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How to Identify Competitors (for Marketers)

Marketing strategy is usually cast as finding an effective competitive position in a market. How does your value proposition compare to competing value propositions and customer needs? An effective position should lead to competitive advantage. The trick, of course, is to know who the competition is.

Competitor identification is therefore an important precursor to positioning and competitive advantage. However, managers often avoid this task with one of three easy answers to the competitor identification question. “We don’t need to bother with competitor identification because we compete with”:

· No one. “We are so good (or customers are so constrained) that no one competes with us.” Even if this is true in the short run, it’s unlikely to be true in the long run.

· Everyone. “There are so many competitors in the market that it’s impossible to say which ones compete with us.” It’s unlikely all your competitors are equally threatening.

· The same firms we always compete with. “This is a mature, well-defined industry in which the major players are known.” As with the first answer, “the usual suspects” is unlikely to be the right answer in the long run.

The goal here is to identify the right set of competitors to generate insight. Identify too few, and you are likely to be blind-sided. Identify too many, and you are likely to be overwhelmed.

This article provides some details on how to think about and research competitor identification.

Customers and Capabilities

· The degree to which you and other organizations serve similar customers and customer needs

· The degree to which you and other organizations have similar capabilities

Here is a diagram of that space:

Adapted from Peteraf and Bergen (2003)

To the extent you and another firm serve the same customers in the same way, you’re likely Direct Competitors. Ford and General Motors both manufacture, distribute, and sell cars to the American market and thus directly compete with one another.

Potential Competitors are those organizations that compete in the same way for different customers or customer needs. As of this writing, for example, French automaker Peugeot has no presence in the United States, but it could try to (re)enter the market. You can also think about this across segments within a market. Thirty years ago, Mercedes Benz and Toyota manufactured cars for very different markets, but over time both have tried to move into each other’s territory.

Firms can focus too much on whether customers buy industry products. “We compete with other firms who sell cars” is the classic definition of the car industry. Indirect Competitors serve similar customer needs with different business models.

The “Jobs to Be Done” framework based on Clayton Christensen’s work is highly relevant to defining indirect competitors. Why do people buy cars? What problem does owning a car solve for a customer? Let’s say it’s “I need immediate, personalized transportation.” When I own a car, I can walk out the door, hop into the driver’s seat, and drive exactly where I want to go.

The need for on-demand personal transportation has, of course, been exploited by a number of new companies. Uber and Lyft serve this need with their on-demand fleet of independent drivers. The success of Uber in disrupting the existing taxi business has traditional car manufacturers thinking hard about this new world.

On a day-to-day basis, companies often devote most of their attention to their direct competitors. This is not necessarily wrong: at a tactical level the behavior of your direct competitors probably has the most substantial effect on your firm’s fortunes in the short-run.

Strategically, however, it’s important to get beyond the usual suspects. This is where indirect and potential competitors deserve scrutiny. Nigel Piercy (2017) describes the trap of the “competitive box,” “known competitors, operating in traditional ways with the existing, known customer base and competing for market share through incremental innovation” (p. 290). Focusing on the box blinds the organization to new competitors, new business models, and new customers. Step back and examine how your competitive space is evolving.

Let’s start with identifying similar company capabilities.

Identifying Similar Capabilities

· Governments often provide extensive information classifying and analyzing firms and industries.

· Third-party analysts such as market research firms, investment firms, and consultants develop industry expertise and evaluate the competitive state of those industries

· Journalists often cover particular industries; to what extent are two firms mentioned in the same article?

· Trade associations collect and disseminate information on the industries they represent

· Industry trade shows are usually a roster of direct competitors within that industry

· Search results can give you a good sense of who Google or Amazon thinks your competition is

Wright, Eid, and Fleischer (2009) make a nice distinction between what they call “easy gathering” and “hunter gathering” of competitive information. Pretty much everything in the preceding list falls under easy gathering. Let’s take that as read and assume it gets you most of the way toward where you want to be. Suppose you want to get above that mark. What information can you hunt?

Strategy researchers talk about “resources and capabilities” that allow the execution of particular strategies. To the extent you and another firm have similar resources, you are likely to have similar capabilities even if you don’t compete directly now (remember Peugeot a few paragraphs ago). See if you can do research on how similar your capabilities are to those of another firm.

Overlapping Business Models

Let’s go down a list. Compared to yours, does a firm:

· Hire similar kinds of people?

· Have similar suppliers and partners?

· Use similar materials, technologies, and processes?

· Have a similar knowledge base (e.g., patents, areas of expertise)?

· Offer similar products at similar price points?

· Use similar communication and distribution strategies?

Fundamentally, the more similarities you identify, the more the business models of the two firms overlap. Pairs of firms with high overlap are more likely to be direct competitors, whereas firms with low overlap are more likely to be indirect competitors.

Strategic Groups

One way to simplify the “everyone” answer to competitor identification is to use what strategy researchers call “strategic groups.” In many industries, there are groups of competitors who compete in a particular way, and these competitors have a lot of commonalities that mean you don’t always have to distinguish among them. Returning to our car example, it’s pretty easy to imagine three groups:

· Organizations that manufacture and sell cars to consumers (Ford, GM)

· Organizations that rent cars to consumers (Hertz, Avis)

· Organizations that provide on-demand car transportation to consumers (Uber, Lyft)

You need to understand the details regarding the group you are in, but you may be able to summarize members of other groups and gain sufficient strategic insight. For example, as long as you understand the on-demand business model, you may not need to spend days differentiating between Uber and Lyft.

Keyword Research

I mentioned search results earlier as an “easy” tool. If you want to get more in depth, one of the most interesting ways to explore company overlap today is keyword research. Figuring out who is buying or using the same keywords you are (and how you are thus showing up in the same search results) can be powerful in identifying indirect and potential competitors in particular.

Identifying Customer Commonalities

· “We don’t worry about competitors. We worry about customers. Take care of your customers and that will take care of your competitors.”

That’s a good instinct, but your customers think about competing offerings, which means you should, too. The best competitor identification is customer-focused competitor identification.

In theory, if you and I share the same customer group, we are competitors. There are limits to this, however. If I sell a 20-year old woman orange juice and you sell her an electric drill, we probably aren’t competing at all except at the level of budget — will she sacrifice food spending for tool spending. For actionable competitor identification, you need narrower definitions of the need and the customer. Combine who customers are and what they want to be effective.

There are two fundamental ways to do any research on customers: you can observe them or you can ask them. In the digital age, observation has become much more commonplace, so we’ll start with that.

Observing Customers

“Watch what they do, not what they say.” Even sincere customers do not always do what they say they will do.

The most powerful observation is that of actual purchase. Customers are rarely 100% loyal to a product. They usually switch back and forth across a smaller “consideration set” of satisfactory products for reasons as simple as distribution availability or variety-seeking.

Research firms often track customer panels that allow them to observe this switching behavior over time. Scanner data from retailers can also provide some of this information, especially for customers in their loyalty programs. If you consistently share customers with another product, you are in competition with that product. With sufficient data, you can drill down into customer segments and see how much you share customers within those segments.

Here is a disguised version of an actual brand switching matrix for a frequently consumed food category. The rows indicate the number of customers purchasing a brand in time 1, and the columns show what brand the same customers purchased in time 2.

Brand Switching Matrix

From this table, you can learn what products substitute for one another. Brands A and B are very popular and also share a fair number of customers from time 1 to time 2. This is typical of many brand switching matrices. Notice how the switching numbers decline within a row; switching often occurs in direct proportion to market share, mostly to the top brand, then #2, then #3. Byron Sharp (2010) calls this the “duplication of purchase” law. Only Brand E is a bit odd here, as customers of Brand E are more likely to switch to Brand D than the higher share Brand C, and more likely to receive switchers from Brand A than Brand D.

A variation on this approach is to look at what happens when you engage in tactical experiments. What happens when you cut price or increase advertising? Do you draw disproportionately from certain brands? A switching matrix with percentages gained or lost due to a change in price is called a cross-elasticity matrix. Competing brands that are strongly affected by your actions are probably in a customer’s consideration set with yours. Similarly, which competitors affect your results? If Brand A and Brand B cut price and you lose more business to Brand A, that suggests it is a brand you need to track.

Beyond purchase, you can also track behaviors that indicate consideration. Digitally, you may be able to track behaviors or speech indicating two products are in the same consideration set. For example, if someone spending a lot of time on product 1’s webpage also spends a lot of time on product 2’s page, that suggests the two are in competition. Similarly, the extent to which two products are searched together also can uncover competitors. Finally, text mining of online content can identify the extent to which two products are discussed together (“product a vs. product b”), which suggests they are in competition.

Asking Customers

Complementing observing with asking is a very useful tactic for a three reasons. First, you may not have enough observational data or data on the right shoppers. Second, many observational techniques assume you know what to observe (e.g., switching between Brand A and Brand B), meaning you’re less likely to find the potential or indirect customers you don’t know. Third, observations are very good at telling us what is happening. They’re much less good at telling us why something is happening.

The simplest approach is to talk to your customers. If you have a sales or service force, they can be a great tool for uncovering competition. Going to your customers’ trade shows (as opposed to yours) can be a great way of learning how customers view the world. If you use intermediaries such as distributors and retailers, they may also have insights.

All that is going to be useful but informal. It’s also likely to be highly unrepresentative of your customers as a whole, since your sample will consist of the people who are willing to talk with you. But it can be great for generating ideas that you explore or confirm through other means. Call it the customer version of easy gathering. To hunt, you may want to go on to more formal market research techniques. Here are some good tools to consider.

Survey questions. Formal questions that get at a customer’s consideration set are good to try. Here are three good ones:

· Name all the products you can think of in [context].

· What products would/will you consider the next time you purchase [context]?

· What is your favorite product [in context]? If that product weren’t available, what would you buy instead? (You can keep asking this question until they run out of products.)

The first question simply identifies what is called “unaided awareness.” If customers don’t think of your brand, you’re in way more trouble than you thought! Note the order of answers given. Early brands in the list are literally more “top of mind” than later answers.

The second question identifies consideration sets. In most cases the answer will be relatively small, typically between two and six products. These are likely direct competitors depending on the context.

The third question is a different way of identifying consideration. By deleting products one at a time, you get a hierarchy of competitors within the consideration set.

The [context] part of these questions is very important. The temptation is to ask about a product category. “What is your favorite car? What cars will you consider the next time you purchase a car?” This may be helpful in identifying and ranking direct competitors, but it’s often more interesting to ask about a customer problem or usage situation. “What is your favorite place to go on a Saturday night? Where will you consider going this weekend?” Ask about a handful of common usage situations or problems for which your customers use your product. This will often reveal competitors from outside your industry.

Substitution in Use. Substitution in use is a type of research that formalizes the usage context question. It works in two phases. Take a sample of customers and ask them the situations in which they would use your product, e.g., when would you take an ibuprofen? Collect these usage situations and identify the popular and the surprising. Popular uses are probably your core product-markets. Surprising uses may be an opportunity for innovation. A surprise might be that people take ibuprofen for a sore throat. Now take a second sample of customers and ask them to identify all the products they might use for that situation. For a sore throat, ibuprofen’s competitor may be throat lozenges or tea! That could be an opportunity for a product variation: think about how Vicks extended its NyQuil brand to create a ZzzQuil sleep aid.

Similarity judgments. Products that customers see as similar to one another are likely to be competitors. There are a variety of ways to solicit similarity judgments, but the result can be visualized in either perceptual maps or tree diagrams that can be very insightful.

Conjoint Analysis. Conjoint analysis is a research technique in which customers are presented with sets of alternatives from which they make a choice in each set. Over a series of choices, customers reveal what they care about. If you incorporate existing products and brand names into this effort, you can get a sense of what other products are particularly competitive with your offering. Another appeal of conjoint is that with enough data, you can simulate likely market shares for products.

The one big caution I want to note here is sampling. In particular, the easiest thing to do is to talk only with your current customers. That’s also problematic because your current customers are not likely to be representative of the market as a whole. Rigorous sampling is beyond the scope of this article, but be sure you talk with people beyond your own customer base, e.g., competitor customers, non-users of the category, lost customers.

In Conclusion

Bruce Clark is an Associate Professor of Marketing at the D’Amore-McKim School of Business at Northeastern University. He researches, writes, speaks, and consults on managerial decision-making, especially regarding marketing and branding strategy, customer experience, and how managers learn about their markets.

References and Further Reading

Peteraf, Margaret A., and Mark A. Bergen. 2003. “Scanning Dynamic Competitive Landscapes: A Market-Based and Resource-Based Framework.” Strategic Management Journal 24 (10): 1027–41.

Piercy, Nigel F. 2017. Market-Led Strategic Change, 5th edition. Oxon, UK: Routledge. A highly readable text on how to create and, more importantly, execute marketing strategy.

Sharp, Byron. 2010. How Brands Grow. Oxford, UK: Oxford University Press. Very influential book using evidence-based marketing to challenge many marketing truisms.

Shugan, Steven M. 2014. “Market Structure Research,” in The History of Marketing Science, R.S. Winer and S.A. Neslin, eds., Singapore: World Scientific Publishing, 129–164. For those of you who want the details, this is the best recent review of academic research in competitor identification.

Wright, Sheila, Elsayed R. Eid, and Craig S. Fleisher. 2009. “Competitive Intelligence in Practice: Empirical Evidence from the UK Retail Banking Sector.” Journal of Marketing Management 25 (9–10): 941–64.

A practical business professor musing on marketing and management from his not quite ivory tower. Writings do not represent the views of Northeastern University

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