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Competitor Analysis

Competitor Analysis

You can't look at the competition and say you'll do it better. You have to look at the competition and say you will do it differently.

- Steve Jobs

Whichever product you sell, you are likely to face competition. However, not all competition is bad. Healthy competition among firms can drive innovation and growth. The key is to deliver superior value and maintain a competitive edge over your rivals. One powerful tool that helps companies do this is competitor analysis. In simple terms, competitor analysis means evaluating competitors and developing strategies to outshine them.

Competitor Analysis Definition

The primary goal of marketing is to deliver great service and build long-term relationships with customers. This can only be done by develop a competitive edge - a substantial advantage over the companies.

How can companies achieve a competitive edge? They can pour more money into product development and marketing, but a more effective way is to look at how the competitors are doing and do better.

That said, competitive analysis is not easy. Marketers must repeat the process every now and then as a new competitor enters the market.

Competitor analysis means identifying competitors and assessing their strengths, weaknesses, and strategies.

The goal of competitor analysis is to understand which competitors to attack and which to avoid. The process can be simplified into three steps:

  1. Identify competitors,
  2. Assess their objectives and strategies,
  3. Evaluate which ones to attack and avoid.

Competitor Analysis in Marketing

So, why do businesses need competitor analysis in marketing? Competitor analysis is an integral part of the strategic marketing management process. The strategic marketing management process involves three aspects:

  1. Strategic analysis - is concerned with evaluating strategy through environmental analyses, including the internal, external, and competitive environments.
  2. Strategic choice - involves figuring out which strategy to choose (methods and direction).
  3. Strategic implementation - includes applying and evaluating the chosen strategy.

Strategic marketing management involves evaluating the environment, selecting an appropriate strategy, and implementing the chosen strategy.

Another reason competitor analysis is crucial in marketing is that it helps businesses develop competitive positioning tactics. Wilson & Gilligan (2012) propose that there are four tactics a firm can take when it comes to its market position1 :

  • Market leaders - want to maintain their current position in the market. They can use offensive tactics (like price cuts or excessive branding) or defensive tactics (responding/mimicking offensive tactics).

  • Market challengers - can use either:

    • Flank attacks - attacking a competitor based on its weaknesses.

    • Frontal attacks - attacking a competitor based on its strengths.

    • Encirclement attacks - attacking a competitor based on both strengths and weaknesses.

    • Guerilla attacks - introducing low-cost communications or distribution tactics to undermine competitors.

    • Bypass attacks - introducing a newer version of an existing product.

  • Market niches - cater to one single market/segment that leaders and challengers cannot penetrate.

  • Market followers - try to follow market leaders and defend themselves from challengers.

You might have seen Burger King's "Moldy Whopper" campaign, which shows an unappealing image of a mouldy burger. The campaign aimed to show viewers that Burger King burgers are made without artificial ingredients or preservatives. Burger King introduced this campaign after consumer outrage about McDonald's burgers and fries not showing any signs of rotting even after years. Can you guess which type of attack this campaign was? A flank attack!

Competitor Analysis Methods

Now you've known what competitor analysis is, let's look more into its methods. There are three steps to conducting a competitor analysis:

  • Identifying competitors

  • Evaluating their strategies,

  • Choosing which ones to attack and avoid.

Competitor analysis: Identifying competitors

The first step is identifying competitors. The most basic step of competitor identification is to find businesses that sell similar products to you to the same customer segment.

For example, Tesco in the UK might identify Sainsbury's and Aldi as competitors but would not view the Swiss Migros or German Penny supermarkets as the main threats as they serve different customer segments geographically.

However, this may not be the best approach as companies might identify all firms selling similar products or in the same industry as competitors. For example, a delivery company see every firm operating in the FMCG (fast-moving consumer goods) or the aviation industry as rivals.

A better approach would be to approach competitors from a market perspective or firms that satisfy the same market needs as you.

Another trap of competitor myopia is when firms define their competition too narrowly. This can lead to latent competitors disrupting the industry and 'stealing' market share. For example, smartphones are taking over the digital camera industry.

Competitor analysis: Evaluating competitors' strategies

After a company has identified its competitors, its next step is to evaluate competitors' strategies. This consists of four steps:

  1. Understand competitors' objectives - are competitors aiming to increase their market share? To increase revenues and profitability? Or to focus on innovation? Competitors will most likely have a mix of objectives, but understanding them might lead to new opportunities.
  2. Evaluate competitors' strengths and weaknesses - companies can do this through market research (primary and secondary research) or benchmarking. Benchmarking includes comparing your performance to a market leader's performance.
  3. Assess competitors' strategies - dividing competitors into strategic groups. In other words, groups of firms that follow similar market strategies. The firm needs to assess the different ways through which competitors create value.
  4. Estimate competitors' reactions - understanding competitors' strategies, strengths, and weaknesses can help predict how they will react to the firm's strategic moves.

Some competitors may react quickly, whilst others respond slowly. Some competitors might not react at all!

Competitor analysis: Choosing which competitors to attack and avoid

After identifying the competitors and studying their strategies, companies need to choose which competitors to attack and which to avoid.

A customer value analysis is a tool that assesses customer wants and needs and whether competitors are addressing these wants and needs.

Businesses can use customer value analyses to determine competitors' strengths and weaknesses in creating value for customers. This helps them determine whether a competitor is strong (definite competitive advantage) or whether a competitor is weak in satisfying target customers' wants and needs. It also helps a business evaluate how its offering compares to market leaders' offerings. Ultimately, the firm's goal is to maintain a competitive advantage that creates value for customers in a way that rivals cannot imitate.

Not all competition is 'bad'. Competitors can sometimes encourage demand for specific product categories in the industry, creating new opportunities.

Competitor Analysis Graph

A competitor analysis graph shows how competitors are positioned in a market. This can be done by constructing a competitor analysis graph. Figure 1 shows an example of a competitor analysis graph:

Competitor analysis Market mapping StudySmarterFigure 1. Market Mapping Beauty Brands, StudySmarter Originals

In Figure 1, we can see how different makeup brands are positioned based on quality and price (based on customer perceptions). Of course, there are various factors we can use to create market maps. For example, a brand could replace price with market share (low/high) on the x-axis and quality with customer reviews (positive/negative) on the y-axis. It is up to the marketer to decide which factors are essential for the overall competitive strategy.

Competitor Analysis Example

Okay, this is quite a long post. Before you go, let's go through a final competitor analysis example.

The example we will look at is Pepsi - the company that makes soft drinks everyone has tasted at least once.

Pepsi has various competitors. From an industry perspective, every soft-drink producer is in competition with Pepsi. But from a market perspective, only companies that address the consumer need of 'quenching thirst' is Pepsi's competitor. That includes fizzy drinks, juice, mineral water, tea, etc., producers. If we go deeper into market segments, Pepsi's competitors are narrowed down to manufacturers producing caffeinated drinks (e.g., on-the-go Starbucks frappuccinos, iced tea, etc.).

However, the one iconic rival of Pepsi is Coca-Cola. The two companies fiercely compete to grab consumers' attention. Both also invest a huge sum of money in strategic communications campaigns.

A classic example can be found in a Halloween ad released a few years ago where Pepsi shows itself draped in a Coca-Cola cape. The copy read, "We wish you a scary Halloween".

In response to this attack, Coca-Cola used the same image for its campaign, with adjusted text.


Competitor analysis, Pepsi vs Coca Cola, StudySmarterFig 2. Pepsi vs Coca-Cola Ad Campaign. Source: @PerezTigidam via Twitter

Coca-Cola's copy read, "Everybody wants to be a hero!" implying that Coca-Cola is superior to Pepsi - an apparent attack on Pepsi using Pepsi's creative asset.

Competitor analysis - Key takeaways

  • Competitor analysis involves identifying competitors and assessing their strengths, weaknesses, and strategies.
  • Competitor analysis involves:
    1. Identifying competitors,
    2. Assessing their objectives and strategies,
    3. Evaluating which ones to attack and avoid.
  • Strategic management involves evaluating the environment, selecting an appropriate strategy, and implementing the chosen method.
  • A customer value analysis is a tool that assesses customer wants and needs and whether competitors are addressing these wants and needs.

References

  1. Wilson, Richard MS, and Colin Gilligan. Strategic marketing management. Routledge, 2012.
  2. Perez Tigidam. Twitter. https://twitter.com/pereztigidam/status/1057531137101303808

Frequently Asked Questions about Competitor Analysis

Competitor analysis means identifying competitors and assessing their strengths, weaknesses, and strategies. For example, one of the competitor analysis methods includes assessing competitors' strategies based on their objectives, strengths and weaknesses, and reactions. This will help the firm predict competitors' strategic moves.

There are various types of competitor analysis. One of them includes identifying competitors and their strategies and predicting how they would react to the firm's strategic moves. Another type of competitor analysis includes creating a positioning map to assess where competitors stand in the market.

The tools and techniques of competitive analysis include identifying competitors, understanding their objectives, evaluating their strengths and weaknesses, assessing their strategies, and estimating their reactions.

The goal of competitor analysis is to understand which competitors to attack and which to avoid. The process can be simplified into three steps: 


  1. Identify competitors, 
  2. Assess their objectives and strategies,
  3. Evaluate which ones to attack and avoid. 

A competitor analysis should include the identification of competitors and the evaluation of competitors' strategies. Based on this evaluation, the organisation can decide which competitors to attack and which competitors to avoid. 

Final Competitor Analysis Quiz

Question

What is competitor analysis?

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Answer

Competitor analysis involves identifying competitors and assessing their strengths, weaknesses, and strategies.

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Question

The goal of competitor analysis is to understand which competitors to _____ and which ones to _____.

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Answer

The goal of competitor analysis is to understand which competitors to attack and which ones to avoid.

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Question

To form competitive strategies, companies need to understand their ________.


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Answer

competitors

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Question

What are the three steps of competitor analysis?

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Answer

  1. Identify competitors, 
  2. Assess their objectives and strategies,
  3. Evaluate which ones to attack and avoid. 

Show question

Question

Competitor analysis is an integral part of the ________.


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Answer

strategic management process

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Question

Strategic analysis is concerned with evaluating strategy through environmental analyses, including the internal, external, and competitive environments.

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Answer

True

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Question

Strategic choice includes applying and evaluating the chosen strategy.

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Answer

False

Show question

Question

__________ involves evaluating the environment, selecting an appropriate strategy, and implementing the chosen strategy.


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Answer

Strategic management

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Question

Market _______ want to maintain their current position in the market. They can use offensive tactics (like price cuts or excessive branding) or defensive tactics (responding/mimicking offensive tactics).

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Answer

leaders

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Question

_______ involve attacking a competitor based on its weaknesses

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Answer

Flank attacks

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Question

______ involve introducing low-cost communications or distribution tactics to undermine competitors.

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Answer

Guerilla attacks

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Question

Attacking a competitor based on both strengths and weaknesses is known as a(n):


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Answer

Encirclement attack

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Question

What is the first step of competitor analysis?

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Answer

Identifying competitors

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Question

After a company has identified its competitors, its next step is to evaluate competitors' strategies. To do this, marketers have to:

  1.  ________________
  2. Evaluate competitors' strengths and weaknesses,
  3. Assess competitors' strategies,
  4. __________________


Show answer

Answer

1. Understand competitors' objectives

4. Estimate competitors' reactions

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Question

A ___________ is a tool that assesses customer wants and needs and whether competitors are addressing these wants and needs. 


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Answer

customer value analysis

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Question

Ultimately, the firm's goal is to maintain a ___________ that creates value for customers in a way that rivals cannot imitate.


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Answer

competitive advantage

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