Understanding And Predicting Competitor Response Shantanu Dutta

Objectives: A critical step in competitor analysis is to develop the ability to predict competitive response.

Use the framework in this note to develop a competitor profile for Barco, specifically a profile for Sony and how it might react.

Could Barco have predicted Sony’s product development actions, given its analysis of Sony ?

Framework

The framework consists of the following– list competitors in different segments – Use the value chain to understand

competitors strengths or weaknesses– Understand competitor objectives– Predicting competitive response

• assess quality of response• assess your vulnerability to this response

Competitor

Customer Segment Names

Competitors May Differ - Depending on Segment

Identify the Competition

A Competitor’s Strategy:A Value Chain Approach

Understandingand Targeting

Customers

Understandingand Targeting

CustomersCollaborators/

Distribution

Collaborators/Distribution

CustomerService

CustomerServiceProduct Design/

Manufacturing

Product Design/Manufacturing

InboundLogistics

InboundLogistics

How a competitor moves materials/supplies from supplier’s to site of manufacturer

How a competitor transforms inputs into finished products

How a competitor identifies, targets, reaches, and satisfies customer needs

Relations with distributors.How a competitor moves finished product through distribution channels to end-customers or users

How a competitor delivers pre- and post-sales services

• A description of a competitor’s value chain can be used to identify its strengths and weaknesses. Use the value chain as a basis for assessing strengths and weaknesses

• In particular, look at competitors’ actions in other markets to assess how they have leveraged their value chain

• Gain insight into the assumptions your competitors are making when formulating their strategy

• Strategies are often the explicit result of assumptions a competitor has made about

• the industry (rate of growth, rate of technological change)

• the general environment (demographic changes, regulatory changes)

• its own capabilities (e.g., continued resource support, ability to attract personnel)

Uses of the Value Chain Approach

Assessing Strengths and Weaknesses

• If a competitor has changed its strategy recently, you might be able to infer something about its underlying assumptions

• You get an insight into your competitor’s ability to pursue various strategies

• Better able to predict their future behavior

• Look for things your competitor is improving and neglecting!

Strength WeaknessImproving/Neglecting Improving/Neglecting

Competitor_________________

What Are the Competitor’s Objectives?

• Understanding a competitor’s objectives helps to identify whether or not a competitor’s present performance is satisfactory or strategic changes are likely

• Financial objectives - indicates how willing it is to invest in its business

• market share, sales growth, and profitability objectives.

• Non-financial objectives - a leader in technology, or does it aim to be known as the premier service organization? Indicates what“turf” it is likely to defend.

• Objectives of the parent organization

Financial Objectives

Market Share

Sales Growth

Profitability

Other

Non-Financial Objectives

Interest in Being a Technology Leader?

Interest in Expanding Distribution?

Interest in Developing a Service Organization?

Other

Role Attached to Business Unit

Central or peripheral to parent’s long-term plans

Is this a growth area for the competitor?

Does it supply cash to fund other areas?

Does business create synergies with other operations?

Other

Competitor

Predicting Competitive Response

• What will your competitors do in the future? For example, will competitor respond to:

• decisions you make (e.g., enter a customer segment, changing prices)

• changes in your strategy by (de-) emphasizing certain key customer benefits

• decisions to change your advertising expenditures?

• You may have some assumptions about actions (even unprovoked actions) your competitor might make in the future

• Is the competitor vulnerable?

• Refer to the strengths and weaknesses

• Pay particular attention to whether the competitor is improving or neglecting certain areas

• Will it provoke a response?

• Probably depends on the objectives of the competitor

• How effective will the response be?

• Combination of the objectives of the competitor and its strengths.

• Do you have an effective counter-response?

• What are your specific competencies?

Four Important Questions

Competitor_________________

What if you enter this segment?

Segment Name_________________

What if you increase/decrease benefit_______________

Is This Competitor Vulnerable?

Will it Provoke a Response?

How Effective Will the Response Be?

What if you increase/decrease benefit _______________

What if you increase/decrease benefit _______________

What if you increase/decrease benefit _______________

Possible Actions You Might Take

Some other action

________________________

Some other action

________________________

Do You Have an Effective Counter-

Response?

Competitor_________________

What if it enters this segment?

Segment Name_________________

What if it increases/decreases benefit_______________

Are YouVulnerable?

Will You Respond?How Effective Will the Response Be?

What if it increases/decreases benefit _______________

What if it increases/decreases benefit _______________

What if it increases/decreases benefit _______________

Possible Actions This Competitor Might Take

Some other action

________________________

Some other action

________________________

Does This Competitor Have an Effective

Counter-Response?

5 Step Approach to Understand Competitor Response

1. Identify theCompetition

2. Identify TheirCurrent Strategy

3. Identify TheirRelative Capabilities

4. Identify WhatThey Want

5. Predict What TheyWill Do

Sources of Competitive Information

Press analysis Trade interviews Market analyst reports Sales data Senior management statements Public announcements Marketing communications to key

customers Launch of new products Websites -mentioned

Improvements in operations and cost efficiencies

Price changes Promotions Sales force activities

(e.g., increases/decreases in hires)

Advertising content Order response New support for

channels of distribution

Fuld, Leonard M. (1995), The New Competitor Intelligence, New York: John Wiley & Sons, Inc.