Outline the steps in competition analysis.

1. Identifying competitors
A company can define its competitors as other companies offering a similar
product/service to the same customer group at similar prices. There are two ways of
identifying competitors;
(a) Industry basis
Many companies identify their competitors from the industry point of view. An industry
is a group of firms which offer a product or class of products that are close substitutes for each other, e.g. the banking industry, pharmaceutical industry etc.
(b) Market basis
In this case competitors are companies that are trying to satisfy the same customer
need or serve the same customer group. The market definition of competition opens
the company’s focus to a broader set of actual and potential competitors e.g. from an
industry point of view coca cola might see its competitors as Pepsi and other soft drink
manufacturers. But from a market perspective the customer actually wants to quench
his thirst. This need can be satisfied by fruit juice, bottled water, beer etc.
2. Determining competitors’ objectives
Companies differ on the weights they put on short term and long term profitability and
other objectives.
Some competitors might be oriented toward satisfying profits (breaking even) than
maximizing the profits.
The company should be able to know the relative importance that a competitor places
on current profitability, market share, share growth, cash flow, technological leadership
etc. E.g. a company pursuing low cost leadership will react more strongly to a
competitor’s cost-reducing manoeuvres than to the same competitor’s advertising
increase.
3. Identifying competitors’ strategies
In most industries, competitors can be sorted out into groups pursuing different
strategies. A strategic group is a group of firms in an industry pursuing similar strategy.
The company needs to examine each competitor on the following;
- Product quality
- Features and product mix
- Customer service
- Pricing policy
- Distribution coverage
- Promotion strategy
- R & D effectiveness
4. Assessing competitors’ strengths/weaknesses
The company needs to identify competitors’ resources and capabilities. Knowledge of
such resources can be obtained through conducting primary research with customers,
suppliers and dealers. The company can carry out a customer analysis process as
follows;
- Assess the company’s and competitor’s performance on different customer values
against their ranked importance.
- Examine how customers in a specific segment rank the company’s performance
against a specific major competitor on important attributes.
- Monitor changes in customer value over time.
5. Estimating competitor’s reaction patterns
Each competitor reacts differently. Some react to certain types of attacks but not to
others i.e. they may respond strongly to price decreases but may not respond at all to
advertising increases. This depends on their profit and marketing objectives.
6. Selecting competitors to attack or avoid
A company may benefit from some competitors. This may be in the following ways;
- Competitors may help increase total demand
- They share the costs of product and market development
- They help to legitimize a new product/ technology
- They may serve less attractive segments which may accuse the company of ignoring
the segments

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Kavungya answered the question on April 24, 2019 at 06:21