Competitor Analysis

1

Competitor Analysis
Organizations must operate within a competitive industry environment. Analyzing organization‟s
competitors helps an organization to discover its weaknesses, to identify opportunities for and
threats to the organization from the industrial environment. Competitor analysis is the process of
identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and
reaction patterns; and selecting which competitors to attack or avoid.



Competitor analysis begins with identifying present as well as potential competitors. 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). Following are the Factor/characteristics that determine the level of competition.

 Market size:
Small markets don't tend to attract big/new competitors; large markets often draw the interest of
companies looking to acquire competitors with established positions in attractive industries.
 Market growth rate:
Fast growth breeds new entry; growth slowdowns spawn increased rivalry and a shake out of
weak competitors.
 Capacity surpluses or shortages:
Surpluses push prices and profit margins down; shortages pull them up.
 Industry profitability:
High-profit industries attract new entrants; depressed conditions encourage exit.
 Entry/exit barriers:
High barriers protect positions and profits of existing companies; low barriers make existing
companies vulnerable to entry.
 Standardised products:
Buyers have more power because if is easier to switch from seller to seller.
2

 Rapid Technological change
Raises risk factor; investments in technology facilities/ equipment may become obsolete before
they wear out.
 Capital requirements
Big requirements make investment decisions critical; timing becomes important; creates a barrier
to entry and exit
 Vertical integration
Raises capital requirements; often creates competitive differences and cost differences among
fully versus partially versus non-integrated


Michael Porter in Porter‟s Five Forces Model has assumed that the competitive environment
within an industry depends on five forces
1. Threat of new potential entrants,
2. -Threat of substitute product/services,
3. -bargaining power of suppliers,
4. -bargaining power of buyers,
5. -Rivalry among current competitors.


3



The main objectives of doing competitor analysis can be summarized as follows:
1. To study the market;
2. To predict and forecast organization‟s demand and supply;
3. To formulate strategy;
4. To increase the market share;
5. To study the market trend and pattern;
6. To develop strategy for organizational growth;
7. When the organization is planning for the diversification and expansion plan;
8. To study forthcoming trends in the industry;
9. Understanding the current strategy strengths and weaknesses of a competitor can suggest
opportunities and threats that will merit a response;
10. Insight into future competitor strategies may help in predicting upcoming threats and
opportunities.


Sources of information for competitor analysis
The sources of competitor information can be neatly grouped into three categories:
• Recorded data:
this is easily available in published form either internally or externally. Good examples include
competitor annual reports and product brochures;
• Observable data:
this has to be actively sought and often assembled from several sources. A good example is
competitor pricing;
• Opportunistic data:
to get hold of this kind of data requires a lot of planning and organisation. Much of it is
“anecdotal”, coming from discussions with suppliers, customers and, perhaps, previous
management of competitors.


4

The table below lists possible sources of competitor data using above categorisation:
Recorded Data Observable Data Opportunistic Data
- Annual report &
accounts
- Pricing / price lists - Meetings with suppliers
- Press releases - Advertising
campaigns
- Trade shows
- Newspaper articles - Promotions - Sales force meetings
- Analysts reports - Tenders - Seminars / conferences
- Regulatory reports - Patent applications - Recruiting ex-employees
- Government reports - - Discussion with shared
distributors
- Presentations /
speeches
- - Social contacts with
competitors

After doing a competitor analysis you will gather insights into the following aspects of your
competitor based on which you create a competitor profile:
- Overall sales and profits
- Sales and profits by market
- Sales by main brand
- Cost structure
- Market shares (revenues and volumes)
- Organisation structure
- Distribution system
- Identity / profile of senior management
- Advertising strategy and spending
- Customer / consumer profile & attitudes
- Customer retention levels

Competitor profiling
A common technique is to create detailed profiles on each of your major competitors. These
profiles give an in-depth description of the competitor's background, finances, products, markets,
facilities, personnel, and strategies. This involves:
 Background
o location of offices, plants, and online presences
o history - key personalities, dates, events, and trends
5

o ownership, corporate governance, and organizational structure
 Financials
o P-E ratios, dividend policy, and profitability
o various financial ratios, liquidity, and cash flow
o profit growth profile; method of growth (organic or acquisitive)
 Products
o products offered, depth and breadth of product line, and product portfolio balance
o new products developed, new product success rate, and R&D strengths
o brands, strength of brand portfolio, brand loyalty and brand awareness
o patents and licenses
o quality control conformance
 Marketing
o segments served, market shares, customer base, growth rate, and customer loyalty
o promotional mix, promotional budgets, advertising themes, ad agency used, sales
force success rate, online promotional strategy
o distribution channels used (direct & indirect), exclusivity agreements, alliances,
and geographical coverage
o pricing, discounts, and allowances
 Facilities
o plant capacity, capacity utilization rate, age of plant, plant efficiency, capital
investment
o location, shipping logistics, and product mix by plant
 Personnel
o number of employees, key employees, and skill sets
o strength of management, and management style
o compensation, benefits, and employee morale & retention rates
 Corporate and marketing strategies
o objectives, mission statement, growth plans, acquisitions, and divestitures
o marketing strategies


6

Media scanning
Scanning competitor's ads can reveal much about what that competitor believes about marketing
and their target market. Changes in a competitor's advertising message can reveal
 new product offerings,
 new production processes,
 a new branding strategy,
 a new positioning strategy,
 a new segmentation strategy,
 line extensions and contractions,
 problems with previous positions,
 insights from recent marketing or product research,
 a new strategic direction,
 a new source of sustainable competitive advantage,
 or value migrations within the industry.
 a new pricing strategy such as penetration, price discrimination, price skimming, product
bundling, joint product pricing, discounts, or loss leaders.

Other sources of corporate intelligence include trade shows, patent filings, mutual customers,
annual reports, and trade associations.

The following example of a competitor analysis is taken directly from a business plan
developed in 1997 for a startup business.
Business Name 1 Business Name 2 Business Name 3
Market Share Very small percentage
of a large industry –
based on industry
statistics and business
turnover, market share
is less than 0.00001%
Very small
percentage of a large
industry – based on
industry statistics and
business turnover,
market share is less
Wholesaler of
imported giftware to a
large number of retail
outlets – statistics on
market share
unavailable
7

than 0.00001%
Major Customers Has very few
important customers
Small number of
retail outlets and
general public
through market stall
sales
Upmarket giftware
retail outlets. Supply a
small amount of stock
to Myer (large dept.
store in Australia)
What do their
customers think of
them
Generally reliable and
very good quality
product
Constantly late in
delivery, generally
friendly and
reasonable prices
Very reliable and
usually deliver stock
in a timely manner
Pricing Policy Usual mark-up is 75%
but currently offering
15% discount on all
stock to „get it moving‟
Usual mark-up is
100%. Retail stores
and customers
purchasing in bulk
receive 10% discount
Mark-up varies based
on product. Averages
between 60% - 85%
Financial Strength Currently over $5000
in debt due to business
start up costs
Family business with
low overheads
Speculation – large
factory warehouse.
Assume business is on
stable footing
Product / Service
Range
A variety of picture
and mirror frames
custom made to suit
requirements and décor
A variety of kitchen
and bathroom
containers
Vases, frames, candles
and a variety of other
trinkets targeted at the
upmarket homeware
and giftware market
Product / Service Exceptional quality – if Very good quality, Mass produced stock,
8

Quality a product isn‟t perfect,
it isn‟t offered for sale
could find no fault
with products
initial inspection
indicates good quality
Customer Loyalty Repeat business from
photographers, artists
and other businesses
that require custom
frames
Due to large number
of matching products,
customers try to buy
entire range to ensure
continuity in their
kitchens
Regular orders from
retail outlets to whom
they supply stock
Brand Recognition Very distinctive
products but very little
brand recognition as
this is a start up
business just
establishing
themselves in the
marketplace
Original design but
not very distinctive.
A number of products
like them in the
marketplace
Common range of
products, can be found
in any upmarket
homeware and
giftware store
Length of Time in
Business
18 months 3 years 7 years
Alliances Fencing contractor
supplies leftover wood
for frames
No alliances Share premises with
another wholesaler
and they sometimes
share leads
Premises / Location Address, phone
number and website
details go in here
Address, phone
number and website
details go in here
Address, phone
number and website
details go in here
9

Research &
Development
Constant
experimentation
Only changes product
if asked to do so by
customer – no
research undertaken
to ascertain market
trends
Company Director
tours overseas twice a
year to source new
products – mainly
Asian and America
Plant and
Technology
Latest equipment in
good condition. Well
organised home-based
workshop
Well organised home-
based workshop
Small but very classy
showroom
Manufacturer,
Wholesale, Service,
Retail
Manufacturer and
Wholesaler
Manufacturer and
Wholesaler
Wholesaler
Advertising Business cards
Tags on products
Informal networking
Business cards
Weekend market stall
Business Cards
Advertisement in
Yellow Pages
Industry periodicals
Customer Service Reliable and friendly,
said to be good on
follow-up
Generally friendly, no
after sales service.
Often late on delivery
Overly friendly, very
pressured sales
environment
Positioning Tag line goes in here Tag line goes in here Tag line goes in here
Number of
Employees
No employees, only
self works in business
Family business,
husband and wife
team
Shares receptionist
with adjoining
business, two sales
people and two
10

delivery drivers
Distribution Methods Delivers in person if in
Melbourne or uses
registered post for
interstate orders
Deliver stock to
retailers themselves.
All Melbourne based
customers
Delivery drivers
deliver stock to
retailers. Occasionally
retailers will pick up
orders to save on
delivery charges
Patents Has licence on back of
frame but no patents
No licences or patents Not applicable
Sales Tactics Door-to-door sales and
direct sales tactics
Market stall, informal
networking
Customers come to
warehouse after
exposure to
advertising
Growth Currently expanding
interstate and
investigating
opportunities for
export
Not looking to
expand any further
Always looking to
capture new retailers
to sell products but
not pro-active in
sourcing