Competitor Analysis

Competitor Analysis Definition

The primary goal of marketing is to deliver great service and build long-term relationships with customers. This can only be done by develop a competitive edge - a substantial advantage over the companies.

How can companies achieve a competitive edge? They can pour more money into product development and marketing, but a more effective way is to look at how the competitors are doing and do better.

That said, competitive analysis is not easy. Marketers must repeat the process every now and then as a new competitor enters the market.

The goal of competitor analysis is to understand which competitors to attack and which to avoid. The process can be simplified into three steps:

1. Identify competitors,
2. Assess their objectives and strategies,
3. Evaluate which ones to attack and avoid.

Competitor Analysis in Marketing

So, why do businesses need competitor analysis in marketing? Competitor analysis is an integral part of the strategic marketing management process. The strategic marketing management process involves three aspects:

1. Strategic analysis - is concerned with evaluating strategy through environmental analyses, including the internal, external, and competitive environments.
2. Strategic choice - involves figuring out which strategy to choose (methods and direction).
3. Strategic implementation - includes applying and evaluating the chosen strategy.

Another reason competitor analysis is crucial in marketing is that it helps businesses develop competitive positioning tactics. Wilson & Gilligan (2012) propose that there are four tactics a firm can take when it comes to its market position¹ :

• Market leaders - want to maintain their current position in the market. They can use offensive tactics (like price cuts or excessive branding) or defensive tactics (responding/mimicking offensive tactics).

• Market challengers - can use either:

  • Flank attacks - attacking a competitor based on its weaknesses.

  • Frontal attacks - attacking a competitor based on its strengths.

  • Encirclement attacks - attacking a competitor based on both strengths and weaknesses.

  • Guerilla attacks - introducing low-cost communications or distribution tactics to undermine competitors.

  • Bypass attacks - introducing a newer version of an existing product.

• Market niches - cater to one single market/segment that leaders and challengers cannot penetrate.

• Market followers - try to follow market leaders and defend themselves from challengers.

Competitor Analysis Methods

Now you've known what competitor analysis is, let's look more into its methods. There are three steps to conducting a competitor analysis:

• Identifying competitors

• Evaluating their strategies,

• Choosing which ones to attack and avoid.

Competitor Analysis: Identifying Competitors

The first step is identifying competitors. The most basic step of competitor identification is to find businesses that sell similar products to you to the same customer segment.

However, this may not be the best approach as companies might identify all firms selling similar products or in the same industry as competitors. For example, a delivery company see every firm operating in the FMCG (fast-moving consumer goods) or the aviation industry as rivals.

A better approach would be to approach competitors from a market perspective or firms that satisfy the same market needs as you.

Competitor Analysis: Evaluating Competitors' Strategies

After a company has identified its competitors, its next step is to evaluate competitors' strategies. This consists of four steps:

1. Understand competitors' objectives - are competitors aiming to increase their market share? To increase revenues and profitability? Or to focus on innovation? Competitors will most likely have a mix of objectives, but understanding them might lead to new opportunities.
2. Evaluate competitors' strengths and weaknesses - companies can do this through market research (primary and secondary research) or benchmarking. Benchmarking includes comparing your performance to a market leader's performance.
3. Assess competitors' strategies - dividing competitors into strategic groups. In other words, groups of firms that follow similar market strategies. The firm needs to assess the different ways through which competitors create value.
4. Estimate competitors' reactions - understanding competitors' strategies, strengths, and weaknesses can help predict how they will react to the firm's strategic moves.

Competitor Analysis: Choosing which Competitors to Attack and Avoid

After identifying the competitors and studying their strategies, companies need to choose which competitors to attack and which to avoid.

Businesses can use customer value analyses to determine competitors' strengths and weaknesses in creating value for customers. This helps them determine whether a competitor is strong (definite competitive advantage) or whether a competitor is weak in satisfying target customers' wants and needs. It also helps a business evaluate how its offering compares to market leaders' offerings. Ultimately, the firm's goal is to maintain a competitive advantage that creates value for customers in a way that rivals cannot imitate.

Competitor Analysis Graph

A competitor analysis graph shows how competitors are positioned in a market. This can be done by constructing a competitor analysis graph. Figure 1 shows an example of a competitor analysis graph:

Figure 1. Market Mapping Beauty Brands, StudySmarter Originals

In Figure 1, we can see how different makeup brands are positioned based on quality and price (based on customer perceptions). Of course, there are various factors we can use to create market maps. For example, a brand could replace price with market share (low/high) on the x-axis and quality with customer reviews (positive/negative) on the y-axis. It is up to the marketer to decide which factors are essential for the overall competitive strategy.

Competitor Analysis Example

Okay, this is quite a long post. Before you go, let's go through a final competitor analysis example.

The example we will look at is Pepsi - the company that makes soft drinks everyone has tasted at least once.

Pepsi has various competitors. From an industry perspective, every soft-drink producer is in competition with Pepsi. But from a market perspective, only companies that address the consumer need of 'quenching thirst' is Pepsi's competitor. That includes fizzy drinks, juice, mineral water, tea, etc., producers. If we go deeper into market segments, Pepsi's competitors are narrowed down to manufacturers producing caffeinated drinks (e.g., on-the-go Starbucks frappuccinos, iced tea, etc.).

However, the one iconic rival of Pepsi is Coca-Cola. The two companies fiercely compete to grab consumers' attention. Both also invest a huge sum of money in strategic communications campaigns.

A classic example can be found in a Halloween ad released a few years ago where Pepsi shows itself draped in a Coca-Cola cape. The copy read, "We wish you a scary Halloween".

In response to this attack, Coca-Cola used the same image for its campaign, with adjusted text.

Fig 2. Pepsi vs Coca-Cola Ad Campaign. Source: @PerezTigidam via Twitter

Coca-Cola's copy read, "Everybody wants to be a hero!" implying that Coca-Cola is superior to Pepsi - an apparent attack on Pepsi using Pepsi's creative asset.