terms of their unique service models – identifying where they fit on a matrix with extremes ranging from high price to low price, high quality to low quality and high customization to low customization.

Competitor analysis tools like a competitor map may reveal, for example, that most competitors in the local area charge premium prices for higher quality products, while the bargain segment of the market remains underserved.

Geographic competitor maps can be helpful when looking for market gaps for businesses like restaurants, retail stores or other brick-and-mortar establishments. A geographic map of restaurant competitors, for example, may reveal that several square miles of the city do not have local casual dining establishments but are well-stocked with fast-food outlets.

·       Better Product Development

Direct competitors in rapidly developing industries, especially technology, engage in a continual race to develop new blockbuster products. In these highly competitive industries, companies can gain a tremendous advantage by learning what their competitors are developing or improving for future product releases.

Knowing the directions competitors plan to take for their product lines can help a company develop products that trump competitors in terms of price, functionality or quality. Be careful not to cross legal boundaries into the world of industrial espionage; there are legal and safe ways to stay alerted to competitors' new product developments without prying into private information.

·       Identifying Market Trends

Competitive analysis can reveal broad trends in the marketplace, again providing the advantage of being able to spot opportunities for differentiating your products and services. Sometimes going against the grain in an industry can attract a small but highly loyal counter-culture market segment.

A small record label, for example, may discover that every single one of its competitors has switched to exclusively releasing music digitally and on CDs, which could open up a small unserved market for vinyl LPs.

·       Better Marketing Communications

Marketers in the 21st century focus on selling “benefits and value” rather than “products and services.” Because of this, staying on top of competitors' marketing strategies can provide the same advantages as analyzing their product development initiatives. What consumers think they are buying can be more important than what they are actually buying, and it is advantageous to know what consumers think about your competitors' brands.

Consider the case of a software developer. A software developer may know what products his competitors are selling, but it would be useful for him to know that one competitor is marketing products touted as the “easiest to use” in the market. The developer could counter this marketing tactic by revamping his own software's user interfaces and giving out free trials to prove his products are actually more user-friendly.

·         Identify market shifts: Frameworks can make it easy to discover market shifts that you might’ve missed if your competitor analysis wasn’t previously visually organized well.

·         Target the most effective marketing strategies: By pinpointing the marketing channels that worked well for your competitors, you can create a data-backed roadmap to march confidently forward with your own marketing plans.

·         Avoid mistakes: In the same vein, by looking at what didn’t work for your competitors, you can avoid costly mistakes.

·         Create measurable (and achievable) goals: A good competitive analysis framework helps businesses build specific performance goals based on their competitors’ data. 

·    Make data more digestible: Frameworks help display dull or confusing information in a visually appealing and organized manner, making it that much easier to share your findings with the rest of the team, as well as with investors or C-level executives.