Analyzing Your Competition
Almost everyone in business understands the principle of trying to offer something better than what their competitors are offering. Gaining an advantage is the key to success and even survival. But many of the so-called advantages that businesses rely on are not sustainable. They can be easily copied, stolen or negated. Real competitive advantages things like brand name recognition, patented manufacturing processes or exclusive rights to a scarce resource cannot be easily copied.
Every company has a unique set of strengths, and it's critical that you determine yours, as well as your competitors'. Hold a brainstorming session with your staff and advisors to perform a formal SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. This analysis helps you to see how your strengths stack up against your competitors' weaknesses and suggests ways to take advantage of marketplace opportunities. After you have performed the analysis, there are four basic competitive strategies to consider.
- Become the low-cost supplier. By under-pricing the competition, you can achieve greater volume, which can drive your costs down even further by realizing economies of scale. Of course, it's important to still maintain a healthy profit margin so the key here is to lower costs, not just prices.
- Achieve product or service quality differentiation. Think about the hundreds of companies that have achieved such differentiation for themselves. Take L'Oreal, for example. Why have they used the slogan "I'm worth it" for so many years? And are there really any other crackers on grocery store shelves that have the image of Ritz? What's the real difference between Coke and Pepsi, or between Skippy and Jif peanut butter? Why do you keep returning to the same dealership to have your car serviced? Why do many of us follow our favorite hair stylist or radio personality if they move to another location or station? The answers lie in the perception of a difference in people's minds.
- Achieve supply or distribution leverage. When Microsoft wrote the DOS operating system, it instantly gained an advantage in the computer industry that has remained virtually impossible to copy. Airlines with landing rights at airport gates, or companies like Kellogg's with lots of shelf clout, have sustainable advantages that provide serious barriers to competitors. A patent, copyright or exclusive contract provides legal protection.
- Pursue a market niche, especially one that has been neglected by the dominant firm in your industry. As companies grow, decisions often have to be made to discontinue servicing a particular segment. But that doesn't mean that the segment no longer has needs; it just means that the larger company can no longer provide for them efficiently or profitably. That spells immediate opportunity for a smaller, leaner organization.
As you are customizing your strategy to meet your unique situation, keep in mind that your competitors are not just the obvious ones. McDonald's competes directly with Burger King and Wendy's, but they also compete directly with the grocery stores, especially during the summer barbecue season when people enjoy do-it-yourself burger grilling.
For more information, see Tailoring Your Company's Vision According to Trends and Changing Customer Preferences and Creating a Competitive Edge.
I. Gathering Competitive Intelligence
Have you ever made the wrong decision because you had inadequate information? Have you ever found yourself falling behind the competition and wondering how it happened? Have you ever wondered if there were new markets, sales channels and breakthrough communication programs that could take your product to the next step in sales and profits? If so, you need competitive intelligence(CI).
Many managers will argue they have plenty of information about their industry, competitors, customers and marketplace. So how is competitive intelligence different? The difference is that CI manages information so it becomes the knowledge you need for foresight.
CI can reduce the risk of making a wrong business decision so you won't be saying with regret, "If only I knew then what I know now, I would have done things differently." It also increases your ability to do the right thing at the right time, so you're not blind sided by a new competitor, unexpected actions of current competitors, or by emerging technologies that render your current technology obsolete.
The question all business owners should be asking themselves is not whether they need CI, but rather can they succeed without it?
The purpose of CI is to make the best decisions based on the best available knowledge on a given subject. The rules have changed: The stakes are higher, the game is faster, and the risks associated with bad decisions greater. CI is the practice of gathering, analyzing and disseminating information on what the marketplace requires (demand), about how you and your competitors meet these requirements (supply), and how each strives to meet market needs better than the other competition). The intelligence is then used to help make decisions about the future direction and growth of the company.
It's obvious that the best results come from the best decisions. The quality of the decision is a direct result of the quantity and quality of the information at hand, how it's analyzed, and how it's used. The right answers come from asking the right questions, and foreseeing events comes from looking ahead. This is why CI exists and is growing. Competitive intelligence can't predict the future, but it can help you make the right decisions about it.
Knowing what is going on in the marketplace and how it will impact you is the key to market leadership. This knowledge will help your firm become a strong competitor and seize the market first. The end result is a better chance of lasting success. As writer Damon Runyon says, "The race isn't always to the swift, nor the battle to the strong, but that's the way to bet."
To gain a marketing edge, you must first understand the nature of your competition and the dynamics and trends of your marketplace. Then, promptly use that knowledge to take advantage of opportunities and avoid threats. The critical tool to achieve that marketing edge is competitive intelligence and it's gaining ground every day.
It should be clear now that whenever you have an important decision to make about the future, you could use the kind of knowledge that CI provides. Examples include developing new marketing plans, counteracting competitor initiatives, considering a new product or line extension, entering new markets, repositioning an existing product, investigating a strategic alliance or acquisition, identifying new distribution channels, counteracting imports the list goes on and on.
Many managers rely on their years of industry experience to make key business decisions that are often based on instinct or "gut feelings." Certainly, there is no substitute for experience. On the other hand, change is happening faster and "you don't know what you don't know." CI can fill in the blanks of the most experienced manager's knowledge and help assure the decision making process uses the best intelligence to achieve the best results.
An axiom in CI circles is that 80 percent to 90percent of the information you need for a given project is available through public and published channels and the rest is insignificant. You'll often find that" public" information, however, has not been published. Court records, state filings and government hearings aren't published, but they are public and contain important information about a competitor's finances and future plans.
A frequent example of useful public information is a Uniform Commercial Code (UCC) filing. These state-required filings of assets and loan collateral can often tell you how much of a capital investment a competitor is making, the kind of equipment purchased and the manufacturer. A quick call to the manufacturer can tell you what the equipment is used for, and, therefore, what kind of new activity a competitor is financing.
Other sources of CI include internal and external sources. Internal sources include those pieces of information you and your employees need to do your jobs, such as technical papers, competitor sales literature, press clippings, annual reports, and the like. External information would include information found in proprietary databases like Biz@dvantage, Lexis-Nexis, Dialog and DowJones, to name a few well known resources.
Information also comes from primary and secondary sources. Primary sources are the originators of the information, and often you must interview the source to get the desired data. Secondary sources represent information that has been filtered through somebody other than the originator of the data, such as news stories and stock analyst reports.
CI professionals also differentiate between hard and soft information. Hard information is quantitative, like facts, statistics, raw data, financial information and hard news stories. Soft information is qualitative, and includes rumors, opinions, anecdote and customer feedback.
Which is more important, information gathering or analysis? Data gathering fans say that you must know where the information is and ask the right questions to get everything available. Analysis fans say that a "data dump" doesn't do anybody any good. It must be integrated and analyzed into graphs and charts and other information interpreters so that it can be acted upon. Then, there is a third group that believes each is equally important because if either is flawed, the other will compensate.
Analysis can be as simple as developing charts and graphs to show information relationships, or it can be as sophisticated as SWOTanalysis, scenario developing, and benchmarking.
II. Conducting a SWOT Analysis
A SWOT Analysis takes is a method for examining the Strengths, Weaknesses, Opportunities, and Threats facing a business. It can give you insight into your company's position in the competitive arena. When carrying out a SWOT analysis to determine how you rate against a competitor, the following guides should be used:
Consider your company's strong points. This should be both from your own and your customers' points of view. Don't be modest; be realistic.
- What distinct advantages does your company offer?
- Why do customers say they enjoy doing business with you?
- Is there anything you currently offer that can not be copied by a competitor, now or in the future?
Evaluate your company's weaknesses not only from your perspective, but also from the perspective of your competitors. It's sometimes difficult to think about and discuss your weaknesses, but it is best to be realistic now and face any unpleasant truths as soon as possible.
- What does your company do that can be improved?
- What does your company do poorly?
- What should be avoided?
- What do your competitors do better than you?
- Do competitors have a particular market or segment locked up?
Next consider the areas in your market that offer you room to grow. Opportunities can come from changes in technology and markets on both a broad and narrow scale; changes in government policy related to your industry; changes in social patterns demographics and customer lifestyle changes; and local events, such as the closing of a store near you.
- What and where are the interesting opportunities in your market?
- What are the important trends occurring in your local area as well as across the nation?
- What do you anticipate happening in the future that may represent an opportunity?
Although we don't like to think about them, we all face threats in our businesses. Many times they're out of our control, such as a downturn in the economy, a shift in market demographics, or perhaps a new mega-corporation opening in your local area. It is critical to think about and be prepared for such events.
- What are the obstacles that your company faces?
- What is your competition doing that could take business away from you or stunt your company's growth?
- Are the required specifications for your products or services changing?
- Is the changing technology threatening your position in the market?
- Do you have cash flow problems that could keep your company from acquiring new technology, staff or equipment?
The primary strength of SWOT analysis arises from matching specific internal and external factors and evaluating the multiple interrelationships involved. The matching process can be greatly facilitated by the construction of a SWOT matrix. The SWOT matrix is constructed by creating a table showing the strengths, weaknesses, opportunities and threats that you've just identified. (See figure 1 below.)
Figure 1 Basic SWOT Matrix
|Strengths||O/S Matches||T/S Matches|
|1.||O1 and S2||T2 and S2|
|2.||O3 and S3||T2 and S1|
|Weaknesses||O/W Matches||T/W Matches|
|1.||O1 and W1||None|
Next, you can use the matrix to methodically compare each relevant pair of lists to generate logical matches. The four SWOT cells are comparisons of opportunities with your strengths (O/S), threats with your strengths (T/S),opportunities with your weaknesses (O/W) and threats with your weaknesses (T/W). Analyzing each of the four SWOT cells of the matrix should yield a variety of matches that will help generate strategic alternatives. For example, if an opportunity in the marketplace exists for a firm that can provide superior service but your firm lags behind competitors in this dimension (i.e., customer service is one of your weaknesses), then you will quickly see when you do the O/W match that steps must be taken to improve customer service in order to capitalize on the market opportunity.
There are four basic categories of matches for which strategic alternatives can be considered:
- S/O matches show the company's strengths and opportunities. Essentially, the company should attempt to use its strengths to exploit opportunities.
- S/T matches show the company's strengths in light of major threats from competitors. The company should use its strengths to avoid or defuse threats.
- W/O matches illustrate the company's weaknesses coupled with major opportunities. The company should try to overcome its weaknesses by taking advantage of opportunities.
- W/T matches show the company's weaknesses against existing market threats. Essentially, the company must attempt to minimize its weaknesses and avoid threats. These strategy alternatives are generally defensive.
Back to Outline
III. The Next Step
So what do you do once you've compiled your SWOTanalysis? Develop a strategic plan for dealing with your competition and other market forces. Your plan should be aimed at allowing all members of your organization to understand your market position and how your company plans to compete. If your organization is large, it may require a separate plan for each business unit.
Your plan should include:
- An overview of the market
- An explanation of the products and services offered by your company and how they are different competitors
- A profile of the type of clientele you serve
- An explanation of the geographic marketing territory and nature of the business and areas of specialization
- An outlook for the competitive landscape of your market
Back to Outline
Leonard M. Fuld, "The New Competitor Intelligence: The Complete Resource for Finding, Analyzing, and Using Information About Your Competitors (New Direction Business)" (John Wiley & Sons 1994)
Tim Powell, "Analyzing Your Competition: Its Management, Products, Industry and Markets"(SVP Info Clearinghouse 1992)
Michael E. Porter, "Competitive Strategy: Techniques for Analyzing Industries and Competitors" (The Free Press, 1998)
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