NTRODUCTION:
No business is an island. For success, the business will need to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organisations offering similar products to similar customers. These other organisations are competitors. And their objective is the same - to grow, make money and succeed. Effectively, the businesses are at war - fighting to gain the same resource and territory : the customer. And like in war, it is necessary to understand the enemy:
– how he thinks;
– what his strengths are;
– what his weaknesses are;
– where he can be attacked;
– where the risk of attack is too great....
and so on. And like in war, the competitor will have secrets that can be the difference between profit and loss, expansion or bankruptcy for the business. Identifying these secrets is thus crucial for business survival.
Competitor analysis ('CA') is the in-depth study of one or more rivals (or potential rivals) to gather information on their structure, strategies, strengths, weaknesses and future directions. This information is then used to make informed decisions about everything from marketing to long term business strategies. Competitor analysis (CA) can be viewed as a highly specialised subset of Competitive Intelligence (CI), as the latter covers a broader spectrum of activity to monitor aspects of competitive environment including general industry, economic and regulatory trends. CA involves extracting and piecing together the inside information your competitors really don't want you to get your hands on. The most effective technique to achieve this is the skilful interviewing of people connected with the company concerned - without alerting them to your motives. It's a highly specialised discipline, and while increasing numbers of very large companies are employing their own in-house competitor analysis professionals, for the vast majority of businesses the most practical option is to use specialist agencies.
WHO IS A COMPETITOR IN BUSINESS?
Business competitors are:
– Other organisations offering the same product or service now.
– Other organisations offering similar products or services now.
– Organisations that could offer the same or similar products or services in the future.
– Organisations that could remove the need for a product or service.
WHY BOTHER TO ANALYSE COMPETITORS?
By knowing our Competitors we may be able to predict their next moves, exploit their weaknesses and undermine their strengths. Some businesses think it is best to get on with their own plans and ignore the competition. Others become obsessed with tracking the actions of competitors (often using underhand or illegal methods). Many businesses are happy simply to track the competition, copying their moves and reacting to changes.
Competitor analysis has several important roles in strategic planning:
• To help management understand their competitive advantages/ disadvantages relative to competitors
• To generate understanding of competitors’ past, present (and most importantly) future strategies
• To provide an informed basis to develop strategies to achieve competitive advantage in the future
• To help forecast the returns that may be made from future investments (e.g. how will competitors respond to a new product or pricing strategy?
QUESTIONS TO ASK:
What questions should be asked when undertaking competitor analysis? The following is a useful list to bear in mind:
• Who are our competitors?
• What threats do they post?
• What is the profile of our competitors?
• What are the objectives of our competitors?
• What strategies are our competitors pursuing and how successful are these strategies?
• What are the strengths and weaknesses of our competitors?
• How are our competitors likely to respond to any changes to the way we do business?
If you had access to information on your main competitors on some or all of the following areas:
• structure, strategy, motivations and objectives
• financial and operating analysis, eg. return on sales, gross profit margin etc.
• marketing strategy, eg. messages and tactics, price flexibility, new services or products, distribution models used, names of key customers
• market perception, eg. why their customers buy from them and their satisfaction levels i. e. what are your competitors' best practices and key strengths?
• future directions
…….... then you would be in a strong position to:
• understand their mission and objectives and develop your own accordingly
• develop realistic sales targets through understanding the scale of their operations and turnover
• implement product/service improvements to counter strengths/ weaknesses and innovations in their product portfolio
• position your prices appropriately
• target your direct sales policies through knowing their distribution channels
• offer competitive discounts and payment terms
• develop an appropriate marketing communications strategy in response to their messages and where they put them across
• strengthen your products/services and marketing strategy by adopting and adapting the best practices observed in your competitors' armoury. Not in a blind 'copy-cat' way, but creatively shaping those practices to your own circumstances
SO WHAT IS INVOLVED?
There are four stages in monitoring competitors - the four "C"s:
1. Collecting the information (with a first stage - deciding what to collect)
2. Converting information into intelligence (CIA -Collate and catalogue it, Integrate it with other pieces of information and Analyse and interpret it)
3. Communicating the intelligence.
4. Countering any adverse competitor actions - i.e. using the intelligence.
One mistake a lot of people make is to start by collecting information without thinking how the information will be used. There is no value in information that will just sit on a shelf. If it cannot be used to inform the business's strategic or tactical decisions then the time, money, and effort spent collecting it is wasted. The business may be planning a new product - so information on what competitors are doing in the same area will help in the decision processes and plans for this new product. Alternatively, the business may be looking at how the industry will develop over the next 5 or 10 years or perhaps the board may be looking at a potential merger, acquisition or business partnership. The information requirements for each of these business decisions will be completely different and so the information that should be sought will also be different. Thus before starting to search for information the competitor analyst needs to sit back and define what they are looking for and why. They need to identify the key areas of concern for the business decision makers requesting the information, and aim to satisfy these. Other information may be interesting, but unless it helps the decision process it should be viewed as superfluous, and stored for use at another time or even ignored if it is unlikely to ever have value. (As an example, it is generally not necessary to know the name of the CEO's spouse to understand how the CEO makes decisions.) Thus, rather than collecting information in a random or haphazard manner, the search needs to be focused and planned, and aimed at answering the various intelligence requirements of the business (often termed key intelligence topics, or KITs).
SOURCES OF INFORMATION FOR COMPETITOR ANALYSIS:
Information will come from a variety of sources, both within the organisation and external to it. Davidson (1997) describes how 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.
SWOT ANALYSIS:
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment. Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn.
Strengths and weaknesses are Internal factors. For example, a strength could be your specialist marketing expertise. A weakness could be the lack of a new product. Opportunities and threats are external factors. For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.
FROM INFORMATION TO INTELLIGENCE:
Having scanned the press, searched the Internet, spoken to the sales force, customers, suppliers, Uncle Tom Cobbley and all, there should now be a large pile of data on your competitors. However much of this will be repetitious, out of date, wrong or inaccurate, misleading, or incomplete. However like a jigsaw, each piece can help build up the compete picture. And even if some pieces are missing, you can often get a good idea of what the real picture actually is - even if other pieces are damaged and not all remaining pieces fit perfectly. For example, the company report can give an idea of a company's health - which will be enhanced by information from trade suppliers, trade press articles, and credit information agencies such as D&B. Patents give an idea of R&D activity, while the trade press also gives an idea of marketing activity. And of course there are specialist organisations such as AWARE that have the techniques to dig deeper and get information that can lead to an idea of competitor strategy and future trends.
All this information needs to be collated - with any links and commonalities highlighted. The information will need to be indexed and catalogued - so that when new information comes along, it can be quickly linked to similar information that had previously been found. It may be stored in a custom-built or dedicated competitor database accessible via the company Intranet - although it can also be stored in much less sophisticated forms.
Finally, the relevance and importance of each piece of information needs to be interpreted and analysed - on its own and in conjunction with other information, the other pieces in the jigsaw. This is where information starts to become intelligence.
COMMUNICATING THE INTELLIGENCE:
Many companies are overly secretive, protecting information that all their customers and competitors already know. Secrecy is important. It can be extremely dangerous to let a competitor know about the new product being developed. However, letting the sales force attempt to sell products without a full awareness of the products strengths and weaknesses relative to the competition is like sending them out with one arm tied behind their back. They will be unable to answer objections and comparisons convincingly, and thus are less likely to make the sale. And if the competitor product is that much better then shouldn't marketing, or product development be looking at ways of improving one's own product - rather than hiding the damaging news ostrich like?
Competitor intelligence needs to be evaluated and selectively communicated to all who need to make decisions based on what customers, suppliers, or other companies in the market are doing or are likely to do. And in today's world, that usually means everybody. The worker in the factory needs to know why production processes have changed from what was always done if he is to believe in management. The Mushroom theory of management (keep 'em in the dark…) has always had its adherents but has not usually succeeded in the long term.
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