Analyzing competitors and creating a competitive advantage

Analyzing competitors and creating a competitive advantage

1. Analyzing competitive industry structure

   • Response to new entrants/current competitors
     • Increase barriers to entry
     • Accelerate innovation
     • Influence retailers to increase shelf price
   • Response to supplier power
     • Seek new sources of supply
     • Backwards integration
       • Backwards integration means that a buyer purchases the supplier and a form of vertical integration takes place
     • Design standardized components (to increase the total set of possible suppliers)
   • Response to buyer power
     • The concentration of buyers can lower manufacturers' bargaining power (ex. few large buyers buying from many suppliers in large volumes -> high power)
     • Increase number of buyers
     • Forward integration
       • Forward integration means the company to open its own retail stores and sell directly to consumers instead of using distributors
   • Response to threat of substitute products and services
     • Building brand loyalty through, strong brand image and experience
     • Reward brand loyalty - discount on future purchase
     • Form new alliances (ex. Microtoft + Nokia)
     • Product innovation
     • Accessibility
   • Industry competitors
     • Structure of the competition
       • many small competitors or few large and balanced competitors -> high rivalry
     • Game theory/ Prisoner's dilemma & Nash equilibrium

2. Competitor analysis

   • 1. Who are our competitors? (identification)
     • Product from competitiors (technically similar products)
     • Product substitutes (technically dissimilar products)
     • Generic competitors (products that solve the problem or eliminate it in a dissimilar way)
     • New entrants (with technically dis/similar products)
     • 2. What are their strenghts and weaknesses? (evaluation)
       • A) Conduct a marketing audit: gather financial, marketing and consumer data
       • B) Use the marketing audit in this 3-stage process
         • 1) Identify key factors for success in the industry in order to compare
           • Use 6 to 8 factors. Examples: financial strength, flexibility of production, quickness of response to consumer needs, innovativeness, capability to provide other sales services.
           • 2) Rate our company and competitors on each key success factor using a rating scale
             • 3) Consider the implications for competitive strategy
               • Ex. Closely monitor competitor 1 because he poses a bigger threat. Strategic alliance with or take over competitor 2 ->
       • 3. What are their strategic objectives and thrust?
         • Strategic objectives
           • Build objective
             • Increasing sales and/or market share
           • Hold objective
             • Maintaining sales and/or market share
           • Harvest objective
             • Maximizing short-term cash flow through slashing expenditures and raising prices whenever possible
         • Strategic thrust
           • The future areas of expansion a company might be contemplating (which will be the target market + old or new product)
         • 4. What are their strategies?
           • Cost leadership
           • Differentiation
           • 5. What are their response patterns?
             • Retaliatory (aggressive)
             • Complacency
               • Slow response because of history, traditions and managerial personalieties
             • Hemmed-in
               • Previous strategies have restricted their scope of retaliation
                 • Example: 1 nationwide company, ex-employee founds new company and targets only one geographical area with same quality but lower prices. 1st company can't lower prices in that are because it would have to lower them nation-wide.
             • Selective
             • Unpredictable

3. Competitive advantage

   • Competitive strategies
     • Differentiation leader strategy
       • The selection of one or more customer choice criteria and positioning the offering accordingly to achieve superior customer value. Associated with a premium price and higher than average cost for the industry
     • Cost leadership
       • Product quality and market price are the same as the others', but manufacturing costs are lower than the competitors.
     • Differentiation focus
     • Cost focus
       • Example: Ryanair - basic product trimmed to reduce costs.
   • Choosing a competitive strategy
     • Don't change a successful strategy
     • When differentiation and cost leadership coincide (through economies of scale or process innovation) performance is exceptional since a premium price can be charged for a low-cost (for the firm) product.
   • Sources of competitive advantage
     • Superior skills
       • Distinctive capabilities of key personnel that set them apart from the personnel of competing firms
     • Superior resources
     • Core competences
       • The principal distinctive capabilities possessed by a company - what it is really good at.
     • Value chain
       • It is the set of discrete activities (design, manufacture, distribute and service its products) a firm carries out in order to conduct its business.
       • Used to locate the superior skills and resources and is used as a framework for cost analysis.
       • Analysis of the value chain can lead to its reconfiguration to fundamentally change the way a market is served.

4. Creating a differential advantage

   • Differential advantage is a clear performance differential over the competition on factors that are important to target customers
   • The creation of differential advantage comes from linking skills and resources with the key attributes (choice criteria) that customers are looking for in a product offering.
   • Fast reaction times
     • Sale of operations (=network externalities)
   • Sustaining a differential advantage
     • Patent-protected products
     • Strong brand personality
     • Close relationships with customers
     • High service levels achieved by well-trained personnel
     • Innovative product upgrding
     • Creating entry barriers
     • Strong and distinctive internal processes that deliver the above and are difficult to copy
     • Network externalities
   • Eroding a differential advantage
     • Technological and environmental changes that create opportunities for competitors by eroding their protective barriers
     • Competitors learn how to imitate the sources of the differential advantage
     • Complacency leads to lack of protection of the differential advantage

5. Creating cost leadership

   • Experience curve is the combined effect of economies of scale and learning as cumulative output increases.
   • Linkages
     • Describe how the costs of activities are affected by how other activities are performed
   • Interrationships (sharing costs with other business units)
   • Integration (forward &backward) and de-integration
   • Timing
     • First movers can gain cost advantages and have prime access to cheap and high-quality raw materials and locations
     • Late entrants can buy the latest technology
   • Location of plans and warehouses
   • Institutional factors (government regulations, tariffs and local content rules)

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