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Big ideas for small business managers : Know yourself, know your market, know your competition — You

22 Jun 2015 - {{hitsCtrl.values.hits}}

In today’s business world, you must know what your competitors are doing and what to do to stay ahead of the competition. Many businesses believe they are providing a good product to their customers but do not have reliable information showing how customers perceive their product or how it compares to the competition. Many businesses are happy simply to track the competition, copying their moves and reacting to changes.

A competitive analysis tool is an invaluable tool because it can help you identify ways to attract new customers, as well as keep the ones you have satisfied with your products. Competitive analysis means identifying your competitors and evaluating their strategies to determine their strengths and weaknesses relative to those of your own product or service.

Competitor analysis has several important roles in strategic planning: (1) It helps management understand their competitive advantages/disadvantages relative to competitors, (2) It generates understanding of competitors’ past, present (and most importantly) future strategies, (3) It provides an informed basis to develop strategies to achieve competitive advantage in the future and (4) It helps forecast the returns that may be made from future investments (e.g. how will competitors respond to a new product or pricing strategy?

So how do we get around with the competitor analysis? First, evaluate your competitors by placing them in strategic groups according to how directly they compete for a share of your prospective customer’s money. For each strategic group, list their product or service, its profitability, growth pattern, marketing objectives, current and past strategies, organisational and cost structure, strengths and weaknesses and size (in sales) of the competitor’s business. Answer questions such as: Who are your competitors? What products or services do they sell? What is each competitor’s market share? What are their past strategies? What are their current strategies? What type of media are used to market their products or services? How many hours per week do they purchase to advertise through the media used in this market? What are each competitor’s strengths and weaknesses? What potential threats do your competitors pose?

Current strategy
The two main sources of information about a competitor’s strategy are what the competitor says and what it does. What a competitor says about its strategy is revealed in annual shareholder reports, interviews with the media, information found by managers and press releases.
However, this stated strategy often differs from what the competitor is actually doing. What the competitor is doing is evident in where its cash flow is directed, such as in the following tangible actions: recruiting activity, R & D projects, capital investments, promotional campaigns, strategic partnerships and mergers and acquisitions.

Competitor’s objectives
Knowledge of a competitor’s objectives facilitates a better prediction of the competitor’s reaction to different competitive moves. Competitor objectives may be financial or other types. Some examples include growth rate, market share and technology leadership. Goals may be associated with each hierarchical level of strategy - corporate, business unit and functional level.

The competitor’s organisational structure provides clues as to which functions of the company are deemed to be the more important. For example, those functions that report directly to the chief executive officer are likely to be given priority over those that report to a senior vice president. Other aspects of the competitor that serve as indicators of its objectives include management incentives, backgrounds of the executives, composition of the board of directors, legal or contractual restrictions and any additional corporate-level goals that may influence the competing business unit.

Good competitive analysis
There are a few documents that get the attention of product planners and marketers the way that a competitive analysis does. A good competitive analysis is a scouting report of the actual market terrain that your company must navigate in order to be successful.

To write a good competitive analysis, you must be objective, conduct fearless and thorough research and write well. So, how do you put these skills together to do the job? A competitive analysis covers five key topics: (1) Your competitors, (2) Competitor product summaries, (3) Competitor strengths and weaknesses, (4) Strategies used by each competitor to achieve its objectives and (5) Market outlook.'

A list of competitors - List all your competitors in descending-size order along with their estimated sales and market shares. Include your company’s ranking within the listing. (If unable to provide useable information for this portion, you should give high priority to develop a competitive intelligence effort or get help from professional market research body).

You will also want to include information on companies that may be entering your market in the coming year. Once you have compiled the list, you can highlight those companies that will be the greatest challenge.

Competitors’ strength and weaknesses - Identify each competitor’s strengths and weaknesses related to such factors as distribution, pricing, promotion, management leadership, calibre of employees and financial condition. Also indicate any significant trends that would signal unsettling market situations, such as aggressive moves by a competitor to grow market share or use excessive discounting to maintain its market position.

Product competitiveness - Identify competitive pricing strategies, including discount practices, if any. Identify those competitors firmly entrenched in low-price segments of the market, those at the high end of the market or competitors with low-cost products.

Product features and benefits - Compare the specific features and benefits of your product against those of competitive products. In particular, focus on product quality, design factors and performance. Evaluate price/value relationships for each, discuss customer preferences and identify unique
product innovations.

Advertising effectiveness - Identify competitive spending levels and their effectiveness, as measured by awareness levels and reach levels. Such measurements are often conducted by marketing research companies or some publications. If you cannot use these sources, rely on informal observations and whatever measurements you can obtain.

Effectiveness of supply chain - Compare competitive distribution strengths and weaknesses. Address differences in market penetration, market coverage, delivery time and physical movement of the product by regions.

Trade/consumer attitudes - Review both trade and consumer attitudes toward product quality, warranties, customer/technical service, company image and company performance.

Competitive share of market trends - Specify trends in market share by individual products as well as by market segments. Further, identify where each competitor is making a major commitment and where it may be relinquishing control by product or segment.

Sales force effectiveness and market coverage - Compare effectiveness by sales, service and frequency of contact and problem-solving capabilities by competitor and by market segment against your own performance.

Market outlook
Ask a few questions yourself. What is the market for my company’s product like now? Is it growing? If so, then there are likely quite a few customers left to go around. If on the other hand, the market is flat, then the competition for customers is likely to be fierce. Your company will find itself scrambling to win market share. Is the market splintering -- is it breaking up into niches? The outlook portion of your analysis may seem like prognostication but it’s really a measure of trends. By the time you’ve done most of your research, you’ll have enough information to determine what the outlook really is. Writing a competitive analysis can be a challenging and interesting piece of work. You’ll learn a lot about your industry and in the process become a more valuable resource for your company or clients.

(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at [email protected])

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Big ideas for small business managers : Know yourself, know your market, know your competition — You

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