DEVELOPING A COMPETITIVE ANALYSIS THAT WORKS

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Gilbert Henderson
6 years ago
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1 DEVELOPING A COMPETITIVE ANALYSIS THAT WORKS

2 How to Develop a Game-changing Competitive Analysis Few companies have few or no competitors. Even if direct competition is meager, your organization competes with other alternatives in the same space and with the status quo. And the competitive landscape changes quickly. New competition enters the market, old competition focuses elsewhere, and critical company positioning evolves over time. Smart companies perform competitive analyses on clockwork schedules. A solid competitive analysis will help you identify how your company should position itself and its products and services for success in a given market. What Competitive Analyses Assess A competitive analysis maps your products, pricing, channels, promotional efforts, and key messages against your competition. But first, you need to identify current potential competitors. You can do this through industryand market-based analysis: Industry-based analysis: Identify companies with the same or similar products and services. Market-based analysis: Which companies fill the same need that your products and services fill? Remember our case study about children s gymnastics programs considering soccer camps and swim teams as competition? Similarly, Coca Cola considers Pepsi a competitor along with all other beverage suppliers (not just soft drinks). Next, assess your competition s objectives and strategies. Review strengths, weaknesses, opportunities, and threats through a traditional SWOT analysis. A company s strengths and weaknesses are internal factors, such as corporate culture, finance, product, price, promotion and distribution, and financing. Opportunities and threats stem from external factors, such as demography, economy, and technology. 2

Getting Information for a Competitive Analysis Marketers learn about competitors strengths, weaknesses, opportunities, and threats through primary and secondary research.

3 Getting Information for a Competitive Analysis Marketers learn about competitors strengths, weaknesses, opportunities, and threats through primary and secondary research. Secondary research involves scouring publicly available information, including published financial reports on sales history, profit margins, and returns on investments; case studies; and third-party research and analysis available for purchase. Primary research involves directly assessing the market through surveys, focus groups, and interviews and then analyzing the raw qualitative and quantitative data produced. Primary research is time intensive and expensive. However, it may be the only way to acquire critical information to inform your strategic marketing efforts. Putting a Competitive Analysis to Use A comprehensive competitive analysis allows companies to develop competitive strategies that improve their market positions. Understanding the competitive landscape will help a company quickly exploit market opportunities and capitalize on strengths while countering possible threats by competitors out to target weaknesses. Three Competitive Strategies for Your Business Once you ve analyzed your competition you can develop a powerful competitive strategy for your business that you can sustain over the long term. To help you assess what route might be best for your company, let s look at three valid options for competitive strategies: Cost-Leadership Strategies Large businesses use cost-leadership strategies to achieve the lowest possible production and distribution costs through economies of scale. Firms that pursue cost-leadership strategies tend to have strengths in purchasing, manufacturing, and distribution, which help them 3

4 manage their costs. Companies with this strategy typically target value-seeking customers with no-frills, basic products and penetration pricing. This is the easiest competitive strategy to copy, meaning that other large competitors may be able to set lower prices to capture more market share. However, cost-leadership strategies can help large businesses fight off challenger companies and brands that may not have the operational strength and size needed to drive prices to their lowest points. Differentiation Strategies Companies using differentiation strategies target quality and value-seeking customers with premium offerings and strong brand equity. Their competitors cannot offer what they offer. To pursue a differentiation strategy, you might focus on a smaller part of the current offerings. Whole Foods and its strategy to offer a large variety of organic products rather than one shelf or aisle, like most grocery stores provides an example of this strategic option in play. Also, Whole Foods exclusively sells a number of organic products. Focus Strategies Some businesses choose to focus on one or more narrow market segments to protect themselves from competition. A focus strategy helps companies with limited resources compete. The first type of focus strategy is to become the cheapest offering in a highly targeted market segment. For example, you might focus on having the lowest priced coffee in a particular geographic area. This is similar to a cost-leadership strategy, but more highly specialized. Another focus strategy is to target niche market segments with specialized product lines. As with the difference between cost-leadership and a price-centered focus strategy, a nichemarket focus differs from a differentiation strategy by its specialization on highly customized offerings that target specific market subsets. How to Choose the Right Competitive Strategy After you ve developed a strong competitive analysis, you re ready to assess which competitive strategy makes the most sense for your company. Choosing a competitive strategy is critical for marketing success so spending the time needed to pick the right one is a smart decision. 4

5 Market Leader This is the leader of the brand s market. Market leaders expand their market share by developing new customers, more customers, and more usage. Often, they do so through continuous innovation. Expand Total Market: This provides the market leader the most gains. This can be done by attracting new customers, identifying new uses for a product, or inducing customers to use more of the product. For example, P&G encourages customers to wash their hair twice for the shampoo to be most effective. Expand Share: This is done through continuous innovation. Apple expanded its market share by combining its ipod with a smart phone to capture the smart phone market. Market Challenger Market challengers want to aggressively steal market share from the market leader. They focus on finding or creating differentiators to exploit opportunities. Pepsi is a good example of a challenger brand. It ran a series of taste-test campaigns wherein people rated its cola taste higher than Coke s. Frontal Attack: This is where the challenger measures everything against its competitors (price, distribution, and product). Generally, the company or brand with the largest resources wins. Flank Attack: This is where the challenge looks to see the gaps that the market leader might be missing. Blitz Attack: This is where the challenger blitzes attacks from different directions at the same time. This would require a lot of resources and often is done if you think that you can break the will of your competitor. Bypass Attack: In this approach, the challenger bypasses the leader and attacks easier markets. Strategies include going into new geographical areas. Guerilla Attack: These are small, intermittent attacks to harass the market leader. 5

6 The market challenger uses a variety of tactics in its attack including price discounts, cheaper goods, prestige goods, product innovation, variety in products (a larger range), and improved services. The challenger often needs to use a multitude of these tactics at different times to increase its market share. Market Follower The market follower effectively copies the market leader while positioning its brand slightly differently. Clone: This is where a follower imitates the market leader in advertising, products, and distribution. Imitate: An imitator copies some things from the leader but maintains an element of differentiation. Store brands are good examples (e.g., Kroger cola, butter, and so forth). Supermarket chains have developed acceptable brand alternatives at lower price points. Adapt: To be an adapter, your company would slightly change and improve its products and predominantly sell them in a different market. Market Niche Companies in market niches intend to dominate specific segments. These are generally smaller companies that can t effectively compete against market leaders for a variety of reasons, but can reach their business goals through focusing on differentiating factors that speak to highly specific and targeted consumer groups. Conclusion Developing a game changing competitive analysis is essential to your marketing strategy process. By conducting an industry- and market-based analysis you can assess the right competitive strategy for your company. 6

Chapter 2. Barriers to market entry. Type of competition No of competitors Type of product. Example. Unique - almost no substitutes

Chapter 2. Barriers to market entry. Type of competition No of competitors Type of product. Example. Unique - almost no substitutes Type of competition No of competitors Type of product Barriers to market entry Example Monopoly One Unique - almost no substitutes Very high / usually blocked Eskom Oligopoly Few Homogeneous Major Cellulay