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Analysis of competition

Games and analysis of competition Understanding capabilities and customers identifies business opportunities, however, the third element of strategic analysis is to look at the competitive environment - what your competitors are doing, where the next technological developments are coming from, and the general directions the market is moving. This includes strengths and weakness, resources and identification of competitors' objectives and strategic directions.

Competitive analysis can be carried out as a one-off project, or drawing on the wider pool of knowledge from ongoing programmes of competitor intelligence gathering.

Competitive and environmental analysis

In the strategy development process, competitors represent threats and barriers to the business. For current operations, competitors are seeking to take business with new and alternative offerings. For new markets, competitors create barriers to entry and will defend their existing business position.

Understanding competitor strengths and weakness helps prioritise areas for strategic focus. What needs to be defended? Where can new business be won and defended? How do products and services need to be positioned against competitor offers?

Maintaining a regular competitive review, and using competitor analysis in strategic analysis is important for two reasons:

Firstly, even if you know what the customers want, and have the resources to meet the customers' demands, it may be that the competitive environment means that it is not worth pursuing particular parts of the market for a whole range of strategic reasons, such as the threat a price war, channel conflict, or legal or ethical considerations.

Secondly, you need to know if your competitors are doing things better than you are, or more dangerously, whether they are looking to change the basis of competition in the market, for instance by moving to a direct sales model, or by introducing some revolutionary new product or technology.

Competitor intelligence is the primary mechanism for gathering information about competitors, and competition can be analysed through a range of frameworks, including Porter's famous five forces framework.

In addition, products and services can be evaluated with competitive benchmarking to identify strengths and weaknesses, and to direct product positioning and pricing to meet customers' needs.


Analysis of competitors

One simple model of analysis is to use Porter's famous five forces framework to identify who has power in each area of the market, what the source of this market power is, and how it might be countered or overcome:

  • Power of Buyers
  • Power of Suppliers
  • Threat of substitutes
  • Barriers to entry
  • Competitors

The idea is that change in your market will potentially involve resistance in at least one of these five areas. For instance, buyers may distort the market by forcing prices down, or by deciding to take build products in-house.

In considering how these "forces" act on market sectors, a picture of issues such as channel conflict, threats from vertical integration, the impact of regulatory change or the advent of new technology, and so on.

Combined with research among customers and developing different financial models, different future competitive scenarios can be built and modelled to test different propositions to try and guess how the market will change. Options might include takeovers, mergers and non-product options to winning market share.

As competitors will also respond to changes in their marketplaces, development of strategy can be played out with internal teams to identify defensible strategies, and plans that include contingencies and responses to changes.

The result is to stress test strategies and plans and to establish watch points and targets within the plans that should be the outcome from a programme of strategic analysis.


Benchmarking

Benchmarking is used to ascertain performance of products and services against the competition. Are there areas that competition is better? Are there ideas in markets outside your own that would be worth developing to build a competitive advantage?

Competitors will always have some strengths and weaknesses against your products. A common option for a weak product is to compete on price for example.

When faced with competitive strengths, the options are:

  • Ignore
  • Fight
  • Adopt

In practice, if there is merit in something and it is ignored, it is likely to bite later. However, what should be done, depends fundamentally on what drives customer value. A business with a superior product does not necessarily have to compete on price, however, it would have to work to ensure the product remains superior to competitors. In contrast, a price-leading company, might not want to add superfluous services that would increase its costs.

The stance the business takes is part of the strategic positioning of the company, and one of the core elements of brand value from the customer's viewpoint. Companies like Microsoft ('Embrace and Extend') and Intel's "Only the Paranoid Survive" are good examples of companies that use the competition to keep their products at the cutting edge, but also hold a competitive position.

These type of approaches, known as an "invest in your threats" strategy, can be an extremely effective way of keeping up with and ahead of the market.


 

Within our strategic analysis practice we work with businesses to help them improve their competitive monitoring, and also developing modelling and forecasting for market preference in the face of competitors. We can carry out competitive analysis and benchmarking, and work with internal teams to gameplay scenarios in order to find defensible strategic opportunities.

See also strategy analysis for


For help and advice on competitive analysis or strategy development contact info@dobney.com


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