How to Analyze Competitors (for Marketers)
You have identified important competitors you want to analyze. (How? See this related post.) It helps to think through what you want to get out of this exercise.
Good competitor analyses should address the following key questions:
1. How much of a threat or opportunity does this competitor represent?
2. What is this competitor likely to do going forward?
Following are some ideas around which you can structure a competitor analysis.
Components of Competitor Analysis
The following perspective draws heavily on what is sometimes called the “Resource-Based View” (RBV) of strategy. Neil Morgan (2012) provides an excellent overview of the RBV as it applies to marketing strategy and overall business performance. At a high level, an organization uses its capabilities to translate its resources into a strategy that creates positional advantage in the market and leads to business performance:
Your competitor analysis should help you understand how this system of relationships works for competitors. (And you might want to think about what your own system looks like!) In your analysis, I suggest you work backwards through this diagram.
Start with how they’re doing. Marketers often shy away from financial analysis of competitors, but it can be highly revealing.
For publicly held firms, financial data are widely available. For privately-held or state-owned firms, you may need to make estimates. Good sources include:
· Databases and research firms
· Financial analysts and industry experts
· Product and campaign announcements
· Disclosures from firms in the startup financing process
· Trade shows
At a fundamental level, try to understand the size, growth, and profitability of the competitor. Looking at unit and value sales over the last three years is a good rule of thumb. The time frame for both sales and market share analysis will vary by industry.
Marketers tend to be judged by sales, but in the long run organizations must be profitable. With publicly held firms you will have profitability numbers for the firm as a whole and possibly broken out by segments (e.g., geography or product line).
For non-public firms, costs can be hard to disentangle, but you should be able to get a partial picture. Some expenses may be reported publicly (e.g., ad budgets) and in other cases you may be able to infer a magnitude of costs (number of facilities or employees).
It is very helpful to break this down by markets or product lines. Your competitor is highly likely to have some “cash cows” that provide the bulk of sales and profits. Other lines will be less important. You will not have perfect numbers. Try to make relative inferences (e.g., most money from revenue stream A, second most from B, etc.).
Whatever performance you see is likely driven by the positional advantage a competitor has in a particular market. A customer buys from a competitor rather than you when the position of the competitor’s total offering is superior to yours in a meaningful way. In a competitor analysis, profile the markets a competitor is pursuing and the offer, or value proposition, the competitor uses to pursue them.
Market Profile. What customers is the competitor pursuing? The market profile is the mix of markets in which the competitor operates. Not all of these may overlap with your markets, but it’s important to understand a competitor’s portfolio of markets.
Geography is a good place to start. Even in a digital age, it’s still usually the case that companies have “home” markets and that some markets are more important to its overall business.
Publicly-held companies often report line-of-business results on a geographic basis, and it’s very common for third parties to report on geographic results. If sales data are not available, a proxy can be the amount of spending, employees, or facilities a competitor has in different geographic areas.
Within large countries, drill down to regions if you can. Regional or locally-based companies will want to concentrate on competition within their geography while still understanding how important that geography is to a given competitor.
Beyond geography, how does your competitor segment its markets? It’s particularly interesting if you and a competitor segment markets differently. For example, if you target high income individuals while a competitor targets individuals with high educational attainment, there will be a great deal of overlap because those two things are correlated. However, defining markets in this way will mean that you and a competitor probably approach the same individual differently.
Offer Profile. How is the competitor pursuing those customers? Whatever positional advantage a competitor has lies in how customers react to its value proposition.
You may be able to infer some positional advantage from performance. If, for example, a firm is doing very well with a particular market, look for the advantage it has in that market. Some of this information may be available publicly through industry coverage or reports.
That said, this is an area where market research is very helpful. What are customers’ attitudes and behaviors towards the competitor’s products in comparison to yours?
Think about the offer from three perspectives: product advantage, configuration advantage, and execution advantage. Note I am drawing heavily here on Treacy and Wiersema’s (1995) perspective. For alternatives, see Morgan (2012) or Srivastava, Shervani, and Fahey (1998).
Product advantage is about designing products that consistently meet needs better than competitors. What are the key benefits customers care about? How do you and your competitor compare on those key benefits? Some benefits are more important than others, so prioritize analysis accordingly. Apple’s historical design and product development expertise is a good example of this kind of advantage.
Configuration advantage lies in assembling a collection of components or products that in combination provides superior value to a customer. Configuration advantage relies on superior customer knowledge and the ability to customize products or benefits to a customer group. Does the competitor have a knowledge advantage and are they able to apply that in the pursuit of customization? Retail and services of almost any complexity create advantage in this way. (Think Amazon.)
Execution advantage occurs when a firm creates, communicates, and delivers the value proposition in a way that is more reliable and/or more efficient than competitors. Does the competitor have a cost advantage? How effective is the competitor at communicating with customers and making sure the product is easy to acquire? A Unilever may not be able to create a breakthrough form of body wash, but is likely to be able to manufacture, advertise, and distribute a body wash more effectively than most firms.
Note that any plausible competitor must be at least competent in each of these three areas. Unilever applies significant resources to product innovation in its markets. Amazon has significant executional resources. Apple helps configure customer benefits through its app store. Rather, it’s likely one of these three avenues is the primary route to advantage for that competitor.
Resources and Capabilities
Finally, resources and capabilities indicate the means that enable the organization to plan and execute its chosen position. There are many potential resources and capabilities that you could analyze.
Resources are the assets that form the basis for an organization’s strategy. These are usually owned by the firm, but may also be an asset residing elsewhere that the firm controls or influences, for example through contractual or partnership arrangements.
Resources may be tangible in the form of facilities or materials the firm has access to. These might include manufacturing facilities, retail locations, trucks, distribution centers, and inventories of raw or finished materials. Walmart, for example, has an extensive range of physical assets that allow it to execute its strategy.
While intangible, financial resources may also be inferred from financial statements. How much money does your competitor have to devote to its strategy?
Many if not most marketing resources are intangible. These may include some of the following resources:
Brand image. Brand is obviously one of the most important marketing resources, as a strong brand both makes marketing existing products easier and may enable the marketing of new products under the brand umbrella. Consider the familiarity, favorability, and scope of the brand image in the market as a whole and for relevant segments. For example, BMW is well-known and well-regarded for high-performance luxury vehicles. Its brand would not, however, extend to orange juice.
Customer base. What is the state of your competitor’s customer base? Size, growth, satisfaction, profitability, and loyalty are all potentially relevant dimensions here. Competitors with satisfied customer bases may be difficult to attack, while competitors with dissatisfied customers are ripe for plucking. A highly profitable customer group is one a competitor will fight to defend. An unprofitable one (for them) may be one they are content to lose!
Knowledge base. In an increasingly knowledge-based world, what a firm knows is a critical source of competitive advantage. Some of this may be realized as intellectual property in the form of patents or trademarks. It was widely reported, for example, that Google purchased Motorola in 2011 more for its patent portfolio than its business.
More broadly, a firm may have new product development or R&D in process that represents a significant asset. Finally, the knowledge a firm has about its customers is widely recognized as a key marketing asset of the digital age: it’s the edifice on which Google, Facebook, and Amazon have built their configuration advantage.
Organization and people. Who are the people in the organization, and what are the organizational systems that support them? This can be the hardest information to capture from the outside. LinkedIN and other databases may give you the ability to infer the structure and skills of the organization you face.
Capabilities, Morgan (2012) states, are the processes by which organizations “combine and transform resources in ways that contribute to achieving the firm’s goals (p. 106).” Just because a competitor has resources, that doesn’t mean it can use them effectively. Think about the many retail chains that are struggling despite having hundreds of stores.
So, given we have resources, is the organization capable of translating those resources into a strategy that leads to advantage? Lehmann and Winer (2008) suggest five fundamental capabilities a firm must have to be successful, as follows:
Ability to Conceive and Design. This is the innovation capability of the competitor. Can they create offerings that customers value? Apple has had a long run of innovative design around which it has built its brand.
Ability to Produce. Given an offering, can the competitor reliably produce it? Tesla, for example, has become famous for both very innovative cars and repeated production and reliability failures.
Ability to Market. Can the competitor communicate and deliver the offering to the market? Large FMCG firms such as Coca-Cola often excel at this. They may be able to achieve high awareness and high distribution even if a product is not attractive.
Ability to Finance. Distinct from establishing the degree of financial resources a firm has, how able are they at acquiring and deploying those financial resources? How easy would it be for them to raise money? With a highly popular stock, Amazon, for example, has the ability to raise capital at a lower cost than most of its competitors.
Ability to Manage. All the people and organization in the world are no help if the firm is managed incompetently. Is the leadership of the firm and the units with which your firm competes competent? Leadership is usually an important topic for coverage by both media and financial analysts. Employee feedback from websites such as Glassdoor may also provide many insights into the management culture of the organization.
I’ll add one more capability to this list:
Ability to Learn and Adapt. In a turbulent world, organizations need to be able to figure out when and how to change and when to stay the course. Marketing and strategy researchers have examined this capability under concepts such as market orientation and organizational sensemaking and learning. Day (2011) nicely summarizes the required marketing capabilities as consisting of vigilant market learning, adaptive marketing experimentation, and open marketing. So, firms must be aware of changes in the market, try things and learn from their efforts, and open up marketing to information sources outside the marketing department and outside the firm. From the outside, experimentation and research studies are the easiest to observe: is your competitor actively engaged in those activities?
A good competitor analysis looks at how resources and capabilities enable a positional advantage or disadvantage in the market, and how that leads to business performance. Understanding how these elements work in a system as a whole will help you identify whether a competitor represents a potential threat to your organization and how they might behave in the future.
References and Further Reading
Day, George S. (2011), “Closing the Marketing Capabilities Gap.” Journal of Marketing 75 (4): 183–95.
Day, George S., and Robin Wensley (1988), “Assessing Advantage: A Framework for Diagnosing Competitive Superiority.” Journal of Marketing 52 (2): 1–20.
Lehmann, Donald R. and Russell S. Winer (2008), Analysis for Marketing Planning, 7th edition. New York: McGraw-Hill Irwin.
Morgan, Neil A. (2012), “Marketing and Business Performance,” Journal of the Academy of Marketing Science, Vol. 40, 102–119.
Srivastava, Rajendra, Tassaduq Shervani, and Liam Fahey (1998), “Market-Based Assets and Shareholder Value: A Framework for Analysis,” Journal of Marketing, January, 2–18.
Treacy, Michael and Fred Wiersema (1995), The Discipline of Market Leaders, Reading, MA: Perseus Books.