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COURSE TITLE: STRATEGIC OPTIONS

QUESTION: DEFINE COMPETITIVE ANALYSIS AND DISCUSS COMPETITIVE ANALYSIS AREAS

COMPETITOR ANALYSIS Competitor analysis in strategic management is an assessment of the strengths and weaknesses of a current or potential competitor .Competitor analysis provides both an offensive and defensive strategic context to identify opportunities and threats .it involves identifying competitors and evaluating their strategies to determine their strengths and weaknesses relative to those of your own product or service. Competitor analysis evaluates competitors by putting them in strategic groups according to how directly they compete for a share of the customers .An analysis could list own product or service ,its profitability ,growth pattern, marketing objectives and assumptions, current and past strategies, organization and cost structure, strengths and weakness and size of sales of competitors business. THE OBJECTIVES OF COMPETITOR ANALYSIS 

To estimate the nature and likely success of potential strategy changes available to a competitor

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Predict competitors’ probably responsible to important strategic moves on the part of the other competitor

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Understand competitors potential reaction to changes in key industry and environmental parameters

 The ultimate aim of competitor analysis is to know enough about a competitor to be able to think like that competitor so the firms’ competitive strategy can be formulated to take into account the competitors likely actions and responses. From a practical viewpoint, a strategist needs to be able to live in the competitors’ strategic shoes. The strategist needs to be able to understand the situation as the competitors see it and to analyze it so as to know what actions the competitors would take to maximize their outcomes to be able to calculate the actual financial and personal outcomes of the competitor’s strategic choices WHY COMPETITOR ANALYSIS? 

The need for competitor analysis is essential to:

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Understand how your customers and potential customers use and rate your competitors

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Identify your competitors’ weakness and strengths

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Providing a starting point for developing effective competitive marketing strategies in your target market.

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Help identify which features your customers want

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Help in making knowledgeable and informed decisions about own marketing strategies and well fight with competitors’ threats.

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To understand competition: Through analysis you will be able to understand your competitors and why customers choose them over other companies offering the same products and services .you have to gain an insight on how the competitor works to get ahead.

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Effective positioning: With competitor analysis, you learn the benefits customers believe separate your products and services from them. These distinct benefits will provide you a footing to build on your brand image.

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Avoiding bad Assumptions: Assumptions are always wrong and costly to a business .by analyzing what competitors are doing, you get more researched and factual data about their products, services an operations.

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Helps in planning market entry; some companies aim to be the first movers, meaning they want their products on shelves first. Others opt for second movers .these want to see how the market reacts to first movers and then use their reaction to launch their products shortly after. Competitor analysis helps put together a schedule of product launches for competitive brands.

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Competitive advantage

COMPETITOR COMPARISON AREAS 1.IDENTIFYING COMPETITORS current competitors Identifying competitors for analysis is not quite as obvious as it might seem. Two complementary approaches are possible. 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. However, the firm must pay attention not only to today's immediate competitors but also to those that are just over the horizon such as cellphones once were to cameras, social networking sites once were to web portals, or the internet once was to video rental stores.

Identifying Potential Competitors Depending on the purposes of the competitive analysis, it may also be important to identify potential competitors. The process starts by identifying firms for whom the various barriers to entry to the industry are low or easily surmountable. These may include the following:  Technology: Firms which possess the technologies necessary to operate in an industry represent one source of potential competitors. Analysis of patent activity frequently signals intentions well prior to actual entrance.  Market access: In businesses where market access is a key factor for success, firms with that access frequently attempt to leverage it by acquiring additional product lines to be sold in that channel or to those customers.  Reputation and image: Brand extension strategies are based on the use of a firm's reputation in one product area to leverage its entry into another. Clairol used its reputation in hair coloring to enter into the hair dryer business.

 Operating knowledge and skills: Regional competitors in a business often expand geographically. Entenmann's Bakeries moved into Florida and Midwestern markets from their original Northeastern base, similar to the path taken by Thomas's English Muffins. Folger's coffee was originally a regional brand on the West Coast until purchased by Procter & Gamble which expanded its distribution nationwide.

2.COMPETITIVE BLIND SPOTS

Much competitive information is bounded by the assumptions that managers’ have with respect to their industry and these assumptions may lead to blind spots. The effect of such blind spots may cause the strategist to not recognize the significance of events, interpret them inappropriately, or see them only slowly. There are six serious blind spots in competitive analysis: 1. Misjudging Industry Boundaries. Too often firms define their industry around their current products, customer groups, and geographies blinding themselves to adjacent competitors which subsequently enter their current space. 2. Poor Identification of Competitors. Strategists frequently focus on only the largest and most well-known companies to the exclusion of other viable competitors – those potential competitors noted earlier in this chapter. 3. Overemphasis on Competitors’ Visible Competence. Competitor analysis often focuses on competitors’ hard assets and technology skills and ignore equally potent capabilities such as logistics, product design, or human resources. 4. Emphasis on Where, Not How to Compete. Strategists too often assume that competitors’ strategies will shift only incrementally to the exclusion of radical repositioning in how they could compete. 5. Faulty Assumptions about Competitors. Prisoners of assumptions about competitors – the overuse of stereotypes – cause strategists to misjudge competitors’ competences and competitive advantages. 6. Paralysis by Analysis. Obsession with the task of data collection results in information overload to the detriment of analysis and insight.

3.COMPETITOR PROFILING A firm needs to assess and analyze their competitors objectives, strategies, strengths and weaknesses as well as their competitive reactions. Objectives ascribed to competitors can encompass profitability, market-share growth, cash flow, technological leadership, service leadership, etc. Competitors’ strategies encompass product quality, product features and product mix, target marketing and positioning, customer service, pricing policy, distribution coverage, sales force strategy, advertising and sales promotion programs, research and development (R&D), manufacturing, e.t.c

The more one firm’s strategies resemble another firm’s strategy, the more the two firms compete. Strategic groups (i.e. firms focusing on the same target market with the same strategy) should be identified. Whether or not a competitor can carry out its objectives and strategies depends on its resources and capabilities. For this reason, the analysis of the corresponding strengths and weaknesses constitutes key information for a firm analyzing its competitors. 4.ASSESSING MARKET ATTRACTIVENESS Before entering a particular market (or market segment), a firm needs to assess its attractiveness. According to Michael Porter, the attractiveness of a market or market segment, is determined by the opportunities and threats posed by five key elements: industry competitors, potential market entrants, availability of product substitutes, buyers’ power and suppliers’ power . • Industry Competitors .the market is relatively unattractive if there are already a high number of strong or aggressive competitors. This unattractiveness is reinforced if the market is stable or already declining, significant production capacity is being added, fixed costs are high, or if competitors have powerful reasons to stay in the industry. Under these conditions, price wars, promotion battles and constant new product introductions are the norm, making competition very expensive. Example: Coke and Peps • Potential Entrants: attractiveness of a market (or market segment) varies according to the status of entry and exit barriers. With high entry and low exit barriers, fewer firms can enter the industry while under-performing firms can exit easily. Profit potential is high and, even though risk is higher if under-performing firms fight for survival, it is a very attractive option. When entry and exit barriers are both low, firms enter and exit the industry easily and profits are stable and low. • Product Substitutes: if there are many actual or potential substitutes for the product, the market is not attractive because substitutes limit both the price that can be charged for the product as well as the potential profits. For this reason, firms must monitor the prices of substitute products. Furthermore, if competition increases or if there are technological innovations, prices and profits are likely to go down. • Buyers’ Power: when buyers possess a strong or growing bargaining power, the market is unattractive. Customer’s bargaining power increases when there are a few large buyers, when the product represents a significant part of the firm’s costs, when the product is undifferentiated,

when the cost of switching is low, when buyers are price sensitive, or when buyers can vertically integrate. To compete in this environment, firms might want to refocus and target buyers with less power, or develop offers that buyers can’t refuse. • Suppliers’ Power: suppliers have increasing bargaining power when they are organized, when there are few substitutes for their product, when the product they supply is a key input, when switching suppliers is expensive or when suppliers can vertically integrate. A segment is unattractive if suppliers can raise prices or reduce the quantity of product supplied due to their bargaining power. 5.DESIGNING COMPETITIVE STRATEGIES A firm can learn much about competitors by identifying its roles and that of the competitor in the market. The roles played by firms in an industry can be usefully classified into: market leader, market challenger, market follower or market nicher. A firm can gain further insights about its competitors and design more effective competitive strategies by identifying its role and that of its competitors. Market Leader It is a firm with a dominant market share. This firm is the market leader in terms of: prices, new product introductions, distribution coverage, and promotional spending. Competitors typically challenge, imitate or avoid the leader. . Market challenger A market challenger aggressively tries to expand its market share by attacking the leader, other similar firms, or smaller competitors. However, before embarking on an attack, market challengers need to define their objective and whom they will attack. Attacking the market leader is risky but the pay off could be excellent if the leader is not doing a good job of serving its target market. Market Follower A market follower is a firm that decides not to attack the market leader or its competitors, usually out of fear that it stands to lose more than it might gain. Many firms prefer to be a follower than a challenger. Such behavior is very common in industries in which there is very little opportunity for product differentiation, service quality is often very much the same, price sensitivity is high

and market shares are very stable. Under these circumstances, most firms present the customer with the same or very similar products, usually by copying the leader. Market Nicher Instead of being a market follower in a large market some firms choose to be the leaders in a small market, or market “niche” that doesn’t attract the attention of the larger firms. The key to being a successful market nicher is specialization, which can be focused on: the end-user, the customer size.,specific customers ,a geographic area ,a product or product line, the quality-price ratio ,the service, the channel etc. Market nichers can get to know their customers well enough to meet their needs much better than competitors while making a high profit margin. However, to increase their survival prospects, market nichers need to be strong in two or more market niches. 6.IDENTIFYING COMPETITOR INFORMATION NEEDS 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. This requires information that is both quantitative and factual (what the competitor is doing and can do) as well as that which is qualitative and intentional (what the competitor is likely to do). There are four key knowledge areas: 1. The competitor’s marketplace strategy in terms of scope, posture, and goals; 2. The sources of competitive advantage that give its marketplace strategy potency including resources and capabilities, organization, mind-set, and its place in the industry eco-system; 3. The interpretation of the signals being sent by the competitor both by its actions and communications; and 4. A competitive response profile which analyzes the competitor’s possible future moves.

SUMMARY Competitive marketing strategy requires that the strategist position the firm's offerings such that they minimize direct competition either by choosing vulnerable competitors or by pitting strength against weakness. The goal of competitor analysis is to provide the strategist with the means needed to achieve that result.

REFERENCES Dolan, Robert J. Note on Marketing Strategy. Harvard Business School. (Boston, MA: Harvard Business School Publishing, 1997), pp. 1-17. Kotler, Phillip. “A Framework for Marketing Management.” 2nd ed. (Upper Saddle River, N.J.: Prentice Hall, 2003), Chapter 8. Kotler, Philip. Marketing Management. 9th ed. (Upper Saddle River, NJ: Prentice Hal, 1997), Chapter 13. Roger Kerin, Eric Berkowitz, Steven Hartley and William Rudelius. “Marketing”. 7th Ed. (New York, NY: Mc Graw Hill, 2003), Chapter 2.  Source: Kotler, Phillip. A Framework for Marketing Management. 2nd Edition (2003), p. 149 1 William L. Sammon, Mark A. Kurland, and Robert Spitalnic, Business Competitor Intelligence: Methods for Collecting, Organizing, and Using Information. John Wiley and Sons, 1984; Mark Bergen and Margaret A. Peteraf,”Competitor Identification and Competitor Analysis: A Broad-Based Managerial Approach,” Managerial and Decision Economics 23, (June-August 2002): 157-169; Bruce H. Clark and David B. Montgomery, “Managerial Identification of Competitors,” Journal of Marketing, (July 1999), 67-83. 2 Margaret A. Peteraf and Mark E. Bergen, “Scanning Dynamic Competitive Landscapes: A Market-Based and ResourceBased Framework,” Strategic Management Journal 24, 2003, 1027-1041....