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Competitor analysis

At the end of this module the learning outcomes are:- Importance of understanding competition- Approaches to competitor analysis- Identifying competitors likely response

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Competitor analysis

Suggested Readings

• Strategic Marketing Management by Wilson & Gilligan (chapter 4)

• Strategic Marketing by: David Cravens (chapter 7)

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Competitor analysis

Importance- Provides an understanding of your competitive

advantage / disadvantage relative to your competitor’s position.

- Insights into competitors strategies- Developing future strategies to sustain/establish

advantages over your competitors.

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Competitor analysis

Porter's approach to competitive structure

analysis

Nature and intensity of competition within any industry is determined by the interaction of five key forces:

1. The threat of new entrants

2. Power of buyers

3. Threat of substitutes

4. Extent of competitive rivalry

5. Power of suppliers

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Competitor analysis1. Threat of new entrants

- Depends on barriers to entry- How heavy is the capital investment

Intel's huge investment into research- Strong brand image to overcome

Coke investments required to build brands- Cost incurred to create distribution channels

Hindustan Lever’s huge investments

in distribution in rural areas

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Competitor analysis2. Power of buyers

- Is likely to be higher if:

1. There are large number of suppliers

2. Alternative sources of supply

3. Threat of backward integration

Example

Reliance Industries

1. Started as textiles company

2. Makes raw materials to produce textiles

3. Vertically integrated

4. Bargains on price for huge quantities it picks up.

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Competitor analysis3. Threat of substitutes

- Will be more prevalent if:- Customers perceive other offers to perform

the same function as ours- Substitute products offer higher value for

money- Substitute products earn higher profits

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Competitor analysis

– Onion versus ready to make paste » Dabur Hommade pastes

– Tomato versus tomato puree– Scooters versus Motorcycles

» Hero Honda sales at the expense of Bajaj

– Vanaspati versus edible oils

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Competitor analysis4. Extent of competitive rivalry

Intensity of rivalry will be greater if:- Competitors are of equal size and are seeking

dominance- High fixed costs provoke price wars to maintain

capacity. E.g: Airlines industry

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Competitor analysis

– New addition of capacity have created excess capacity

Hotel industry Automobile industry

– Product homogeneity necessitates activity to maintain share.

» Coke versus Pepsi

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Competitor analysis5.Power of suppliers

Is likely to be higher if:- There are few suppliers- Cost of switching from one supplier to another is

high

E.g: Intel

Suppliers are likely to integrate forward

Kirloskar compressors into airconditioners.

Reliance entry into petroleum products retailing

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Competitor analysisAgainst whom are we competing

- Looks straight forward

- Is not usually the case

E.g: Bajaj Auto

1.Underestimation of LML

2.Undermining the strengths of Hero Honda

- Gestetner underestimation of Xerox

- Extinction of British and U.S television companies by Japanese organizations

- Sharp attack by Symphony aesthetic coolers over traditional coolers

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Competitor analysis

• Earlier clarity was high

• Now blurred

• Poor anticipation– VCR industry in 80s– decline

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Competitor analysis

Marketing Myopia

• Theodore Levitt

• Marketing Guru

• How business is defined

• Why American rail business a massive decline

• Onslaught of airlines

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Competitor analysis

THE COURIER MARKET

• came in 70s

• Launch of fax

• Later email

• How players handled competition

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Competitor analysis

Two approaches

• Adopt new products

• Strengthen existing business

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Competitor analysis

Adopt new products

IBM

• Hardware in 70s

• Threat from low-cost producers

• Shifted focus to software

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Competitor analysis

Strength existing business

FED EX

• Earlier couriers

• Competition from fax, email

• Shifted focus on parcel market

• Physical distribution required

• Offered door-to-door delivery

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Competitor analysis

FED EX

• Offer complete logistics solutions

• Found existing players not offering these solutions

• Gradually left the space for document courier to smaller companies

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Competitor analysis

MOSQUITO REPELLANT DEVICES

BALSARA

• Launched ODOMOS in 1964

• Unattended need

• Cream based product

• Inhouse R & D

• Earlier smoke sensing devices were used

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Competitor analysis

• Now creams• Held 97% share of the cream market• What are the concerns• Later Tortoise was launched• Used ‘smoke’ concept• Economical• Gained 70% market share• Odomos 20% share

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Competitor analysis

• 1984

• Goodknight brand

• No use of cream or coil

• Value proposition– Cleaner– Less messy– Convenient

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Competitor analysis

By late 90s

• Mats/liquid-70%

• Coils-22%

• Creams-9%

• Balsara tried to launch mats/liquid

BALSARA lost the market which it created

in 1964

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Poor understanding of the competition

• Decline– Air coolers– Mopeds– Soya-based drinks

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Competitor analysisCompetition happens at four levels1.Companies offering only similar products

- Kitkat versus Perk

- Nescafe versus Bru

2.Companies consisting of all companies operating in the same category

- Cadbury's Eclairs versus. Nestle Kitkat

- Canada Dry versus Pepsi Cola

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Competitor analysisCompetition at four levels(Contd.,)

3. Competitor consists of all companies manufacturing or supplying products which deliver the same service

- Airlines versus Railways

- Second hand cars versus scooters versus Tata Nano

4. Competition consists of all companies competing for the same spending power

- Dishwasher versus Microwave oven

- Designer jewellery versus Ritu Beri's fabrics

- Debeer’s versus Nokia mobile phones

 

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Competitor analysis

IDENTIFYING COMPETITORS LIKELY RESPONSE PROFILES

Three issues• How competitor is likely to respond to the general

changes taking place in the external environment?• How competitor is likely to respond to specific

moves that we make?• Is the competitor likely to initiate an aggressive

move?

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Competitor analysis

COMPETITOR PROFILES

• The laid-back competitor

• The selective competitor

• The tiger competitor

• The stochastic competitor

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Competitor analysis

The laid-back competitor

• Competitors do not react

• Feel customers may stay loyal

• Lack resources to react

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Competitor analysis

The selective competitor

• React to selective moves of competitor

• Modi Xerox versus HCL copiers

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The tiger competitor

• React swiftly

• Strong reply

• Signal that it is going to fight

• Surf versus Ariel

Competitor analysis

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The stochastic competitor

• Do not exhibit any predictable pattern

• No trends available

• Could exhibit any type of competitor

Competitor analysis

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Competitor analysis

COMPETITIVE EQUILIBRIUMFive scenariosIf competitors are nearly identical and make their

living in the same way, then the competitive equilibrium is unstable.

• Identical products• Commodity industries• Competitive equilibrium gets upset if one cuts

prices

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Competitor analysis

If a single major factor is the critical factor, then competitive equilibrium is unstable

• Differentiation is possible• Breakthrough in technologies• Cut costs• Change habits of consumers• Apple’s Iphone• Amazon.com

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Competitor analysis

• If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differentially attractive to some customers. The more the multiple factors that may provide an advantage, the more the number of competitors who can coexist. Each competitor has his competitive segment defined by the preference for the factor trade-offs that he offers.

• Retailing industry in India

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Competitor analysis

• The fewer the number of competitive variables that are critical, the fewer the number of competitors.

• If one factor is critical, fewer competitors.

• More variables, larger number of competitors, but smaller in size.

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Competitor analysis

• A ratio of 2 in 1 in market share between two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for other competitor to increase or decrease share.

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Competitor analysis

INDUSTRY STRUCTURE TYPES

Five types

• Pure monopoly

• Differentiated oligopoly

• Pure oligopoly

• Monopolistic competition

• Pure competition

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Competitor analysis

Pure monopoly

• High prices

• Little advertising

• Low service levels

• Barriers to entry exist

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Competitor analysis

Differentiated oligopoly

• Differentiation through quality, features

• Reflected by the price premium which is available

• INTEL experience

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Competitor analysis

Pure oligopoly

• Differentiation is difficult

• Going-rate pricing

• Sustainable competitive advantage is through cost-reductions

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Competitor analysis

Monopolistic competition

• Organizations look for markets where scope of competition minimizes

• Pricing premium can be attained

• Retailing in India

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Competitor analysis

Pure competition

• No scope for differentiation

• Same prices

• Psychological differentiation

• Profits determined by cost management