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Competitor Analysis

Competitor Analysis

The next level of analysis that a company needs to conduct is a detailed competitor analysis to understand competitors, their goals, strengths and weaknesses and reaction patterns.

Firstly, an understanding of the current strengths and weaknesses of competitors can reveal threats and opportunities that merit action from a company. Secondly, it leads to an understanding of the goals and reaction patterns of competitors firms, which directly determine the outcome of a company’s strategic moves. No business strategy is by itself either a success or failure. It is the reaction and retaliation or the absence of a reaction which determines the outcome of a firm’s business strategy.

Competitor analysis can be conducted using the following framework:

1. Size, growth and profitability

The size of and company and growth of sales and market share provides indicators of the health of the business. The maintenance of a strong market position or the achievement of rapid growth usually reflects a strong competitor. In contrast a deteriorating market position can signal financial and organizational constraints which the firms ability to pursue certain strategies.

The size of a competitor by itself is not indicative of the vitality of competitors business, as newer entrants yet to achieve scale, but pursuing growth aggressively may be a larger threat than an existing large firm, not proactively growing its business.

After size and growth, consider profitability. A profitable business will have access to capital, both internally and externally, for investment in future growth. A firm that has lost money over an extended period of time or has experienced a sharp erosion of its margins and profitability, will find it difficult to fund future growth.

2. Image

A key strength of a company is the associations and image that customers carry about the organization and its products. Whilst analyzing a competitors image, one must consider not only product related attributes and quality but even factors such as innovation, social conciousness, personality of the organization, relationships with stakeholders. Weaknesses of competitors on any of these elements can present opportunities for a firm to develop an advantage. On the other hand, strength of competitors on key dimensions represent challenges, which a firm decides to either exceed or flank.

Analyzing a competitor’s image requires extensive market research approach is to use qualitative methods to find out what the company and its brands mean to its customers, as these metrics would be strong indicators of the gains by a competitor.

3. Competitor objectives and commitment

Knowledge of a competitor’s objectives help predict whether a competitor’s present performance is satisfactory or not or whehter major changes are likely. The financial objectives of the firm indicate the company’s willingness to invest in a business. It is also important to know what the competitors objectives are with respect to market share, sales growth and profitability. Other non financial objectives are also important. Does the firm want to be a technological leader? These objectives provide a good indication of the competitor’s possible future strategy.

The objectives of the competitor’s parent company (if applicable) are equally relevant. What is the role of the business unit in the parent’s business portfolio is a key question.

4. Organization and culture

Knowledge about the background and experience of the competitor’s top management and key personnel provides insights into future actions. The organization structure, values systems and people have a profound influence on strategy. A loosely structured flat organization that emphasizes risk taking may have difficulty pursuing a cost reduction program. On the other a highly structured organization that relies on tight controls will find it very difficult to become innovative or market oriented.

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