7.1 Conducting Competitive Analysis
3 min read•august 7, 2024
Competitive analysis is crucial for entrepreneurs to understand their market position and rivals. By using frameworks like SWOT and , you can assess internal strengths and weaknesses, as well as external opportunities and threats.
Evaluating competitors involves creating detailed profiles, analyzing , and identifying competitive advantages. Understanding and dynamics helps entrepreneurs stay ahead and adapt to changing market conditions.
Competitive Analysis Frameworks
Assessing Internal and External Factors
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- evaluates an organization's internal Strengths and Weaknesses along with external Opportunities and Threats to inform strategic decision-making
- Strengths are internal capabilities and resources that provide a (strong brand reputation, proprietary technology)
- Weaknesses are internal limitations or deficiencies that hinder competitiveness (high production costs, limited distribution channels)
- Opportunities are external factors that present favorable conditions for growth (emerging markets, technological advancements)
- Threats are external factors that pose risks or challenges to the business (intense competition, changing consumer preferences)
Analyzing Industry Competitiveness
- Porter's Five Forces is a framework for assessing the competitive intensity and attractiveness of an industry based on five key forces
- Threat of new entrants evaluates how easily new competitors can enter the market (low entry barriers, access to distribution channels)
- Bargaining power of suppliers assesses the influence suppliers have on the industry (few suppliers, unique products)
- Bargaining power of buyers examines the influence customers have on the industry (price sensitivity, availability of substitutes)
- Threat of substitute products or services considers the likelihood of customers switching to alternatives (lower prices, similar performance)
- Rivalry among existing competitors analyzes the intensity of competition within the industry (numerous competitors, slow industry growth)
- involves comparing a company's performance, processes, or products against industry best practices or top-performing competitors to identify areas for improvement
- Benchmarking can be conducted on various aspects such as product quality, customer satisfaction, operational efficiency, or financial performance
- is the process of gathering, analyzing, and disseminating information about competitors, customers, and the overall market to support strategic decision-making
- Competitive intelligence sources include public records, industry reports, customer feedback, trade shows, and competitor websites
Competitor Evaluation
Assessing Competitor Profiles
- involves creating detailed profiles of key competitors to understand their strengths, weaknesses, strategies, and market positioning
- Competitor profiles typically include information such as company history, product offerings, target markets, pricing strategies, and distribution channels
- Market share represents a company's portion of total industry sales and is an indicator of its competitive position relative to other players in the market
- Market share can be calculated based on revenue, unit sales, or customer base and helps assess a competitor's market dominance and growth trends
Identifying Competitive Threats
- are companies that offer products or services that satisfy the same customer needs but through different means or technologies (video streaming services vs. traditional cable TV)
- Indirect competitors can pose a significant threat by disrupting established industries and capturing market share from traditional players
- Competitive advantage refers to the unique attributes or capabilities that allow a company to outperform its rivals and create superior value for customers
- Competitive advantages can be based on factors such as , , brand loyalty, or technological innovation (Apple's design and user experience, Amazon's efficient logistics network)
Market Landscape
Analyzing Industry Dynamics
- Industry trends are significant changes or developments that shape the competitive landscape and influence the future direction of the industry
- Industry trends can be driven by technological advancements, shifting consumer preferences, regulatory changes, or economic factors (rise of e-commerce, increasing focus on sustainability)
- Monitoring and adapting to industry trends is crucial for companies to stay competitive and capitalize on emerging opportunities (retailers investing in omnichannel strategies, automakers developing electric vehicles)
Key Terms to Review (15)
Benchmarking: Benchmarking is the process of comparing a company's performance metrics to industry bests or best practices from other companies. This comparison helps businesses understand their competitive position and identify areas for improvement by analyzing strengths and weaknesses in various operations, processes, or products.
Competitive Advantage: Competitive advantage refers to the unique edge that a company has over its competitors, allowing it to generate greater sales or margins and retain more customers. This can stem from various factors such as cost structure, product offerings, brand reputation, or customer service, and is essential for establishing a strong market position.
Competitive Intelligence: Competitive intelligence refers to the systematic gathering and analysis of information about competitors, market trends, and industry dynamics to inform strategic decision-making. It helps businesses understand their competitive landscape, anticipate market shifts, and identify opportunities and threats, ultimately enabling them to improve their positioning in the market.
Competitor Profiling: Competitor profiling is the process of gathering and analyzing information about competitors in order to understand their strengths, weaknesses, strategies, and market positioning. This detailed examination helps businesses identify opportunities for differentiation and informs strategic decision-making to improve competitive advantage. By creating profiles, companies can better anticipate competitor moves and adjust their own strategies accordingly.
Cost Leadership: Cost leadership is a competitive strategy aimed at being the lowest-cost producer in an industry, allowing a company to offer products or services at lower prices than its competitors. This approach can create a significant advantage, enabling firms to attract price-sensitive customers and maintain profitability through economies of scale and operational efficiency. Cost leadership is crucial for sustaining competitive advantages, analyzing competitive landscapes, and identifying opportunities in new markets.
Disruptive Innovation: Disruptive innovation refers to a process where a smaller company with fewer resources is able to successfully challenge established businesses. This usually happens when the innovator introduces products or services that are simpler, cheaper, or more convenient than what the incumbents offer, ultimately transforming markets and creating new ones.
Indirect competitors: Indirect competitors are businesses or products that offer alternatives to a primary product or service but do not fulfill the same need in the exact way. These competitors may not be in the same industry but still vie for the same customer base by addressing similar problems or desires. Understanding indirect competitors is crucial for a comprehensive competitive analysis, as they can affect market dynamics and influence customer choices.
Industry trends: Industry trends refer to the general direction in which a specific industry is moving, including changes in consumer behavior, technology, regulations, and competitive dynamics. Understanding these trends is essential for businesses to adapt and position themselves effectively in the market, allowing them to identify opportunities and potential threats.
Market share: Market share refers to the percentage of an industry's sales that a particular company controls over a specific period. It is a key metric that helps businesses understand their competitive position within the market and can indicate overall business health and success. Understanding market share is essential for identifying growth opportunities, assessing competitive dynamics, and managing organizational change effectively.
Michael Porter: Michael Porter is a prominent professor and thought leader in the field of business strategy, best known for his work on competitive strategy and the concept of competitive advantage. His frameworks, like the Five Forces Model and Value Chain Analysis, help businesses understand their competitive environment and how to create unique value propositions that differentiate them in the marketplace.
Porter's Five Forces: Porter's Five Forces is a framework for analyzing the competitive forces that shape an industry, helping businesses understand the intensity of competition and its implications for profitability. This model assesses five key factors: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products, and the intensity of competitive rivalry. By understanding these forces, businesses can better identify their market position and make strategic decisions regarding market segmentation and competitive analysis.
Product Differentiation: Product differentiation is a marketing strategy where businesses distinguish their products or services from those of competitors to create a perceived uniqueness in the eyes of consumers. This concept is crucial in competitive analysis as it helps businesses identify unique selling propositions (USPs) that can attract and retain customers, thereby fostering brand loyalty and potentially allowing for premium pricing.
Strategic Positioning: Strategic positioning refers to the process of establishing a company's unique place in the market by differentiating its products or services from competitors. It involves understanding customer needs and competitive dynamics to create a sustainable competitive advantage, ensuring that a company can effectively respond to market demands while standing out in its niche.
Sustaining Innovation: Sustaining innovation refers to improvements made to existing products or services that enhance their performance, efficiency, or features without fundamentally changing their core purpose. These innovations typically target established markets and existing customer bases, allowing companies to maintain their competitive edge and meet evolving customer needs while building on their current offerings.
SWOT Analysis: SWOT analysis is a strategic planning tool used to identify the Strengths, Weaknesses, Opportunities, and Threats of a business or project. This method helps businesses assess their internal capabilities and external environment, enabling them to make informed decisions about market positioning and strategic initiatives.