Competitor Analysis in Marketing and Strategic Management

Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.

Competitor analysis is an essential component of corporate strategy. It is argued that most firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is called “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” As a result, traditional environmental scanning places many firms at risk of dangerous competitive blindspots due to a lack of robust competitor analysis.

One common and useful technique is constructing a competitor array. The steps include:

• Define your industry - scope and nature of the industry
• Determine who your competitors are
• Determine who your customers are and what benefits they expect
• Determine what the key success factors are in your industry
• Rank the key success factors by giving each one a weighting - The sum of all the weightings must add up to one.
• Rate each competitor on each of the key success factors
• Multiply each cell in the matrix by the factor weighting.

 

Competitor profiling

The strategic rationale of competitor profiling is powerfully simple. Superior knowledge of rivals offers a legitimate source of competitive advantage. The raw material of competitive advantage consists of offering superior customer value in the firm’s chosen market. The definitive characteristic of customer value is the adjective, superior. Customer value is defined relative to rival offerings making competitor knowledge an intrinsic component of corporate strategy. Profiling facilitates this strategic objective in three important ways. First, profiling can reveal strategic weaknesses in rivals that the firm may exploit. Second, the proactive stance of competitor profiling will allow the firm to anticipate the strategic response of their rivals to the firm’s planned strategies, the strategies of other competing firms, and changes in the environment. Third, this proactive knowledge will give the firms strategic agility. Offensive strategy can be implemented more quickly in order to exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be employed more deftly in order to counter the threat of rival firms from exploiting the firm’s own weaknesses.

Clearly, those firms practicing systematic and advanced competitor profiling have a significant advantage. As such, a comprehensive profiling capability is rapidly becoming a core competence required for successful competition. An appropriate analogy is to consider this advantage as akin to having a good idea of the next move that your opponent in a chess match will make. By staying one move ahead, checkmate is one step closer. Indeed, as in chess, a good offense is the best defense in the game of business as well.

A common technique is to create detailed profiles on each of your major competitors. These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies. This involves:

• Background

location of offices, plants, and online presences
history - key personalities, dates, events, and trends
ownership, corporate governance, and organizational structure

• Financials

P-E ratios, dividend policy, and profitability
various financial ratios, liquidity, and cash flow
profit growth profile; method of growth (organic or acquisitive) 

• Products

products offered, depth and breadth of product line, and product portfolio balance
new products developed, new product success rate, and R&D strengths
brands, strength of brand portfolio, brand loyalty and brand awareness
patents and licenses
quality control conformance
reverse engineering or deformulation 

• Marketing

segments served, market shares, customer base, growth rate, and customer loyalty
promotional mix, promotional budgets, advertising themes, ad agency used, sales force success rate, online promotional strategy
distribution channels used (direct & indirect), exclusivity agreements, alliances, and geographical coverage
pricing, discounts, and allowances

• Facilities

plant capacity, capacity utilization rate, age of plant, plant efficiency, capital investment
location, shipping logistics, and product mix by plant

• Personnel

number of employees, key employees, and skill sets
strength of management, and management style
compensation, benefits, and employee morale & retention rates
Corporate and marketing strategies
objectives, mission statement, growth plans, acquisitions, and divestitures
marketing strategies