PERFORMING A COMPETITIVE ANALYSIS: KNOWING THE COMPETITION INSIDE AND OUT

Once the firm’s internal strengths and weaknesses are realized and the external opportunities and threats are identified, next it is important to turn to a similar process of evaluating the competition. Competitor evaluation not only gives more insight into the strategies and goals of the competition but it also provides a bird’s-eye view of the trends and future of the industry in which the firm operates.

Step 1. Identify the Competition

To analyze the competitive landscape, it is necessary to make a list of those competitors that compete directly or indirectly with the firm’s product or service by providing the same product or service to the customer. (The need that is fulfilled by a product or service is not necessarily the obvious. For example, in the case of a beauty salon, the customer need is not necessarily a haircut, but rather the need to look good and feel happy and attractive.)

 

Step 2. Identify the Competitors’ Strategies

Analyzing the competitors’ strategies provides the firm an indication of current trends in the marketplace. This helps the firm determine how to approach the customer.

 

Step 3. Determine the Competitors’ Objectives and Goals

This step may also be referred to as determining the competition’s “internal balance.” The key to properly assessing the competitor is to know where its value system lies. Because each competitor is different, it will place various levels of importance on technology, quality, cost, market share, and mission. Understanding the competition’s objectives can help the firm identify those things that may differentiate it from the rest of the pack.

 

Step 4. Identify Competitor SWOT

In this step, it is not only important to assess the competitors’ strengths and weaknesses, just as the firm performed on itself, but it is also valuable to recognize those opportunities and threats that may be present for the competition. Identifying the competition’s strengths and weaknesses allows the firm to identify and assess future moves and initiatives that could affect both the industry and the firm, while identifying the opportunities and threats will give the firm an idea of the kinds of outside forces that could impact the competitor and therefore attack the firm.

 

Step 5. Estimate Competitors’ Reaction Patterns

Some competitors react quickly to events in the marketplace, whereas other competitors take a different approach and react only to selective events in the marketplace. Others are laid-back and react slowly, whilestill others don’t show a pattern of reaction at all. Looking at these behaviors provides the firm a better understanding of what may occur in an industry if the firm takes certain actions or implements certain initiatives.

 

Step 6. Select the Competitors to Attack and Avoid

Some competitors are such large financial powerhouses that it may not be financially feasible to attack. Some merely put up the front or the image that they cannot be attacked. It is in this step that it is valuable to the firm to know the competitors for which an attack strategy would be profitable and those for which avoidance would be the best policy. Identifying the weak versus the strong competitors will allow the firm to make efficient decisions.

Step 7. Create a Positioning Map

To create a visual understanding of the entire competitive landscape, it is helpful to create a positioning map to provide a visual representation of the firm’s position compared to the competition as depicted in Figure.

Competition provides the firm the opportunity to look into the future. Once all of the information is gathered, a firm can imagine the competitor’s next move and either do the same if the market supports it or take a different route, cutting the competition off at the pass. For example, the home improvement stores Home Depot and Lowe’s are often within minutes of each other or even right across the street. Generally, one store decides to move into an area before the other, and the other watches and sets up shop nearby. Once the competitor has found the location, the firm can take action. Competition creates a sense of urgency and often increases sales for all the competitors who are willing to put up a fight. Once the firm’s competition is known and understood, the next opportunity for the firm is to “go deeper” by implementing competitive intelligence.