SECTION A: INDUSTRY ANALYSIS
By Chuks J. Diji and Olubukola G. Yomi-Akinola
At the end of this section, students should be able to:
· Define industry analysis
· Describe the three main environments important for entrepreneurship
· Explain Peter F. Drucker’s seven sources for innovative opportunity
· Describe Porter’s five forces model
1. Industry Analysis: An Overview
Industry analysis is the detailed study of a particular industry in order to understand the microenvironment of the industry. An industry, in this sense, is a group of firms or companies that offer similar products, e.g. the automobile industry, the banking industry, the catering industry, the construction industry or the oil industry. Microenvironment represents the combination of the factors that affect, either favourably or unfavourably, a firm’s ability to meet its own expectations and serve its customers well. Industry analysis reveals critical information about the nature of the industry in terms of its current structure and characteristics and future trends. The industry that is being analysed is referred to as the focal industry.
According to Barringer and Ireland (2013), industry analysis “is the business research that focuses on an industry’s potential. The knowledge gleaned from this analysis helps a firm decide whether to enter an industry and if it can carve out a position in that industry that will provide it a competitive advantage”. The primary focus of the industry analysis is to determine what potential makes an industry attractive and which segments of the industry are the most attractive and lucrative. Industry analysis provides sufficient knowledge and insightful understanding of the opportunities and threats presented to either a new or an existing firm by the prevailing microenvironment. It is a tool that can be used to understand the:
· Potential and attractiveness of a particular industry.
· Dynamism of the industry and the variables.
· Competitive intensity in the industry.
· Factors that drive competition within the industry.
· Business strategy appropriate to the industry.
· Resources needed to execute the strategy.
Essentially, industry analysis enables an entrepreneur to create a unique strategic position for their business and develop core competencies that endow the business with a competitive advantage over its rivalsor competitors. Entrepreneurs have to conduct industry analysis whenever they want to start a new venture or reposition, relaunch or expand an existing business. The entrepreneurship imperative of industry analysis for businesses in general and small businesses in particular cannot be over-emphasized. According to Cook (1995), many small business owners and executives consider themselves at worst victims, and at best observers of what goes on in their industries. They sometimes fail to perceive that understanding the industries directly impacts their abilities to succeed, moreover, understanding their industries and the future trends and directions gives them the knowledge they need to control their portions of those industries.
2. The Environment for Entrepreneurship
The environment for entrepreneurship is the business environment which comprises the macroenvironment, the industry environment (microenvironment), and the firm environment. Both the macroenvironment and the industry environment are external to the firm while the firm environment is internal to the firm itself. The concept of the business environment is shown schematically in Figure 1.
Figure 1: Schematic of Business Environment
The macro environment
The macroenvironment is the totality of the conditions that create the factors that affect the development, performance and survival of every firm in all the industriesof a country or any defined geographical territory. The key components of the macroenvironment are:
· Political development
· Economy, or more specifically macroeconomy
· Socioculture and demographics
· Legal infrastructure and the rule of law
· Internationalization and globalization
Each and every key component of the macroenvironment is obscurely vague, seldom predictable and entirely beyond the control of any entrepreneur. Yet none of these components can be ignored by the entrepreneur if the business must succeed and survive. In fact, the entrepreneur must monitor and analyse all of the components from time to time.
The industry environment
The industry environment is more observable, more concrete, more understandable and more predictable albeit still substantially uncontrollable. The three concentric circles of Figure 1 show clearly that the industry environment interfaces the macroenvironment and the firm environment. The concentric configuration indicates that the industry environment is the immediate external environment of a firm and directly impacts the firm through and through for good or bad. According to Drucker (2015),
Industry structure sometimes last for many, many years and seems completely stable and appears certain to endure forever. Indeed, industry structure is quite brittle. One small scratch and it disintegrates, often fast. When this happens, every member of the industry has to act. To continue to do business as usual is almost a guarantee of disaster and might well condemn a company to extinction. But a change in industry structure offers opportunities and poses threats for entrepreneurship.
The structure of the industry environment encompasses inter alia:
· Labour market and labour unions
· Regulatory agencies
It is obviously a matter of necessity for entrepreneurs to make conscious efforts to understand the nitty-gritty of the characteristics, the dynamism and the variable factors of the focal industry.
The firm environment
The firm environment is connected with the firm’s own internal elements, which are actually the creation of the entrepreneur. Thus these elements are all more controllable by the entrepreneur. Typically, firm environment is made up of the following elements:
· Vision and strategy
· Intellectual, human and financial resources
· Structure, culture and systems
Dollinger (2008) describes the innermost circle of Figure 1, which represents the firm environment, as “the core of the entrepreneur’s world”. The degree of alignment between the firm environment and the external environment determines the success or failure of the firm. It is the entrepreneur’s primary responsibility to create correct alignment and develop the firm’s capacity for exploiting opportunities.
The whole of the business environment is, of course, the entrepreneur’s oyster. This is the crux of the matter because in the whole gamut of business environment lies for the entrepreneurs both opportunities and threats. Entrepreneurs must explore and exploit opportunities from change that appears in the environment and ensure that threats do not overwhelm opportunities. According to Roberts et al. (2007), the key dimension ofentrepreneurship is the pursuit of opportunity.
3. Peter F. Drucker’s Seven Sources for Innovative Opportunity
Entrepreneurs have to search for changes within the firm and within and outside an industry and analyse the opportunities such changes might offer for entrepreneurship.Entrepreneurs focus on opportunities rather than threats. Threats have to be taken care of and must not be swept under the rug. But problem solving, however necessary, does not produce results. It prevents damages. Exploiting opportunities produces results. Above all, entrepreneurs treat change as an opportunity rather than a threat. They systematically look at changes, inside and outside the firm, and find how a particular change can be exploited as an opportunity for the firm.
Specifically, entrepreneurs scan seven sources for innovative opportunities. While the first four sources lie within the firm or within an industry, the last three sources are changes that manifest themselves outside the firm or industry. The seven sources for opportunities are:
· An unexpected success or failure in the entrepreneur’s own firm, in a competing enterprise, or in the industry.
· A gap between what is and what could be within a firm, an industry or a market
· Innovation in a process or product whether inside or outside the firm or its industry
· Changes in the industry structure and market structure
· Demographics – changes in population, its size, age, structure, composition, employment, educational status, and income
· Changes in mind-set, values, perception, mood, or meaning
· New knowledge or a new technology.
The seven sources require separate analysis, for each has its own distinct characteristic. Only the analysis of industry structure will be discussed next as the scope of this chapter does not cover the analyses of Drucker’s other sources for opportunities.
4. Porter’s Industry Analysis: The Five Forces Model
The Porter’s Five Forces Model is a simple and straightforward but powerful and comprehensive framework for analysing an industry environment. The model was developed by Michael Porter, a Professor at Harvard Business School and was first published in “Harvard Business Review” in 1979 and later in his classic book, Competitive Strategy in 1980. It is probably the best and most widely used tool in industry analysis. Porter identified five main sets of forces in the microenvironment that shape the structure and drives the profitability of an industry. The Porter’s Five Forces are listed below.
· The industry rivalry between existing firms
· The threat of new entrants
· The threat of substitutes
· The bargaining power of buyers, and
· The bargaining power of suppliers
Figure 2 depicts schematically the five forces and the balance of power within a particular industry.
Figure 2: Porter’s Five Forces Model
However, as shown by each arrow direction in Figure 2, both the pair of bargaining power (of buyers and suppliers) and the threat (of new entrants and substitutes) feed back into industry rivalry by driving competition. By understanding each force within an industry and how it affects a particular firm, and by identifying the strength and the trend of each force, the firm can audit its own position with a view to gaining and sustaining competitive advantage in the industry.According to Porter, “The collective strength of these forces determines the ultimate profit potential in an industry, where profit potential is measured in terms of long-termreturn on invested capital”.
Although industry dynamics have changed since Porter propounded The Five Forces Model, its essential points still offer important insights for entrepreneurs (Barringer and Ireland, 2013). The five forces are discussed next in turn.
Industry rivalry between existing firms
This is concerned with the intensity in which existing firms in an industry are competing for the same customers. The intensity of industry rivalry depends on the number and size of competitors, the balance of competition, the degree of variety of products, growth rate of an industry, and barriers to entry and exit. The greater the intensity of competition within an industry, the lower the profitability of the industry.
The threat of new entrants
This is the extent to which there are significant barriers to entry into a particular industry. A barrier to entry creates a disincentive for a new firm to enter an industry. Barriers to entry can be capital requirements, an absolute cost advantage, economies of scale, economies of scope, product differentiation, technological advantage, access to distribution channels, and brand loyalty – all already achieved by the industry incumbent firms.
The threat of substitutes
Every industry competes, directly or indirectly, against other industries for customers. The threat of substitutes is concerned with the extent of availability of products in another industry that customers may accept as alternatives. Generally, industries are more attractive when the threat of substitutes is low. Customer’s awareness of the existence of substitute products limits the profitability of an industry.
The bargaining power of buyers
This refers to the strength of buyer power to either decrease the price or increase the quality of a product. This can supress the profitability of the industry substantially. Some of the factors that give the buyer a great deal of bargaining power are buyer group concentration, buyer’s costs, switching costs, the degree of standardization of supplier’s products, and threat of backward integration.
The bargaining power of suppliers
Like buyers, like supplier!Suppliers can exert bargaining power over an industry either by raising the prices or reducing the quality of the products they supply to the industry. Some of the factors that confer a strong bargaining position on the suppliers are supplier concentration, switching costs, attractiveness of substitutes, purchasing power, and threat of forward integration.
Barringer, B. R. and Ireland R. D. 2013.Entrepreneurship: Successfully Launching New Ventures. 4th ed.Essex: Pearson Education Limited
Cook, K. J. 1995. The AMA Complete Guide to Strategic Planning for Small Business.American Marketing Association.
Dollinger, M. J. 2008. Entrepreneurship: Strategies and Resources. 4th ed. Marsh Publication LCC
Drucker, P. F. 2015. Innovation and entrepreneurship. Oxon: Routledge Classics.
Roberts, M. J., Stevenson, H. H., Sahlman, W. A., Marshall, P. W. and Hamermesh, R. G. 2007. New business ventures and the entrepreneur. 6th ed. New York: The McGraw-Hill Companies, Inc.
SECTION B: COMPETITOR ANALYSIS
Christopher Olumuyiwa ILORI (Ph.D.)
“If you are ignorant of both your enemy and yourself, then you are a fool and certain to be defeated in battle. If you know yourself, but not the enemy, for every battle won, you will suffer a loss. If you know your enemy and yourself, you will win every battle.”
- Sun Tzu, the great Chinese military strategist of the 5th Century BC
Bythe end of this chapter, students should be able to:
No business exists in a vacuum. Even if your business is the first of its kind, an alternative to the goods or services being offered by your business already exists in the market. Therefore, there will always be other businesses competing for customers in the field of your business.
In today’s increasingly competitive market, it is no longer enough to understand customers for a firm to succeed. Firms must pay close attention to their competition. They need to constantly compare their products, prices, channels and promotional efforts with their close competitors to identify areas of competitive advantage and disadvantage.
Firms must be forward-looking and identify both their current and potential competitors, gather information and operate a market information system to monitor competitors’ moves and market trends. Ignoring or underestimating the threat posed by potential competitors and focusing only on current competitors are often referred to as “Competitor Myopia”. This term was coined by Theodore Levitt to describe situations in which firms fail to recognise the full scope of their businesses. Competitor Myopia can drive firms out of business!
Competitive marketing strategies are strongest either when they position a firm's strengths against competitors' weaknesses or choose positions that pose no threat to competitors. As such, they require that the entrepreneur be as knowledgeable about competitors' strengths and weaknesses in the same way as knowing about customers' needs or the firm's own capabilities.
A competitor may be defined as a rival company selling similar/related goods or services. Thus, a business may be competing against its rivals to win customers on the basis of price, the type of products sold or services rendered, the type of promotions being run or the quality of goods or services being offered. To design successful competitive strategies therefore, firms need to conduct Competitor Analysis on an ongoing basis.
Competitor analysis defined
Competitor Analysis ('CA') is the in-depth study of one or more rivals (or potential rivals) to gather information on their structure, strategies, strengths, weaknesses and future directions. This information is then used to make informed decisions about everything from marketing to long term business strategies. Competitor Analysis is a detailed analysis of a firm’s competition. It helps a firm understand the positions of its major competitors and the opportunities that are available to obtain a competitive advantage in one or more areas.
Competitor Analysis provides both an offensive and a defensive strategic context for identifying opportunities and threats. The offensive strategy context allows firms to more quickly exploit opportunities and capitalise on strengths. Conversely, the defensive strategy context allows them to more effectively counter the threat posed by rival firms seeking to exploit the firm’s own weaknesses.
Through competitor analysis, firms identify who their key competitors are, develop a profile for each of them, identify their objectives and strategies, assess their strengths and weaknesses, gauge the threat they pose and anticipate their reaction to competitive moves. Firms that develop systematic and advanced competitor profiling have a significant competitive advantage.
The objectives of competitor analysis
If an entrepreneur has access to information about the main competitors on some or all of the following areas:
• structure, strategy, motivations and objectives,
• financial and operating analysis, e.g. return on sales, gross profit margin etc.,
• marketing strategy, e.g. messages and tactics, price flexibility, new services or products, names of key customers,
• market perception, e.g. why their customers buy from them and their satisfaction levels i.e. what are the competitors' best practices and key strengths?
• future directions
Then the entrepreneur would be in a strong position to:
• understand their mission and objectives and develop his own accordingly,
• develop realistic sales targets,
• implement product/service improvements to counter the competitors’ product strengths/weaknesses and innovations,
• position his prices appropriately,
• target his direct sales policies through knowing the competitors’ distribution channels
• offer competitive discounts and payment terms,
• develop an appropriate marketing communications strategy, and to
• strengthenhis products/services and marketing strategy by adopting and adapting the best practices observed in the competitors' armoury. He does this by creatively shaping those practices to his own circumstances.
Competitor Analysis helps the entrepreneur to gain a level of insight that allows him to evolve his strategy based on competitor understanding. However, what is learnt about competitors should inform what the entrepreneur does, not direct everything he does. Knowing how he compares can help him to find quick wins, define his medium to long term strategy and give him more control and power. It also helps him to identify his competitive edge. It therefore stands to reason that the more an entrepreneur knows about his competitors, the better equipped he is to stay ahead of them.
The ultimate objective of competitor analysis is to know enough about a competitor to be able to think like that competitor so that the firm's competitive strategy can be formulated to take into account the competitors' likely actions and responses. From a practical viewpoint, an entrepreneur needs to be able to live in the competitors’ strategic shoes. The entrepreneur needs to be able to understand the situation as the competitors see it and to analyse it so as to know what actions the competitors would take to maximise their outcomes to be able to calculate the actual financial and personal outcomes of the competitor’s strategic choices. They must be able to:
What then should one expect from competitor analysis? Underneath all of the complexities and depth of competitor analysis are some simple and basic practical questions, of which the following are typical:
How is competitor analysis carried out?
Competitor Analysis involves three main steps:
Table 4.1. An example of a competitive analysis grid
The straightforward element of CA involves gathering information from publicly available sources; probing beyond this however needs to be conducted very carefully to avoid alerting a competitor to your interests and intentions. Before you decide to invest in any such analysis, you should ask yourself some key questions.
The following are examples of ways a firm can ethically obtain information about its competitors:
· attend conferences and trade shows;
· read (study) industry-related books, magazines and websites;
· talk to customers about why they bought your product or patronised your service rather than your competitors’;
· study competitors’ websites;
· purchase competitors’ products to study their features, benefits and shortcomings;
· study websites that provide information about companies.
While there are additional sources of recorded information that can be explored (such as commercial databases), speaking to people with inside knowledge is the most effective way to penetrate beneath the façade of the competitor. According to the information you want, these might include actual employees, ex-employees, industry experts, suppliers, customers and so on. Gathering information in this way can have many difficulties and requires a creative mind and lateral thinking to overcome obstacles and avoid detection. Skilful interviewers are able to structure their approach and frame their questions in such a way as to stimulate huge amounts of invaluable information.
Many businesses see competitive information gathering as a cost, yet the value to be gained far outweighs the costs. Successful business owners know who their competitors are and learn how to successfully compete with them for their share of the available business. Competitive information gathering will provide you with the information you need to:
Competition can motivate you to do your best. Knowing who your competitors are and how to stand apart from them can give you the push you need to excel. A worksheet which provides a framework for getting to grips with your competitors is provided in Appendix 1.
Competitor Analysis should however not be confused with espionage or spying; almost all the information needed can be gathered by examining published sources, interviewing or other legal, ethical methods.
Identifying current and potential competitors
Competitors can be broadly classified into three categories: Direct Competitors, Indirect Competitors and Future Competitors (Figure 1). To identify their current and potential competitors, firms have to use both an industry approach as well as a market approach. The industry approach will yield insights on the structure of the industry and the products offered by all market participants. The market approach, on the other hand, focuses on the customer need and the firms attempting to satisfy those needs, which will provide the firm with a wider view of current and potential competitors.
Sources of potential competitors include (but are not limited to) firms which compete in a related product, use related technologies, already target the same market even if with unrelated products, operate in other geographical areas with similar products and, last but not least, new start-ups organised by former company employees and/or managers of existing firms. Firms focusing on the same target market with the same strategy constitute a strategic groupand are the closest competitors to firms intending to enter such a group.
Fig.4.1. Types of likely competitors for a new business venture
An “industry” is defined as a group of firms whose products and services are close substitutes of each other. Industries are primarily classified according to the number of sellers involved and the degree of product differentiation. Other factors characterising an industry’s structure are: entry/exit barriers, cost structure, degree of vertical integration and extent of globalisation.
Based on the number of sellers and product differentiation, industries are commonly classified as monopoly, oligopoly, differentiated oligopoly, monopolistic competition, or pure competition. Each category is described below.
Monopolyexists when only one firm supplies a given product/service in a certain country or area. A common example is the distribution of electrical power to residential and commercial customers. Given that customers have no alternatives, an unregulated monopoly seeking to maximise profits has an evident incentive to charge a higher price, do little or no advertising and offer minimal service. A regulated monopoly, on the other hand, is required to charge lower prices and provide more services in the public interest. Monopolists might be willing to make some investment in service and technology in a situation where partial substitutes for their products or services are available or when there exists imminent competition. Electric power generation and distribution are good examples of this behaviour, with recent developments in alternative energy sources and technological improvements in electric power use.
Oligopolyconsists of a few firms producing basically the same commodity, such as Mobil, Shell and Total in the fuel industry. It is difficult for any single company to sell fuel products above the going price unless it can differentiate its product line in some way.
Differentiated oligopolyrefers to an industry in which a few firms produce partially differentiated products, such as Sony, Canon and Nikon in the digital camera industry. Differentiation is based on specific product attributes such as quality, special features, styling or services. Typically, competitors will seek to be the leader firm for a certain attribute, attract customers who value that particular attribute and charge a premium for it.
Monopolistic competitionrefers to a situation where several competing firms in an industry are able to differentiate their offer in whole or in part. Such is the case of supermarket companies like Walmart and Shoprite in the supermarket industry. In this context, competitors typically target those market segments where they can better meet the customer’s needs and thereby command a price premium.
Pure competitiontakes place in industries in which many firms offer the same product/service. Because there is no differentiation among offers, prices are the same for all firms. Such is the case of most agricultural products sold as commodities (e.g. wheat, maize, onions). There is no benefit to advertising and seller’s profits will only be different to the extent that they can achieve lower costs of production or distribution.
From a market perspective, rather than looking at companies making the same product as its only competitors, a firm looks for its competitors among those companies that satisfy the same customer need. To avoid falling into the Marketing Myopia trap, however, and in order to include all actual and potential competitors, this need has to be defined as broadly as possible. For example, in the coffee business, a company like Nestle visualises as its direct competitors, other companies that sell coffee such as Maxwell House and Taster’s Choice but should also consider its indirect competitors. These would include any manufacturer that provides coffee makers that compete with its Nespresso coffee makers such as Keurig and Mister Coffee.
The range of current and potential competitors is broad. On the basis of the degree of product substitution, for example, companies can face brand competition, industry competition, form competition and generic competition.
Brand competition: the firm considers other firms offering a similar product/service to the same customers at similar prices as its competitors. Example: Coca Cola would see Pepsi Cola as its main competitor
Industry competition: the firm uses a broader approach and sees as its competitors all firms making the same product or class of products. Example: Coca Cola would see all other soda manufacturers as its competitors.
Product competition: the firm uses an even broader approach and sees its competitors as firms manufacturing products that supply the same service. Example: Coca Cola would see all other carbonated beverages manufacturers as its competitors.
Generic competition: the firm could use a still broader approach and see its competitors as firms that compete for the same consumer money. Example: Coca Cola would see all other beverages suppliers as its competitors.
Once a firm has identified its primary competitors, it needs to assess and analyse their objectives, strategies, strengths and weaknesses as well as their competitive reactions. Objectives ascribed to competitors can encompass profitability, market-share growth, cash flow, technological leadership, service leadership, etc. Competitors’ objectives are shaped by various factors, including the firm’s size, history, current management and economics.
Competitors’ strategies encompass product quality, product features and product mix, target marketing and positioning, customer service, pricing policy, distribution coverage, sales force strategy, advertising and sales promotion programmes, research and development (R&D), manufacturing, purchasing, financial and marketing strategies (4Ps: Product, Price, Promotion and Place/Distribution). The more one firm’s strategies resemble another firm’s strategy, the more the two firms compete. Strategic groups (i.e. firms focusing on the same target market with the same strategy) should be identified.
Whether or not a competitor can carry out its objectives and strategies depends on its resources and capabilities. For this reason, the analysis of the corresponding strengths and weaknesses constitutes key information for a firm analysing its competitors. The technique typically used to conduct this analysis is called “SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis”. SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face. It involves specifying an objective and analysing the internal factors (strengths and weaknesses internal to the firm) and the external factors (opportunities and threats presented by the external environment) that are favourable or unfavourable to achieving the objective. See chapter three for more details.
Competitive blind spots
Much competitive information is bounded by the assumptions that managers have with respect to their industry and these assumptions may lead to blind spots. The effect of such blind spots may cause the strategist not to recognise the significance of events, interpret them inappropriately, or see them only slowly. There are six serious blind spots in competitive analysis:
1. Misjudging industry boundaries: Too often, firms define their industry around their current products, customer groups and geographies, blinding themselves to adjacent competitors which subsequently enter their current market space.
2. Poor identification of competitors: Strategists frequently focus on only the largest and most well-known companies to the exclusion of other viable competitors – those potential competitors noted earlier.
3. Overemphasis on competitors’ visible competence: Competitor analysis often focuses on competitors’ hard assets and technology skills and ignores equally potent capabilities such as logistics, product design or human resources.
4. Emphasis on where, and not how to compete: Strategists too often assume that competitors’ strategies will shift only incrementally to the exclusion of radical repositioning in how they could compete.
5. Faulty assumptions about competitors. Prisoners of assumptions about competitors – the overuse of stereotypes – cause strategists to misjudge competitors’ competences and competitive advantages.
6. Paralysis by analysis: Obsession with the task of data collection results in information overload to the detriment of analysis and insight.
Few companies can survive without some basic knowledge of their competitors, such as the products or services they sell and, crucially, the price they sell them at. Yet relatively, few small and medium-sized enterprises invest in a thorough analysis of their rivals, mainly due to a lack, either of resources or an appreciation, of how this can be carried out. As awareness of the benefits of gathering this information grows however, more and more businesses are investigating how to go about it.
When carrying out Competitor Analysis, it is very important to be clear about what you are analysing and why – you need to have a purpose. The following questions are important:
· Why are you prepared to invest the time or expense?
· What is it that you want to improve?
· Will this actually make your offer more attractive?
· Is it what customers value?
Competitor Analysis, when appropriately carried out, will provide answers to pertinent questions such as:
· How does the company measure up with its competitors?
· Does it have a competitive edge?
· What can it do better than the competitors?
· Where might it be vulnerable?
· Which competitor(s) should it really watch out for?
Knowing what tools and resources that are available which can help you gather information is essential. At present, there are more and more free, trial-based or paid (but cheap) services that can save time and resources. While information is power, make sure the information is relevant! You should also remember that Competitor Analysis should be an ongoing process, not a task that you do once per year or once and for all. You need to keep an eye on your competitors because once they know you exist, they will try to remove you from their market; you have to stay one step ahead! It is also vital not to assume that all your competitors are the same. You therefore need a strategy to know how to work with or against each. It is also worth looking beyond direct competitors for “out-of-sector” benchmarking if you want to be the best.
Linking Competitor Analysis to action is the ultimate purpose. If what you learn sits on your virtual shelf, it was a waste of time. You therefore need to:
Be careful not to get too worried about your competition. Of course it is important, yet, not all of your answers will lie within your direct competitors. Looking outside your market can be just as beneficial for driving new ideas and innovation – a source of inspiration for asking new questions. For example, what can you learn from a different sector that will add value to your business opportunity?
Competitor analysis in business development can be likened to what happens in a game of chess – anticipating your opponent’s moves before they are made. Competitor analysis, if properly carried out, will minimise unpleasant surprises and enhance business survival. Remember that in all of life’s endeavours, it is the fittest that will ultimately survive!
A business may be competing against its rivals to win customers. To design successful competitive strategies therefore, firms need to conduct Competitor Analysis on an ongoing basis. Competitor Analysis is the in-depth study of one or more rivals (or potential rivals) to gather information on their structure, strategies, strengths, weaknesses and future directions. Firms that develop systematic and advanced competitor profiling have a significant competitive advantage.
Competitor Analysis helps the entrepreneur to gain a level of insight that allows him to evolve his strategy based on competitor understanding. The ultimate objective of competitor analysis is to know enough about a competitor to be able to think like them so that the firm's competitive strategy can be formulated to take into account the competitors' likely actions and responses.
Competitor Analysis involves three main steps:
The straightforward element of CA involves gathering information from publicly available sources.
To identify their current and potential competitors, firms have to use both an industry approach as well as a market approach. The industry approach will yield insights on the structure of the industry and the products offered by all market participants. The market approach, on the other hand, focuses on the customer need and the firms attempting to satisfy those needs, which will provide the firm with a wider view of current and potential competitors.
The analysis of the corresponding strengths and weaknesses constitutes key information for a firm that is analysing its competitors. The technique typically used to conduct this analysis is called “SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis”. SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face.
Much competitive information is bounded by the assumptions that managers have, with respect to their industry and these assumptions may lead to blind spots. The effect of such blind spots may cause the strategist not to recognise the significance of events, interpret them inappropriately, or see them only slowly.
Relatively few small- and medium-sized enterprises invest in a thorough analysis of their rivals, mainly due to a lack either of resources or an appreciation of how this can be carried out. As awareness of the benefits of gathering this information grows however, more and more businesses are investigating how to go about it.
1) a. Discuss the objectives of Competitor Analysis. Why is Competitor Analysis important in business development?
b. Discuss the main steps involved in Competitor Analysis.
2) a.Why is competitive information gathering important? How can a firm ethically obtain information about its competitors?
b.Discuss the Industry Approach and Market Approach in identifying competitors.
3) a.What is the purpose of a SWOT analysis in business development? Discuss the steps involved in a SWOT analysis.
b.What are the blind spots and pitfalls to avoid while carrying out Competitor Analysis?
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Appendix 1: Competitor analysis worksheet