Analysis of Competition

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Competitor analysis

At the end of this module the learning outcomes are:- Importance of understanding competition- Approaches to competitor analysis- Identifying competitors likely response

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Competitor analysis

Suggested Readings

• Strategic Management by Pearce and Robinson (chapter 3)

Competitor analysis

ASIAN PAINTS

• Indian paint industry

• Highly concentrated

• Top four players

• 95% of the market share

• Asian Paints

• Market leader3

Competitor analysis

ASIAN PAINTS

• Next player has less than half market share

• How it has maintained

• Strong value proposition

• Higher customer perceived benefits

• Lower costs

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Competitor analysis

ASIAN PAINTS

Higher customer perceived benefits

• Initial foray in semi-urban and rural market

• Required extensive distribution network

• Bypasses wholesaler arrangement

• Appointed retailers in semi-urban areas all over India

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Competitor analysis

ASIAN PAINTS

Higher customer perceived benefits• Rural areas• Smaller size paint products• Risk of inventory build up• Invested in IT to ensure strict inventory control• Networking of offices and depots

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Competitor analysis


• Urban areas

• Paints for every price points

• Competitively priced thus encouraging economies of scale

• Launch of premium paints

• Launch of color world tinting system

• Customers mix shade before buying7

Competitor analysis


• Entry into painting solutions

• Dominated by unorganized sector

• Offer solutions

• Higher margins in services

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Competitor analysis

Lower costs

• Color world tinting

• Means lower stocks

• Reducing inventory and working capital

• Tight control on receivables

• Inventory in number of days and receivables lower than industry average

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Competitor analysis

These initiatives have helped Asian Paints to maintain its competitive advantage and distinct edge over competitors

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Competitor analysis

Importance- Provides an understanding of your competitive

advantage / disadvantage relative to your competitor’s position.

- Insights into competitors strategies- Developing future strategies to sustain/establish

advantages over your competitors.

Competitor analysis

Seeking competitive advantage

Two types of analysis

• Industry analysis

• Comparative analysis

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Competitor analysis

Industry analysis

• Every industry

• Peculiar characteristics

• Porter’s five-force model

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Competitor analysis

Porter's approach to competitive structure

analysis

Nature and intensity of competition within any industry is determined by the interaction of five key forces:

1. The threat of new entrants

2. Power of buyers

3. Threat of substitutes

4. Extent of competitive rivalry

5. Power of suppliers

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Competitor analysis1. Threat of new entrants

- Depends on barriers to entry- How heavy is the capital investment

Intel's huge investment into research- Strong brand image to overcome

Coke investments required to build brands- Cost incurred to create distribution channels

Hindustan Lever’s huge investments

in distribution in rural areas

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Competitor analysis2. Power of buyers

- Is likely to be higher if:

1. There are large number of suppliers

2. Alternative sources of supply

3. Threat of backward integration

Example

Reliance Industries

1. Started as textiles company

2. Makes raw materials to produce textiles

3. Vertically integrated

4. Bargains on price for huge quantities it picks up.

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Competitor analysis3. Threat of substitutes

- Will be more prevalent if:- Customers perceive other offers to perform

the same function as ours- Substitute products offer higher value for

money- Substitute products earn higher profits

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Competitor analysis

– Onion versus ready to make paste » Dabur Hommade pastes

– Tomato versus tomato puree– Scooters versus Motorcycles

» Hero Honda sales at the expense of Bajaj

– Vanaspati versus edible oils

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Competitor analysis4. Extent of competitive rivalry

Intensity of rivalry will be greater if:- Competitors are of equal size and are seeking

dominance- High fixed costs provoke price wars to maintain

capacity. E.g: Airlines industry

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Competitor analysis

– New addition of capacity have created excess capacity

Hotel industry Automobile industry

– Product homogeneity necessitates activity to maintain share.

» Coke versus Pepsi

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Competitor analysis5.Power of suppliers

Is likely to be higher if:- There are few suppliers- Cost of switching from one supplier to another is

high

E.g: Intel

Suppliers are likely to integrate forward

Kirloskar compressors into airconditioners.

Reliance entry into petroleum products retailing

Competitor analysis

Comparative analysis

• Specific advantage of competitors within a given market

Two types

• Structural advantage

• Responsive advantage

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Competitor analysis

Structural advantage

• Built into business

• A manufacturing plant at Chennai for Hyundai to carry out exports

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Competitor analysis

Responsive advantage

• Position of comparative advantage that have accrued to business over time

• Leveraging strategic phenomena at work in the business

• Either cost or unique value

• Indigo over Air India

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Competitor analysis

Intensity and Degree of competition

Factors

• Opportunity potential

• Ease of entry

• Nature of product

• Exit barriers

• Homogeneity of market25

Competitor analysis

Intensity and Degree of competition

Factors• Industry structure or competitive position of firms• Commitment to the industry• Feasibility of technological innovations• Scale economies• Economic climate• Diversity of firms

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Competitor analysis

Opportunity potential

• Promising industry attracts rivals

• Telecom service operators

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Competitor analysis

Ease of entry

• Easy entry

• Attracts marginal players

• Committed players discourage potential entrants

• Colgate trying to thwart Anchor with Brands

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Competitor analysis

Nature of product

• Offerings perceived to be similar

• Tends to go on price

• Severe competition

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Competitor analysis

Exit barriers

• Regulated

• Exit difficult

Mobile services

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Competitor analysis

Homogeneity of market

• Intensity is higher than segmented

Telecom services versus Telecom handset players

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Competitor analysis

Industry structure or competitive position of firms

• Large number of firms

• Intensity higher

• Aggression leads to retaliation

• Fewer players leads to less retaliation

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Competitor analysis

Commitment to the industry

• Contribution to overall sales

• Maintain position at any cost

Wipro versus Infosys

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Competitor analysis

Feasibility of technological innovations

• Frequent innovations

• Do their best in short time

• Intensity is higher

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Competitor analysis

Scale economies

• Economies of scale benefits are high

• Will do everything to get volume

• Aggressive competition for market share

• Escalates pressure

Airlines industry

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Competitor analysis

Economic climate

• Boom times

• Relatively moderate

• Recession

• Companies bite each other

• Intensity is higher

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Competitor analysis

Diversity of firms

• Old players in the industry

• Display a predictable behavior

• New participants

• Can do many unconventional behavior to upset existing players

Dell’s model

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Competitor analysis

Competitive intelligence

Three types

• Defensive

• Passive

• Offensive

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Competitor analysis

Defensive

• Gathered to avoid getting caught off-balance

• Keep track on moves

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Competitor analysis

Offensive

• Identify new opportunities

• Most relevant

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Competitor analysis

Strategic relevance of competitive intelligence

Ford Motor company’s competitive product tear-down process

• Purchase the product

• Tear the product down-literally

• Reverse-engineer the product

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Competitor analysis

Strategic relevance of competitive intelligence


• Build up costs

• Establish economies of scale

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Competitor analysis


Purchase the product

• High cost of teardown

• Value competitors place on the knowledge they gain

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Competitor analysis


Tear the product down-literally

• Every component is unscrewed

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Competitor analysis


Passive

• Adhoc information for a specific decision

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Competitor analysis


Reverse-engineer the product

• Car dismantled

• Drawings made of parts

• Analysis of production processes

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Competitor analysis


Build up costs

• Parts are costed out in terms of make-or-buy

• Costs estimated

• Direct and indirect

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Competitor analysis


Establish economies of scale

• Individual costs known

• Link with volume

• Likely volumes of competitor

• Determine breakeven and profits

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Competitor analysis


• How it helped Ford

• Tearing down of Leyland Mini

• Leyland not making money at current prices

• Ford’s decision not to make trucks

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Competitor analysisAgainst whom are we competing

- Looks straight forward

- Is not usually the case

E.g: Bajaj Auto

1.Underestimation of LML

2.Undermining the strengths of Hero Honda

- Gestetner underestimation of Xerox

- Extinction of British and U.S television companies by Japanese organizations

- Sharp attack by Symphony aesthetic coolers over traditional coolers

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Competitor analysis

• Earlier clarity was high

• Now blurred

• Poor anticipation– VCR industry in 80s– decline

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Competitor analysis

Marketing Myopia

• Theodore Levitt

• Marketing Guru

• How business is defined

• Why American rail business a massive decline

• Onslaught of airlines

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Competitor analysis

THE COURIER MARKET

• came in 70s

• Launch of fax

• Later email

• How players handled competition

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Competitor analysis

Two approaches

• Adopt new products

• Strengthen existing business

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Competitor analysis

Adopt new products

IBM

• Hardware in 70s

• Threat from low-cost producers

• Shifted focus to software

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Competitor analysis

Strength existing business

FED EX

• Earlier couriers

• Competition from fax, email

• Shifted focus on parcel market

• Physical distribution required

• Offered door-to-door delivery

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Competitor analysis

FED EX

• Offer complete logistics solutions

• Found existing players not offering these solutions

• Gradually left the space for document courier to smaller companies

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Competitor analysis

MOSQUITO REPELLANT DEVICES

BALSARA

• Launched ODOMOS in 1964

• Unattended need

• Cream based product

• Inhouse R & D

• Earlier smoke sensing devices were used

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Competitor analysis

MOSQUITO REPELLANT DEVICES• Now creams• Held 97% share of the cream market• What are the concerns• Later Tortoise was launched• Used ‘smoke’ concept• Economical• Gained 70% market share• Odomos 20% share

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Competitor analysis

MOSQUITO REPELLANT DEVICES• 1984• Goodknight brand• No use of cream or coil• Value proposition

– Cleaner– Less messy– Convenient

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Competitor analysis

MOSQUITO REPELLANT DEVICESBy late 90s• Mats/liquid-70%• Coils-22%• Creams-9%• Balsara tried to launch mats/liquid

BALSARA lost the market which it created

in 1964

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Competitor analysis

Poor understanding of the competition

• Decline– Air coolers– Mopeds– Soya-based drinks

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Competitor analysisCompetition happens at four levels1.Companies offering only similar products

- Kitkat versus Perk

- Nescafe versus Bru

2.Companies consisting of all companies operating in the same category

- Cadbury's Eclairs versus. Nestle Kitkat

- Canada Dry versus Pepsi Cola

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Competitor analysisCompetition at four levels(Contd.,)

3. Competitor consists of all companies manufacturing or supplying products which deliver the same service

- Airlines versus Railways

- Second hand cars versus scooters versus Tata Nano

4. Competition consists of all companies competing for the same spending power

- Dishwasher versus Microwave oven

- Designer jewellery versus Ritu Beri's fabrics

- Debeer’s versus Nokia mobile phones

Competitor analysis

Harley Davidson perception of competition

• Last American motorcycle

• Symbol of freedom and adventure

• Technically antiquated

• Not seen as form of transport

• Social statements

• Compete against various recreations65

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Competitor analysis

IDENTIFYING COMPETITORS LIKELY RESPONSE PROFILES

Three issues• How competitor is likely to respond to the general

changes taking place in the external environment?• How competitor is likely to respond to specific

moves that we make?• Is the competitor likely to initiate an aggressive

move?

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Competitor analysis

COMPETITOR PROFILES

• The laid-back competitor

• The selective competitor

• The tiger competitor

• The unpredictable competitor

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Competitor analysis

The laid-back competitor

• Competitors do not react

• Feel customers may stay loyal

• Lack resources to react

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Competitor analysis

The selective competitor

• React to selective moves of competitor

• Cost of responding

• Modi Xerox versus HCL copiers

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The tiger competitor

• React swiftly

• Strong reply

• Signal that it is going to fight

• Surf versus Ariel

Competitor analysis

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The unpredictable competitor

• Do not exhibit any predictable pattern

• No trends available

• Could exhibit any type of competitor

Competitor analysis

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Competitor analysis

COMPETITIVE EQUILIBRIUMFive scenariosIf competitors are nearly identical and make their

living in the same way, then the competitive equilibrium is unstable.

• Identical products• Commodity industries• Competitive equilibrium gets upset if one cuts

prices

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Competitor analysis

If a single major factor is the critical factor, then competitive equilibrium is unstable

• Differentiation is possible• Breakthrough in technologies• Cut costs• Change habits of consumers• Apple’s Iphone• Amazon.com

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Competitor analysis

• If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differentially attractive to some customers. The more the multiple factors that may provide an advantage, the more the number of competitors who can coexist. Each competitor has his competitive segment defined by the preference for the factor trade-offs that he offers.

• Retailing industry in India

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Competitor analysis

• The fewer the number of competitive variables that are critical, the fewer the number of competitors.

• If one factor is critical, fewer competitors.

• More variables, larger number of competitors, but smaller in size.

Competitor analysis

• Is it always prudent to increase your market share?

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Competitor analysis

• A ratio of 2 in 1 in market share between two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for other competitor to increase or decrease share.

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Competitor analysis

INDUSTRY STRUCTURE TYPES

Five types

• Pure monopoly

• Differentiated oligopoly

• Pure oligopoly

• Monopolistic competition

• Pure competition

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Competitor analysis

Pure monopoly

• High prices

• Little advertising

• Low service levels

• Barriers to entry exist

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Competitor analysis

Differentiated oligopoly

• Differentiation through quality, features

• Reflected by the price premium which is available

• INTEL experience

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Competitor analysis

Pure oligopoly

• Differentiation is difficult

• Going-rate pricing

• Sustainable competitive advantage is through cost-reductions

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Competitor analysis

Monopolistic competition

• Organizations look for markets where scope of competition minimizes

• Pricing premium can be attained

• Retailing in India

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Competitor analysis

Pure competition

• No scope for differentiation

• Same prices

• Psychological differentiation

• Profits determined by cost management

Documents

Analysis of Competition