Understanding the Competition

“Know your [competition], know yourself and you can fight a hundred battles without disaster.”
~ Sun Tzu

YOU are running a company, advising companies or would one day like to be.  A company needs to understand its competition, and here are 11 points to help you do that.

1. Identify the competition

Who are the company’s major competitors? Taking Cadbury as an example, some of its major competitors are Lindt, Ferrero, Nestlé, Hershey and Mars.

2. Segment

Are you able to segment the competition in a meaningful way? You may be able to segment by distribution channel, region, product line, or customer segment. For example, the FOX Broadcasting Company may want to segment its competition by region. In America, some of its major competitors include PBS, NBC, CBS and ABC. In Australia, its competitors include Channel 7, 9 and 10 as well as ABC and SBS.

3. Concentration

What is the concentration of competitors in the market? That is, are there lots of small competitors (a low concentration industry) or a few dominant players (high concentration industry)? Examples of high concentration industries include oil, tobacco and soft drinks. Examples of low concentration industries include wheat and corn.

4. Size

What is the sales volume and market share of the major competitors?

5. Growth

What are the historical growth rates of the competition?

6. Performance

What is the historical performance of the competition? Relevant indicators of performance include profit margins, net income, and return on investment.

7. Competitive Advantage

What is the competition good at? What are the competition’s capabilities? How sustainable are these advantages?

What are their weaknesses? How easily can these weaknesses be exploited?

8. Competitive strategy

What are the competition’s strategic priorities? What motivates them? What are their plans? How can these plans be upset?

9. Competitive response

How will the competition respond to the company’s actions?

10. Substitutes

Are there any other products that people can use that are as good or almost as good as the company’s products? These substitute goods represent a form of indirect competition, think Coke and Doctor Pepper, Vegemite and Nutella, coffee and tea, pizzas and hamburgers, tennis and basketball. Not the same, but it may be a decent substitute.

11. Barriers to entry

Are there barriers to entry that would stop competitors from entering the market? If the market has low barriers to entry then we can expect that the market, if not already heavily contested, will soon be filled with a large number of competitors.