Competitive analysis is an analysis of a company’s main competitors. Based on this information, scaled by strengths and weaknesses, the analysis identifies a strategic context of the opportunities and threats to improve the company’s performance. The competitive analysis provides a framework to support an adequate strategy formulation and marketing mix.
In this type of research, such as competition analysis, the criteria and market distinguishing aspects must first be established and related to the internal analysis, followed by the (external) analysis of the (potential) competitors.
Unfortunately, competition analysis is often only superficial, disorderly and executed irrationally, and it remains with intuition, assumptions and fleeting impressions. The result is unambiguous and recognized information about competitors and market position and gaps and blind spots, which are not known throughout the company.
In addition to the competing companies’ positive characteristics, the weaker aspects of the most important, approximately 5 to 10, main direct and indirect competitors, will be analyzed. In any case, the following elements are discussed in the competition analysis;
– competitive objectives
– the strategy applied by the competition
– market impact
– marketing activities
– product range
– used pricing
– customers (target group)
– summarize or success factors and possible pitfalls
The competitive analysis determines the intensity of competition and the profitability of a particular market; the fiercer the competition, the lower the market/industry’s profit potential.
In principle, Porter’s Competitive Forces Model is used for this with an extensive analysis of the leading direct competitors. In a systematically designed competitive analysis, we know the following phases.
The greater the “power” of suppliers, the less potential there is for buying companies within an industry to negotiate price and quality. This determines how the supplier has more power and can drive up delivery costs and pursue other trade advantages for the supplier’s benefit. All this at the expense of the attractiveness and profitability of the industry concerned.
The following factors highly influence the supplier’s negotiating position:
– The number of suppliers on the market
The fewer suppliers, the greater the power of each supplier. Is there a monopoly, oligopoly or entire open competition on the supplier market?
– Market position of suppliers
The greater the supplier’s sales, market share, and contractual power, the more power the supplier has.
– Important and uniqueness of suppliers products
The more important the products are in terms of continuity and profitability (dependency, alternative products), the lower the negotiation margin.
– Barriers when switching suppliers
As it costs more money and energy to switch from one supplier to another, the power of each provider will increase.
– Threat from vertical integration
The easier the procurement (to the company’s customers) is for the supplier, the better the supplier’s negotiating position.
It makes sense that buyer power also affects the continuity and the profitability of a product/market and its businesses. Customers have the potential ability to influence the price and quantity of products sold. Power buyers can negotiate the volume or costs of change or find substitutes. Price sensitivity also affects the buyer-seller relationship. For the analysis, the following questions may be asked here:
– Who buys the product? How many buyers? Are buyers focused?
– What are the customer demographics?
– Is the buyer price sensitive? What is the relationship between asking price and supply?
– What’s the product? How is it different from others (brand, quality, price)?
– Can the buyer replace it? Are customers loyal to the brand?
– How do products come to market? What are the general distribution channels? Can the buyer integrate backwards?
These are almost the same aspects as with ‘Powers or Suppliers’ but now seen from a different perspective, and are;
– Number of customers in the market
The fewer the number of potential and actual buyers define, the greater the power of the individual buyer.
– Important products for customers
The more important the products are for the buyer, the lower the negotiation margin.
– Customer switching barriers
Higher costs and effort of switching, less attractive for the customer to switch
– Threat from backward Integration
The easier it is for customers to produce themselves (instead of buying), the better the bargaining position of the buying customer.
Potential new entrants into the industry, newcomers not only disrupt market relationships. New entrants can also put pressure on the profitability of an industry by creating additional supply in an existing market. Here are some questions to ask:
– How easy is it for new companies to enter the market?
– Are the current owners qualified? In the price? Loyalty mark? Materials? Place? Direct?
– Are there technological barriers to entry?
– Are size and economies of scale important?
– What are the effects of capital requirements and changes in market access?
– Does government policy play a role?
– Is the distribution network open or closed?
However, the influential market entry of new market participants depends on the following factors:
– Economies of scale
Existing market participants usually have a large production capacity, which means they can produce at a relatively low price. The greater the economies of scale of a large production capacity, the lower the threat from new market entrants.
– Barriers during change
The more money and effort it costs to switch from one provider to another, the lower the likelihood that new entrants will enter the market.
– Government policy
Is the government disrupting the market? Are they encouraging newcomers, or is the government protecting the newcomer markets?
– Established Brands
Are the product’s brand sensitive? It’s tough to compete with established brands.
– Availability of distribution channels
Can newcomers use existing sales channels, or do they have to configure them themselves? In the latter case, it can be a significant barrier to entry.
New entrants are putting pressure on an industry’s profitability. However, practice shows that it is not easy to gain significant market shares as a newcomer. To do a successful market entry, it will be a need for huge investments, massive marketing and sales effort to create brand awareness, maybe a manufacturing capacity, and possibly also a distribution channel.
The question arises as to whether other products from other markets can easily replace the products. Substitutes have a corresponding purpose and function of the product or service they serve. Some examples in this regard;
– public transport – bus, train or plane
– holiday – trekking, camping, resort or hotel
– fast food – pizza, chicken, hamburger or noodle
– computer – tablet, laptop or desktop
Porter claims that substitutes pose a threat to the market only if price or performance improves significantly. The buyer user has many choices if he is dissatisfied with the product. A substitute can also ensure that the demand for products can change, and the competition can become fiercer. The downside of extensive competition from substitutes is that it can affect margins and operating profit.
Relevant questions to be asked are;
– Are there alternative/substitute products available to customers?
– If so, what are the main alternatives/substitute and replacements for products and services?
– Can customers easily switch between products?
– If so, what are the main alternatives/substitute and replacements for products and services?
– What are the market share and trends of the substitutes compared to the product range?
– What are the expected growth rates?
– What is the price/value proposition?
— what are substitute’s added values compare to the products in the industry?
— do have substitute products of higher quality and reliability?
— are those substitute products available at a lower cost (price/value proposition)?
– Are consumer preferences changing?
– Are consumer demographics changing?
The first four mentioned forces of Porter’s Competitive Forces Model influence the profitability of an industry. However, these forces do not say much about the level of competition in the industry itself. This component of Porter’s Five Forces Model measures the intensity of the rivalry. The attractiveness of a market is determined mainly by the current competition. When several competitors have a good reputation in the industry, it becomes more challenging to compete with them. If those companies also have enough budget for innovation, marketing or knowledge, the attractiveness is very low, next to nil.
The most attractive form arises when it is a large market, while there are hardly any suppliers. If that is the case, a company will have a great chance of success. When it is a small market with many players, it is less attractive. When it turns out that the barriers to entry are also low, it can be a considerable risk to invest in the company.
Finally, it is also examined to what extent the competitors influence each other. A market where, for example, there are two market leaders looks completely different than when there are none. Some aspects to be assessed to determine the intensity of the competitors are listed in the questions below;
– How many competitors are there?
– In what area is there competition (price, service, communication, etc.)?
– Are the products of the competitors equivalent, or are there (minor) differences?
– Are there exit barriers? If so, what are these and are they high?
– How do the competitors behave? (competitive behaviour)
– How is the market share distributed in the market? Are there only a few organizations with a high market share, or is it more spread across all players?
To determine the level of competition in a market, look at the following;
– Homogeneous or differentiated products
For homogeneous products, price competition is the most obvious strategy. Price competition often leads to intense competition.
– Market volatility
Is there a more or less stable supply and demand for the same product? Or do supply and demand fluctuate considerably? And are there constant changes to the product?
– Market relations
Is there a real open competition, a monopoly or an oligopoly? And are there parts of the market that can “operate” the market?
– Product supply and demand
How does the production capacity relate to the demand for the product? Is it healthy? If the production capacity is too high, it will undoubtedly lead to intense price competition.
– Obstacles to disembarkation
The more money and effort it will costs to exit and get known in the market, the greater the competition.
– Government policy
A continental, national and local government often have a policy-making role in the industry. Does it increase competition or not? Have price agreements been made regarding a minimum price (f.e. common in agro-industry)?
Although the first four forces of Porter’s five forces model say something about the profitability of a market. After all, it is primarily the fifth force, the intensity of competition, that determines the attractiveness of a trade market.
A competitor classification is needed for a substantiated assessment, and therefore the competition is divided into three groups;
– direct competitors (solving same problems for same customers)
– indirect competitors different solutions, solving the same problem in a different way for the same customers
– indirect competitors different customers, solving the same problem similarly in a different industry
It is critical to include in the analysis, break down the different types of competitors
– size (large, medium and small, newcomers)
– type (direct, indirect but different solutions and indirect but different customers)
It is best to include 2 to 3 companies of any size from the direct competitors, giving a total of 8 to 12 competitors to be analyzed. For each of the two indirect competition groups, it is sufficient to have one leading player for each size, giving six competitors in total. Analyzing the indirect competitors is essential because it can provide new ideas about USP (unique selling points), trends, and used market instruments.
Next is collecting data and information about the relevant competitors.
– Corporate overview
Competitor analysis starts with collecting the general introductory information, data such as founding year, management, locations, number of employees, vacancies etc.
This information can be found on the company site, Chamber of Commerce, but also on LinkedIn, Glassdoor, Indeed.
– Financing, sales and profits
The method of financing, the shareholders (venture capital) etc., can be obtained by requesting the deposited annual statements from the Chamber of Commerce or, for example, by requesting the creditworthiness.
These can be found through internal sales reports, references mentioned on the company sites, press releases, other news and publication sources, company presentations at events, interviews and youtube etc.
With this data, you can already make the first comparison to for example;
– growth (per year)
– turnover per employee, estimation of market share
– margins, profit percentage
Below a checklist of the primary company data
* Company overview
– Year founded
– Key people
– Number of employees
– Open jobs
– Money raised
– Funding status
– Latest investments
* Financial status
– Annual revenue
– YoY revenue growth
* Sales & Operations
– Market share percentage
– Sales strength
– Marketing power
– Main projects
– Main customers
– YoY customer growth
– IP’s & patents
A unique sales proposal (USP) is the subsequent analysis and is an integral part of determining the decisiveness. It should answer the reasons why the customer values the own company and the various competitors. “What makes your company and/or the competitor’s the better choice or which is the competitive advantage that customers really appreciate.”
Questions to asked, are;
– What is ‘actually’ sold? What is the problem our company and competitors are solving?
– Who is your target group? Can the market be divided into segments to be named?
– What is valued by the market and what does our company well, and in what do the competitors excel?
– Which customer-oriented objectives are required and which are really distinctive, and also which are most appreciated?
– The USP must be made branch-specific and exceptional and not only include the fundamental factors, such as quality, price, service and speed.
– The specific classification can be; convenience, knowledge, guarantee, customization, delivery times, specialization, innovation, variation or originality.
– To what extent are the USPs unique and powerful, not easily copied with low costs and effort (are they a real competitive advantage?)
A large number of components have already been discussed in the previous analysis and, if possible, return by further evaluating the competitor’s marketing mix.
The classic 4 Ps in the Marketing mix is Product, Promotion, Place and Price. But this only gives a limited overview and insights, so the 9Ps of marketing are better applied for this in-depth analysis. Below is a summary or checklist against which you can weigh the various aspects of the competition concerning your own company’s marketing mix. This marketing mix template/checklist is only an indicative enumeration. Still, for the relevant market and competition, certain insignificant aspects can be dropped, and other essential elements should be added.
Competition matrix (benchmark)
It can be helpful to evaluate competitors, in a simple matrix, a table with the aspects to be assessed and given a score in a gradation of 1 – 5 steps to it (from; 1. much better – 2. better – 3. equal – 4. worse – 5. much worse). Also, add, if necessary, some notes to the aspects.
– Product design
– Product features
– Product quality
– Product innovation
– Product range
– Product manuals
– Branding, reputation
– Packaging and labelling
– Complimentary service
– After-sales service
– Service level
– Spare parts & maintenance
– Operating & maintenance costs
– Guarantees & warranties
– Returns & return policy
– Product life-cycle
– Price strategy & tactics
– Price positioning
– Recommended prices, price-setting
– Reimbursement (distributors)
– Discounts (customers)
– Payment terms
– Payment credits
– Cost control & reduction
– Sales support
– Distribution strategies
– Market coverage
– Location & offices
– Service locations
– Supply chain management
– Transport, logistics, expediting
– Storage & warehousing
– Promotion strategy, quality and intensity
– PR & publicity
– Direct marketing & sales promotion)
– Sales offers, sales promotions
– Website & social media
– Brochures and presentations
– Exhibition & convention
– Sales offers, sales promotions
– Sales power
The degree of effective employees, perceived by customers as positive and helpful
– Staff (satisfaction, turnover etc.)
– Complaint processing, service failure
– Manage relationships (internal, external, stakeholders)
– Manage waiting times & downtime
In the marketing mix, process refers to the effectiveness and efficiency of delivering products and services to a customer and the appreciation one receives for this.
Processes (procedures, methods & flow of activities) must be optimized and adapted to new developments and require continuous attention.
– Design and optimization of processes
– Use of IT (information technology)
– Decision making
– Lessons learned
– Best practices (working to and alignment with)
– Pinpoint, recover and prevent incidents and failures
– Monitor and track service performance
– Resource requirements and allocations
– Performance measurement (like, for example, KPIs)
– Operation and user manuals
* Physical evidence
The indelible impression of customers, the extra attention, which customers experience as materialistic of value. Basically a feeling or tangible item that justifies and confirms the value of the purchase to customers.
– Reception and facilities/equipment
– Spatial layout, exhibiting products etc.
– Parking, signage, distances etc.
– Interior; style, comfort, furniture, colour schemes
– Ambient experiences; music, air, temperature, tranquillity
– Treat; coffee, cake etc.
– Product manuals
– Certificates of Authenticity
– Account and method of presentation
– Souvenirs, memorabilia
After all the above steps and comparison have been made, the final evaluation can begin, after which the conclusions can be reported in writing. By putting the review in tables, you quickly have a detailed overview.
Porter’s Competitive Forces Model shows the attractiveness of the market and any actions to be taken to better position the company.
The competitor analysis prepared indicates which improvements could be made to outperform the relevant competitors. Do others offer better prices with better service? Then it can be wise to respond to this, especially when it is more expensive and can provide less good service.
Or the analysis concludes is that the company is insufficiently distinctive. Then changes should be made to the marketing strategy.
It is not always the intention to devise a new business strategy now, or the results will force you to do immediately. The results must be shared and must undoubtedly be included in the follow-up sessions of the marketing plan and business plan.
Re-exam the benchmark, competition matrix. The competitor benchmark will provide insights on which factors the company need to respond to. Do all competitors score low at some point? Then think about how your company can take advantage of this ‘opportunity’. Are on other aspects your company score too low, think about how to compensate or even turn it into a competitive advantage.