Competitor analysis every five years? Seriously? Yes, now in five years, entire industries are dying, and new ones are being born. Maybe today, when everything around is changing at a cosmic speed, such analyzes are not needed at all? And what about benchmarking? Is this also a competitive market analysis? We have the right comments and questions in front of us, and we will start with them.
The appropriateness of strategic competitive analysis is not an idle question. Many business owners and executives have given up on this kind of market research lately. Their arguments are the unwillingness to spend time and money on something that has no informational value and will not make any changes to their business strategy. Of course, such a point of view has the right to life and, moreover, is absolutely logical and correct. But only in certain cases.
Benchmarking sounds much more modern. But at its core, this is the same competitive analysis, it is simply carried out with a different goal, which can be formulated as “aligning with the standard, that is, with the best”. Thistype of analysis is more related to the field of strategic management than to marketing. But the competitive analysis methods are exactly the same.
If you do conduct such marketing research, how often do you do it? And with what depth? And how to identify the main competitors - not all of them should be taken for analytical comparison? This is the second set of questions that must be answered before starting any work related to your company's competitors. Let's start the review with the classic heavyweight in competitive marketing and dot the i's in the "old-fashioned" five-year version - Michael Porter's competitor analysis. At the same time, we will deal with its old-fashionedness. But before that, let's define the goals of competitive analysis: these are technologies for identifying significant competitors and predicting their market behavior.
Porter's long-term analysis
Porter analysis is really carried out no more than once every three to five years. The style of work in this case is "piece" - each competitive company is analyzed separately and in stages:
- Competitor's potential: strengths and weaknesses.
- The main driving force of the competitor. What does he want in the market? His goals and motivation.
- Competitor's current strategic position and near-term market opportunities.
- Competitor's future plans for the market and the industry as a whole.
- Forecast of competitor's actions for the future.
Porter's competitive analysis of firms requires a lot of effort and time. This marketingheavyweight is useful in companies and enterprises operating with expensive equipment and "long" technologies. Such companies require long-term investments and do not grow in one or two years. For example, nuclear industry enterprises, metallurgical or petrochemical processing plants, the construction of which requires huge financial investments. Often there are cases when such giants do not think about competition at all (they do not even keep such specialists on the staff of marketers), which is a serious strategic mistake. "Big ship, big voyage" is the most accurate definition of the appropriateness of Porter's competitive enterprise analysis for industrial heavyweights.
By the way, heavyweights are not only in "heavy" industries. There are more and more of them in the consulting industry today. The competition among them is serious, therefore, a preventive analysis of the competitive environment should also be deep and detailed. The difference from "heavy" companies in the frequency of analysis. The consulting business is much more mobile, five-year reviews of competitors are indispensable, annual studies are needed here at least.
Five forces of competition
Michael Porter has a theory of the five forces of competition. It is imperative to know this theory, it helps marketers and business leaders to make the right decision about the appropriateness and depth of the company's competitive analysis "here and now". Five Forces of Competition Rule:
The weaker the influence of competitive forces, the more opportunities for high profits in the industry the company has. Andon the contrary, the greater the influence of competitive forces, the greater the likelihood that no company will be able to provide a high return on investment
New players in a competitive market
Newbies are dangerous because of their possible new technologies, behaviors, standards - you never know what to expect from them. Less dangerous are newcomers to industries with expensive means of production - they simply do not exist or are extremely few. Such industries have a high barrier to entry. The height of this threshold (and hence the protection from new players) can be influenced by several mechanisms and ways:
- High volume production costs per unit are much lower than medium or low volume production. Too low entry profitability becomes an insurmountable barrier for beginners.
- The multitude of brands and brands with wide product lines within them makes it difficult for a beginner to find a free new niche.
- The need for long and large input investments (expensive high-tech equipment) practically blocks the way for newcomers to the industry.
- High level of fixed costs leads to minimal or no profit in the initial stages of production.
- The inaccessibility of the consumer audience is another major barrier for new entrepreneurs - debutants.
- The most armor-piercing protection is state participation through strict regulations and product requirements and state share ownership of companies. The higher the degree of state participation, the lowerthe degree of desire to join the market among new players. Beginners always need more room to maneuver, new moves and quick rebuilds. Such numbers will not work with the state…
- Let's not forget the broad "military" capabilities and competitive advantages of existing companies: they can resist entry into the market in a variety of ways - from advertising pressure to price dumping in order to maintain market share.
Consumer power
One of the brightest pages in all modern marketing. Customer power has always been high, today the degree of consumer power is rapidly increasing with the growth rate.
This growth makes the competition even tougher. Demands on the quality of a product, and in particular on the price of this product, can negate all the efforts of the company in the form of zero profit. Today's consumer is capricious and often manipulates competing companies. Modern methods of competitive analysis necessarily include a consumer behavioral "page", it is now a mandatory component of marketing.
Power Suppliers
The influence of suppliers on the competitiveness of companies is greater than it might seem. First of all, these are the prices for raw materials and intermediate resources, which ultimately affect the profitability during the sale of the company's final product. Suppliers have another powerful lever of influence - the quality of raw materials. And of course, the punctuality of its delivery. The dictatorship of suppliers can manifest itself especially clearly if there are few of them in theindustries. Any competitive analysis of an organization that claims to be effective must include a detailed breakdown of all suppliers.
The Power of Product Substitutes: Beyond Generics
The appearance of substitutes of various kinds on the market can be a real disaster for both consumers and manufacturers of original products. First of all, their quality and prices are much lower, which distorts the entire competitive picture in the direction of dishonest play. Switching the consumer to substitute products without explanatory work can lead to the most unfortunate events. This is especially true for the pharmaceutical (production and sale of cheap generics) and food consumption industries. In the analysis of the competitive environment of an enterprise, it is important not to miss this rather new factor in the development of markets.
Competition among your own
Companies compete differently in the market, usually one of four behavioral patterns in response to rival strategies:
- A leisurely competitor either does not notice the "body movements" of his market rivals at all, or does it slowly and in a small amount. The nature of such behavior can be anything: from the impenetrable stupidity of marketers (this may well be) to complete confidence in their loyal customers (again, the stupidity of marketers). Or maybe the real state of affairs of the company is so unenviable that there are simply no resources to adequately respond to competitors. The main thing here is to understand the reasons for this slowdown.
- Choosive Competitor "Naughty" and Reactsonly to selective types of competitive attacks - for example, to increase advertising activity, while he is not interested in dumping price cuts. The reasons for such intelligibility also need to be understood.
- "Lion" is very aggressive in the market by all possible criteria, including in reaction to any changes in competitive strategies. But with the "lion" it's easy - no need to rack your brains, guessing the reason for some kind of passivity, there are simply no such passivity.
- The unpredictable competitor is the hardest because you never know what he will throw at the last moment. Sometimes it is a blow in response to a blow, sometimes it is completely ignored. Usually these are small companies that decide for themselves when they can afford to “get into a fight” and when they can’t.
There is another method related to modern competitive analysis models. This is an accurate diagnosis of the prospects and potential of a competitor company. To do this, you need to collect the following data:
- Competitor's current market share.
- Percentage of customers who choose this company in response to the question "which company in the industry comes to your mind first" speaks to consumer knowledge.
- Percentage of customers who name this company in response to the question “whose products would you buy if you chose?” speaks of customer loy alty.
This is a very expensive analysis of competitive advantages and potential, but the game is worth the candle, especially when it comes to a formidable market opponent with which to buildlong-term competitive strategy. The fact is that this informational diagnostic trio has an important pattern: companies that have a high percentage in the last two points will definitely increase their share in the first point.
Criteria for evaluating and selecting competitors for analysis
The most accurate way to measure a competitor's success is to know their bottom line. But if this is not possible, you will have to tinker. If we talk about the competitive analysis of an enterprise, especially an industrial one, then the criteria for evaluating its competitors will be more traditional:
- company size;
- yield;
- special characteristics of goods or services, if any;
- clients;
- product promotion system.
But if we are dealing with a service company, then we cannot do without additional criteria for analyzing its competitive advantages:
- popular among buyers;
- visibility in search engines;
- advertising activity and estimation of advertising budgets;
- working with social networks;
- quality of corporate website;
- secret spy: call, "test purchase".
It is difficult to overestimate the importance of reliable information about competitors, including the maximum number of characteristics and comparative assessments, strengths and weaknesses, marketing tools, etc. Relevant information about each competitor, without which an effective competitive market analysis is impossible, includesyourself the following items:
- Strategic goals in the market (capturing new sectors or consumer groups, increasing market share, entering the top three, etc.).
- Current market situation (position in the group).
- Availability of strategies for structural changes (expansion, absorption, contraction).
- Financial and technological potential, strengths and weaknesses;
- Product portfolio: its structure and change strategies.
Unless you have dedicated insiders, you are unlikely to know the exact wording of competitive companies' strategic goals. But goals can be sorted out by answering one of the main questions for each competitor: “What is he looking for in the market?”
Analysis of strengths and weaknesses of competitors
Each company defines its goals in the framework of strategic planning, taking into account many factors - this is a classic of strategic management. Resources and capabilities are the two main factors determining the success and implementation of the strategy and goals set by competitors.
Most often, information about cash flows, sales volumes, profits and production capacities is not direct, but secondary - from rumors, personal experience, etc., it is difficult to regard it as reliable. Market research among suppliers and consumers will help improve its quality. Dealers, if any, can also be valuable sources of information.
Pre-work
First you need to find and select the right competitors forfurther competitive analysis. Usually there are no more than five such competitors. The sources of information about them are very different, they may be quite enough for a qualitative analysis:
- Customer research - surveys and collection of consumer opinions. This kind of customer information is especially useful for analyzing the strengths and weaknesses of competitors.
- "Mystery Shopper" - confidential observation of competitive sales of various formats in the person of an outside buyer. The method is informative for identifying weaknesses and strengths, especially small details that only a professional eye can see.
- Research on the Internet: a huge reservoir of information, from corporate websites, ending with professional forums and special collectors of reviews and opinions. Don't forget about online advertising budgets, online contextual advertising and social networks - all this is a real informational Klondike, if used correctly.
- If possible, interviews and surveys of experts in your industry and markets in general. If this is not possible, monitor and read more all possible expert opinions on the Web.
- Some of the most knowledgeable people are field salespeople. They need not just to be interviewed, they need to be constantly friends with them, ask questions, ask them to follow one or another competing neighbors and their sellers. Field information is notable for its reliability and, most importantly, its promptness and constant updating.
- Profile exhibitions, reviews, seminars, conferences. No comment here.
The Ten Steps of Competitive Analysis
- An overview of the overall level of competition in your industry. At this stage, we are talking about the "mobility" of the market, which depends on the number of players in the market, the speed of the emergence of new products. In highly competitive markets with many players, it is more difficult to find a free niche, qualified employees (they have high salary expectations). In such cases, the risk of losing profit is higher. You need to monitor the general state of the market constantly, taking into account your own past reviews over the past three years. You don't need to believe profile sites or magazines that publish such reviews, make your own, don't be lazy.
- Forming a map of competitors is a very simple and at the same time useful step. The map is built on two parameters: growth rate (vertically) and market share (horizontally). Many will ask the question: “why build a map when the market leaders are already well known?” We will answer: do not be lazy here, build. The magical effect of the picture - everything is seen better and in a completely different way, we guarantee. You are sure to find a couple of interesting moments for yourself. It is quite possible that it is not at all the generally recognized leader that rules the market, try it. It is enough to place only five companies. And don't forget to place your company on the map.
- Competitive analysis of product lines. Rulers are sometimes called briefcases. The main thing is an exhaustive and honest analysis of our products and those of others. It can be tests, polls, forums. We pay special attention to key products that give the highestshare of profit or sales volume. This is an analysis and competition of hits - our own and others.
- Price analysis should be carried out with the allocation of three or four classic price segments: economy, medium, high and premium segments.
- Analysis of distribution and sales of products from competitors. After identifying the main sales channels, research and compare product shelf shares and display quality.
- Analysis of the positions of competitors from the point of view of consumers. This point of view may actually be erroneous, but these errors are extremely important for analysis - after all, it is not someone who is mistaken, but your customers. The criteria for this analysis will also look "philistine": cheap - expensive; known - unknown; high-quality - low-quality; regular - special.
- Estimation of advertising and promotion of competitors' products, including advertising budget. It is much easier to find and evaluate information about advertising if it is distributed on the web. There are a number of sites and programs with which you can find not only numbers, but also statistics on the advertising behavior of competitors. We must not forget about advertising layouts - from them you can find out data on consumer persuasion strategies - the most valuable "intelligence" information.
- Formation of a portrait of a key consumer in the interiors of your competitors. The parameters have not changed for a long time and correspond to the description of any target group of people: age, gender, income, what criteria the product is chosen by.
- Analysis of the technological capabilities of competitors, which include the competence of personnel, IT support capabilities,financial stability, technological "mobility" and so on. At this stage, no information about competitors will be superfluous.
- For dessert, we have a classic SWOT analysis of competitive advantages with its strengths, weaknesses, threats and strengths. In a competitive analysis, there is no need to deploy a detailed version of the SWOT analysis, the light option with one or two main points for four points is enough.
And now benchmarking
It can be called a competitive analysis of the industry. Or marketing intelligence. Or just a comparison with industry best practices. What for? To become better ourselves. This is a very young concept, it was born only at the end of the 20th century and immediately became a very popular tool for strategic management.
“To become better ourselves” is the short and definitive goal of any benchmarking. Formally, this is a technology for collecting information about competitors to use their positive experience in their own practice. Does this mean that such market research can be carried out in the open and that competitors will gladly open their doors for you, give you tea and cookies and share all the information? Of course not. Competitors do not need you to use their work and gain weight in the form of market share. At the same time, benchmarking is a positive and "smart" phenomenon in modern marketing. It allows you to conduct interesting research to analyze the competitive environment with unexpected and useful conclusions. These conclusions are no lesstougher than in the usual attacking competitive strategies. One of the best examples of competitive analysis in the form of benchmarking is the 2014 study, which was conducted for the largest companies in Kazakhstan (railway companies, gas companies, uranium companies, etc.). It was after this that the transformation of the business began and is still being successfully carried out - increasing the portfolio value of all significant Kazakhstani companies.
Let's end the way we started. Appropriateness (necessary or not?) and the type of competitive analysis (if necessary, which one) are the two main questions that need to be answered before proceeding with the study. Perhaps you need more benchmarking. Or perhaps you don’t need any special analysis, but you can get by with an express review of product prices and product lines. Although this is already an analysis … Good luck to you and smart marketers.
