Competitor Analysis

Learning Objectives
After studying of this chapter, you should:
¾ Be able to identify the direct competitors of a business.
¾ Understand the potential threats from direct competitors.
¾ Understand the importance of analysing the strengths and
weaknesses of competitors.
¾ Know that the type of business determines which aspects
should be analysed.
¾ Understand that there are several different ways of
obtaining competitors’ data using Competitive Intelligence
research resources.
¾ Understand both of the Competitor Analysis techniques
described – Competitor Array Analysis and Competitor
Profiling, and be able to use these techniques to analyse
competitors.

Introduction
According to Porter’s Five Forces model, introduced in an earlier
chapter, existing competitors heavily influence an industry.
Nowadays, business is conducted in a very competitive,
unpredictable environment, where, in some cases, many companies
offer similar products or services. It is therefore, vitally important
for a company to understand the nature of any competition in order
to survive in the market.

Why Do Businesses Need to Analyse Their

Competitors?
Marketing is merely a civilized form of warfare in which most
battles are won with words, ideas, and disciplined thinking.
Albert W. Emery

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All companies have the same overall objectives, to grow, make

money and succeed. Effectively, competitive businesses are at war,
fighting to gain the same resource and territory: the customer, and
like in war, it is necessary to understand the nature of the
competition and predict their next move.

Therefore, Competitor Analysis has several important roles in

developing a successful business, these include:
¾ Helping management understand their competitive
advantages and disadvantages, relative to competitors.
¾ Generating an understanding of competitors’ past, present
and (most importantly) future strategies.
¾ Gaining an understanding of how a competitive company
might react to a firm’s actions.
¾ Helping to forecast the returns that may be made from
future investment. For example, how will competitors
respond to new products or pricing strategies?

Analysing Competitors
There are several questions that should be considered in order to
perform useful competitor analysis:
¾ Who are the competitors?
¾ What are their strategies?
¾ What are their objectives?
¾ What are their strengths and weaknesses?

Who Are The Competitors?

Identifying a company’s direct competitors probably seems like a

relatively simple task, however the range and scope of actual and
potential competitors is usually fairly broad and the most obvious
competitor might not always be the most damaging or influential.

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 Competitor Analysis

In the chapter on Substitute Product Analysis an introduction to the

different types of competitive products was given. Broadening these
ideas provides five differing types of competitors:
¾ Direct Competition: Similar products or services, directed
at the same general market. For example, Coke versus
Pepsi.
¾ Close Competition: Similar customer benefits offered to
similar consumers. For example, Coke versus Tango.
¾ Similar Nature: Products that are similar in nature but do
not target the same general market. For example, Coke
versus Perrier (Sparkling water).
¾ Substitute Products: Products that directly fill the same
need but are fundamentally different in make up. For
example, drinking a glass of coke to cool down versus
eating an ice cream.
¾ Indirect Competition: Unrelated products that can steal
the market share nonetheless. For example, going to the
pub versus going to the cinema.

To identify the competitors, instead of looking at companies that

create the same products, it is necessary to consider companies
that are trying to satisfy similar customer needs or serve similar
customer groups.

What Are Their Strategies?

There is a close relationship between who a company’s competitors

are and the strategies that other firms are pursuing. The more that
one firm’s strategy resembles another’s, the more they compete.

When looking at a competitor’s strategy it is necessary to think

about what the competitor says and what it does. What a
competitor says about its strategy is revealed in:
¾ Annual shareholder reports.
¾ Interviews with analysts.
¾ Statements from managers.
¾ Press releases.

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However, the stated strategy often differs to the strategy that the
competitor is actually using. It is possible to discern what the
competitor is actually doing by looking at their:
¾ Hiring activity.
¾ Research and Development projects.
¾ Capital investments.
¾ Promotional campaigns.
¾ Strategic partnerships.
¾ Mergers and acquisitions.

What Are Their Objectives?

After identifying the main competitors and their strategies, it is

important to identify what each competitive company seeks in the
marketplace.

For example, often companies will differ in how they view the
importance of short term profits as opposed to a longer term
financial gain. A competitor that is focused on reaching short term
financial goals might not be willing to spend much money
responding to a competitive attack. Rather, such a competitor might
prefer to focus on the products that hold positions that can be
better defended. Alternatively, a company that does not have short
term profitability objectives might be willing to participate in
destructive price competition in which neither company earns a
profit.

Each competitor has a mix of objectives, and the relative

importance of each of these will vary from company to company. It
is useful to know how much importance competitors place on
factors such as profitability, market share, cash flow, technology
leadership etc. so that it is possible to predict their short term and
long term goals, and the potential market reaction.

What Are Their Strengths and Weaknesses?

Knowledge of a company’s strengths and weaknesses is imperative

as this can easily provide competitive edges and help with
successful marketing strategies later. When analysing the strengths

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and weaknesses of a competitive product or company, it is vitally

important that any comparisons that are made are objective.

Some key success factors to consider, include:

¾ Customer Awareness: How conscious the company is of
what the customer wants or needs? How responsive is the
company is to a customer’s query or problem?
¾ Product Availability: How easy is it for a customer to
purchase the competitor’s product? Does the customer
have alternative ways of buying the product, for example
via an easy-to-use website, or do they have to purchase in
store? How many stores stock the product?
¾ Technical Assistance: Is this provided free of charge?
Does the customer have to phone a premium rate number
for assistance? Or is it a free phone number? Alternatively,
does the company provide email support or a good website
FAQ section? Can a customer get face to face help with
their problem in a store?
¾ Product Quality and Price: How does the competitor’s
product compare in terms of quality? 1 Is the competitive
product more (or less) expensive? Is this difference in price
justified by better (or worse) quality? Or can other factors,
such as availability or technical assistance justify the price
difference?
¾ Selling Staff: Are the staff trained sufficiently to deal with
customer queries?

A part from these key success factors, there are additional variables
that should be competitively tracked, such us:
¾ Share of Market: The sales share that the competitor has
of the relevant market.
¾ Share of Mind: The percentage of customers who named
the competitor in answering the question, “Name the first
company that comes to mind in this industry.”
¾ Share of Heart: The percentage of customers who named
the competitor in answering the question, “Name the
company from whom you would prefer to buy the product.”

1
Refer to the Iterative Development Process chapter for a reminder
of Quality factors.

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 Competitor Analysis

Gathering information of a competitor’s business over the past few

years is very useful. Whilst this information can be hard to collect,
any that is found will be helpful. Possible methods of uncovering
competitive intelligence data are discussed in the following section.

Sources of Information for Competitor

Analysis
Davidson (1997) describes how the sources of competitor
information can be neatly grouped into three categories: [1]
¾ Recorded Data: Easily available in published form either
internally or externally. Good examples include competitor
annual reports and product brochure.
¾ Observable Data: Has to be actively sought and often
assembled from several sources. An example is competitor
pricing.
¾ Opportunistic Data: Planning and organisation is required
to get hold of this kind of data. Much of it is anecdotal,
coming from discussions with suppliers, customers and,
perhaps, previous management of competitors.

Table 1 lists possible sources of competitor data using Davidson’s

categorisation:

Recorded Data Observable Data Opportunistic Data

Annual report & accounts Pricing/price lists Meetings with suppliers

Press releases
Newspaper articles
Analysis reports
Regulatory reposts
Government reports
Presentations/speeches
Advertising campaigns Trade shows
Promotions Sales force meetings
Tenders Seminars/conferences
Patent applications Recruiting ex-employees
Discussion with shared
--
distributors
Social contacts with
--
competitors

Table 1: Possible sources of competitive data.

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Competitive Intelligence
Without proper organisation and a clear objective, there will be
limited gains from the data gathering and analysis process.
Gathering Competitive Intelligence 2 is not just focused on data
collection, interpretation is a crucially important part of the process.

There are several tools and techniques for Competitive Intelligence

activities: [2]
¾ Contacting Government Agencies: Can yield valuable
Competitive Intelligence data, but may often require
excessive lead time.
¾ Searching online databases: A fast method of finding
competitive information, although it is often fairly
expensive. However, with increasing sophistication and
affordability of information technology, this technique is
expected to drop in price. Database searches do not
provide information that has not been released to the
public or that has not yet been collected.
¾ Directly from companies and investment community
resources: Some types of data that are not widely
available from databases can be procured by contacting
the corporation itself or from investment community
sources.
¾ Surveys and interviews: Surveys can yield plenty of data
about competitors and products, whilst interviews can
provide more in-depth perspectives from a limited sample.
¾ Observations: simply driving past or visiting the
competitive company can be a simple, cheap and easy way
of gathering Competitive Intelligence. For example,
observations regarding the competitor’s customer parking
spaces (full or empty), new construction in progress,
customer service at retail outlets, volume and pattern of
supplier vehicles etc. can yield useful Competitive
Intelligence information about the state of the competitor’s
business.

2
A systematic and ethical process for gathering, analysing, and
managing external information that can affect your company's
plans, decisions, and operations

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¾ Competitive Benchmarking: A technique used to

compare an organisation’s operations against those of its
competitor’s.
¾ Defensive strategies: Monitoring and analysing one’s
own business activities in terms of how a competitor or
outsider could view the company provides useful
Competitive Intelligence data. 3
¾ Reverse engineering: Important Competitive Intelligence
information about a product’s quality and cost can be
gathered by deconstructing a competitor’s product.

Competitor Analysis Techniques

Competitor Array Analysis

One common and useful technique is constructing a competitor

array. The steps include:
¾ Define your industry, scope and nature of the industry.
¾ Determine who your competitors are.
¾ Determine who your customers are and what benefits they
expect.
¾ Determine what the key success factors are in your
industry.
¾ Rank the key success factors by giving each one a
weighting. The sum of all the weightings must add up to
one.
¾ Rate each competitor on each of the key success factors.
This can best be displayed on a two dimensional matrix,
competitors along the top and key success factors down
the side.
¾ Multiply each cell in the matrix by the factor weighting.

3
Supermarkets often use a “mystery shopper” tactic to analyse how
the different branches of their store compare on a monthly basis.
This shopper enters the store and collects data regarding customer
service, product availability etc. and reports back to the branch
manager good and bad practices. Employees are aware of this tactic
and sometimes yearly bonuses are dependent upon receiving a
good rating from the mystery shopper.

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¾ Sum the columns for a weighted assessment of the overall

strength of each competitor relative to each other.

Two additional columns can be added. In one column you can rate
your own company on each of the key success factors (try to be
objective and honest). In another column you can list benchmarks.
They are the ideal standards of comparisons on each of the factors.
They reflect the workings of a company using all the industry's best
practices.

An example of Competitor Array Analysis follows: [3]

Key Industry Competitor Competitor Competitor Competitor
Weighting
Success Factors #1 Rating #1 Weighted #2 Rating #1 Weighted
1 - Extensive
0.4 6 2.4 3 1.2
Distribution
2 - Customer
0.3 4 1.2 5 1.5
Focus
3 - Economies of
0.2 3 0.6 3 0.6
Scale
4 - Product
0.1 7 0.7 4 0.4
Innovation

Totals 1 20 4.9 15 3.7

Based on material presented in "Beat the Competition: How to Use

Competitive Intelligence to Develop Winning Business Strategies",
Ian Gordon, Basil Blackwell Publishers, Oxford, UK, 1989.

Competitor Profiling

Another 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: [3]

Background
¾ Location of offices, plants, and online presences.
¾ History - key personalities, dates, events, and trends.
¾ Ownership, corporate governance, and organizational
structure.

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Financials
¾ Price-to-Earnings ratios, dividend policy, and profitability -
various financial ratios, liquidity, and cash flow.
¾ Profit growth profile; method of growth (organic or
acquisitive).

Products
¾ Products offered, depth and breadth of product line, and
product portfolio balance.
¾ New products developed, new product success rate, and
R&D strengths.
¾ Brands, strength of brand portfolio, brand loyalty and
brand awareness.
¾ Patents and licenses.
¾ Quality control conformance.
¾ Reverse engineering.

Marketing
¾ Segments served, market shares, customer base, growth
rate, and customer loyalty.
¾ Promotional mix, promotional budgets, advertising themes,
ad agency used, sales force success rate, online
promotional strategy.
¾ Distribution channels used (direct & indirect), exclusivity
agreements, alliances, and geographical coverage.
¾ Pricing, discounts, and allowances.

Facilities
¾ Plant capacity, capacity utilization rate, age of plant, plant
efficiency, capital investment.
¾ Location, shipping logistics, and product mix by plant.

Personnel
¾ Number of employees, key employees, and skill sets.
¾ Strength of management, and management style.
¾ Compensation, benefits, and employee morale & retention
rates.

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Corporate and marketing strategies

¾ Objectives, mission statement, growth plans, acquisitions,
and divestitures.
¾ Marketing strategies.

Summary
Detailed knowledge of competitor products/services will enable you
to best plan your strategies and hopefully increase your overall
market share and hence profit. This chapter has presented you with
ways in which competitive information can be found as well as two
methods used to analyse and interpret this information: Competitor
Array Analysis and Competitor Profiling.

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Tasks
Consider the following two case studies:

Case 1:

You are a business surveyor in the company Olympus. As a world-

leading manufacturer of digital product, your company has recently
developed a new digital camera, the FE-240. It is ideal for those
who want to enjoy extraordinary magnification power, compactness
and quality. Giant zoom - miniature dimensions. There are some
details about the newly developed camera:
¾ 7.1 Mega pixels in a stylish metal body available in silver
or black.
¾ 5x optical zoom (equiv. to 38-190mm on a 35mm model),
1:3.3-5.0.
¾ 6.4cm/2.5” LCD.
¾ 'One button, one function' design principle.
¾ Super Macro mode from 3cm.
¾ TruePic TURBO.
¾ 15 scene modes (e.g. Cuisine, Fireworks, Self Portrait).
¾ High ISO Setting mode (ISO 1000).
¾ Internal memory plus xD-Picture Card slot.
¾ Movie recording with sound up to card capacity.
¾ Supplied with Olympus Master software + LI-42B lithium
ion battery.
¾ Multi-language menu with 25 languages.

Your company has decided to start the new product in the UK digital
camera market. Your task is to complete a Competitor Analysis
table by applying the first analysis technique – Competitor Array
Analysis. You should start the research by using at least two
alternative products from different companies, using a variety of the
Competitive Intelligence resources described.

The key success factors of your competitors that you intend to

research are:
¾ Product innovation.
¾ Customer focus.

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¾ After sales service.

¾ Price of similar products.

Then, based on the Competitor Array Analysis you should compare

the advantages and disadvantages compared with your product and
comment on them.

Case 2:

You are a surveyor in the O2 mobile phone Company, one of the

largest mobile communications server in the UK. However, there
are other companies that are providing the same technology service
in the market; they are the direct competitors of yours. Your
objective is to create detailed profiles of two other companies (e.g.
Vodafone, Orange or 3G) based on research form at least two
Competitive Intelligence resources.

Based on the profiles you have created, analyse the strengths and
weaknesses of your competitors’ and compare these with yours.

References
1. “Strategy – Competitor Analysis”
http://www.tutor2u.net/business/strategy/competitor_analysis.htm
(Viewed July 2007)

2. Malhotra, Yogesh. (1996). Competitive Intelligence Programs: An

Overview [WWW document], @BRINT Research Institute
(www.brint.com). Available at
http://www.brint.com/papers/ciover.htm (Viewed July 2007)

3. “Competitor Analysis”
http://en.wikipedia.org/wiki/Competitor_analysis
(Viewed July 2007)

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