Competitor Analysis and Competitive Intelligence
For those who are yet to harness the power of competitor analysis or competitive intelligence to get that edge, read this article to know about these aspects: 1) what is competitor analysis, 2) difference between competitor analysis and competitive intelligence, 3) three approaches of competitive intelligence, 4) cycle of competitive intelligence, and 5) examples of competitive intelligence analysis techniques.
WHAT IS COMPETITOR ANALYSIS?
A competitor analysis, which is an essential element of corporate strategy, is a technique used to assess outside competitors (potential and current). The study seeks to identify the strengths and weaknesses of these competitors and use the knowledge gained, to improve endeavors within the company. Its goal is to create a profile of the kind of strategy changes each rival may take, each rival’s possible reaction to possible environmental shifts and industry changes, and each rival’s probable response to the variety of probable strategic moves other firms or companies could make. Thus, your competitor analysis should enable you to come up with the tactics and strategies essential for ensuring profitable and consistent transfer of market share from particular competitors to your company or firm.
The competitive analysis gives a defensive and offensive strategic context to spot both opportunities and threats. Profiling combines all of the pertinent sources of competitor analysis into a single structure in the support of effective and efficient strategy formulation, implementation, adjustment, and monitoring.
One frequently used yet useful technique of competitive intelligence is developing a competitor array, the steps of which include:
- Delineating your industry – nature and scope of the industry
- Finding out who your competitors are
- Finding out who your customers are and the advantages they expect
- Finding out what the chief success factors in your industry are
- Ranking each of the success factors by giving it a weighting – when the weightings are added together, the total should be one
- Giving each competitor a rating based on the chief success factors
- Multiplying the factor weighting with each cell in the matrix
DIFFERENCE BETWEEN COMPETITOR ANALYSIS AND COMPETITIVE INTELLIGENCE
Though the term “competitive intelligence” is often regarded as similar in meaning to competitor analysis, that belief is not correct. Competitive intelligence may be defined as the action of delineating, collecting, studying and distributing intelligence pertaining to competitors, products, customers and any facet of the environment required to support managers and executives making strategic decisions for a business. This is similar to competitor analysis. However, competitive intelligence does more – it also involves improving the competitiveness of the business or organization relative to its whole environment and stakeholders: competitors, customers, technologies, distributors and macroeconomic data.
THREE APPROACHES TO COMPETITIVE INTELLIGENCE
Competitive intelligence is carried out under three key approaches in the CI framework, all of which are discussed below:
This approach is on a smaller scale and usually operational, not focusing much on being predictive. Some examples of tactical issues are competitors’ plans for modifying the manner by which they distinguish one, two or multiple products from yours, their price policies and terms of sale. Some of the key users of this approach are middle-level sales and marketing managers because they have a desire to know how to be a winner each day.
This approach mainly has to do with acquiring comprehension of a competitor’s current strategy, future goals, capabilities – diagnostic components and conjectures with respect to itself and the industry. Intelligence pertaining to the firm’s partners (in research and development or marketing alliances), suppliers and chief customers is frequently also of strategic value.
Counter intelligence involves protecting company secrets. Just as you are interested in knowing your competitors’ plans, they may be interested in knowing your plans, possibly even more interested than you in theirs. Frequently, this area of effort would incorporate information technology and security. Others such as firing and hiring strategies are frequently overlooked so that competitor opportunities can be contained within the firm.
CYCLE OF COMPETITIVE INTELLIGENCE
1. Planning and direction
This step is characterized by the involvement of the management and settling on what intelligence it requires, and the competitive intelligence practitioner deciding which direction to pursue to successfully accomplish his task. A CI project is scoped out by answering these questions: What knowledge do we need? What do we already know? When do we need to be aware of this knowledge/intelligence? Why should we have this information? How much would it cost us to get that information? How much would it cost us if we did not have that information? How would we put the intelligence we have gained to use?
This step may also be regarded as the other end of the intelligence cycle. The reason for this is that once specific intelligence is given to the decision maker, his ensuing actions which are based on the intelligence received would trigger more intelligence needs. The firm’s situation would thus, certainly change on the basis of those subsequent actions.
2. Collection and research
At this step or stage, the actual collection of raw information for intelligence purposes, is completed. The sources of information used are those which are publicly accessible which means that as long as the person knows where to look, he can access that information. This is what makes competitive intelligence ethical and legal (daring to be unethical is not just uncalled for but can also result in harsh consequences). Some examples of such sources are periodicals, books, annual reports, broadcasts, databases, and speeches. The nature of information gathered and research carried out would depend on decisions to be informed or KITs. Pertinent data may already be in hand from secondary sources, whether by purchase or available for free. Other pertinent data may be present in the firm’s different information coffers. To get more data or information, it may be necessary to collect it personally, by way of observations, interviews or other kinds of primary research.
The research objectives of a CI project would frequently involve areas such as: analysis of joint ventures and/or alliances that competitors entered into, the competitors’ manufacturing capabilities, their product lines, their future plans and strategies for particular markets, reasons for changes in the business unit or corporate strategy.
The collection and research stage is also characterized by processing of information or data so that it may be transmitted and stored electronically if needed. In electronic form, the information can be changed into a form that enables its analysis.
3. Analysis and production
Analysis, synthesis, and distillation are at the core of CI, where distinct bits of information are converted into actionable intelligence. Analysis is regarded as the most difficult aspect of the intelligence cycle. It requires considerable guts and skills because it calls for the analyst to weigh information, see if there are any patterns, and come up with various scenarios derived from what he has learned. In spite of the fact that, an analysis is based on hard and logical information, analysts should, from time to time, ‘fill in the blanks’ and make well-informed guesses about potential outcomes.
The next job of CI analysts is to synthesize different patterns and separate industry happenings to expose the bigger picture and identify suitable actions.
4. Dissemination and delivery
This is the final stage in the competitive intelligence cycle and has to do with distributing the intelligence product to the people who requested it. At this stage, analysts would recommend probable courses of action based on the intelligence. In addition to articulating their recommendations, the analysts should be able to defend them using logical arguments. The further intelligence that results would also be passed on to others in the company who can put it to use.
Intelligence should be packaged in formats suitable to the intelligence, the extent of actions to be taken, and the decision makers. At times, this means a comprehensive hard-copy report, other times, email exchanges and still other times, an in-person presentation. Any CI report in written form should start with a brief executive summary that centers on findings, conclusions, and suggestions.
EXAMPLES OF COMPETITIVE INTELLIGENCE ANALYSIS TECHNIQUES
Porter’s five forces
The credit for this framework or technique goes to Michael Porter of Harvard Business School. The technique utilizes Industrial Organization economics to obtain the most vital five factors that establish a market’s competitive intensity or profitability. These factors are threat of new entrants, threat of established rivals, bargaining power of supplies, bargaining power of customers and the threat of substitute products. This five-force framework provides a checklist to study the industry’s degree of competitiveness based on the balance of power. With the help of this analysis, companies can decide on how best to leverage market forces to boost profitability. The next step includes delineating that strategy would increase the chances of success: differentiation, cost structure or integration.
This technique is intended to have a look at the company’s strengths and weaknesses, opportunities and threats (SWOT). Though it is a great point from which to start a competitor analysis, its narrow focus can result in an inclination to pigeonhole information, and frequently, missed information. The competitor data should be information gathered from your own business. For example, it may be your wish to compare the liquidity so that you know if your market share runs the risk of any threats from other market players. SWOT should consider both industry players and external markets. What’s more, though the SWOT analysis is helpful in organizing information, it is definitely not, when it comes to strategic decision-making. For additional insights, it should be done along with the TOWS matrix.
Supply and demand curves
From the point of economics, supply and demand is a model for fixing price in the market. The conclusion of this model is that, in a cutthroat market, the unit price for a specific good would change until it stays at a point where the quantity demanded by consumers (at the present price) is the same as the quantity provided by producers (at the present price), thereby creating an outcome of economic equilibrium for quantity and price.
Critical success factor analysis
This model looks at the goals a business must satisfy so as to succeed. This analytical technique may be applied to a number of competitors so as to determine the most frequent markers of success or failure in your market.
Value chain analysis
A value chain analysis entails identifying each segment of the value chain and determining areas where improvements can be made whether from a cost perspective or production standpoint to make certain that consumers are getting maximum value for their money. When consumers get maximum value from the product for the lowest cost, businesses gain in the long run.
Created in the 1980s, the BCG matrix framework is meant to assist with decision making on current product lines. It has been utilized to assess how a company should reflect on their portfolio on the basis of two benchmarks: the market growth rate and the product’s relative market share.
This is an analysis that uses the customer’s perspective to find out why the provided sales opportunities are won or lost. The process usually involves carrying out detailed telephonic interviews with new customers or lost prospects. With the candid feedback gained, senior leadership can continuously tweak their strategies and processes in product development, customer service, marketing and sales to ensure optimum performance and maximize the competitive advantage.
Monte Carlo simulation
This is a computerized mathematical technique that permits people to justify the risk in decision making and quantitative analysis. The method is used by professionals in such widely different fields as project management, finance, manufacturing, energy, research and development, engineering, transportation, insurance, the environment and oil and gas. Monte Carlo simulation carries out risk analysis by developing models of probable outcomes by substituting a variety of values – a probability distribution for any aspect that has inherent uncertainty.
A four level McKinsey framework of uncertainty may be helpful to choose the right combination of strategic tools. These four levels are as follows:
Level #1: Predictable future – recognizable trends (such as market demographics). Little bit of residual uncertainty, reasonably accurately basis for strategy. Execute the classic strategy tool kit.
Level #2: Alternative futures – discreet scenarios (such as those associated with competitors’ actions and regulatory changes). Probabilities may apply. Examine each strategic result separately. Keep watch for trigger points.
Level #3: A range of futures – A limited number of variables (such as adoption rates in upcoming markets) determine results that are not discreet, but still within an expansive range. Execute scenario analysis.
Level #4: True ambiguity – A number of uncertainty dimensions cause difficulty in delineating a variety of outcomes. One example is the nascent mobile internet market. Maximize your identification of indicators and variables as much as you can and take “no regret” moves.
A formalized competitor analysis and competitive intelligence program can:
- Predict the actions of competitors
- Predict changes in the marketplace
- Discover prospective or new competitors
- Help you learn from the right steps and mistakes of others
- Increase the quality and range of acquisition targets
- Help you learn about political, regulatory or legislative changes that may impact your business
- Help you learn about new product, processes and technologies that impact your business
- Help you enter new businesses
- Help you execute the most recent management tools
- Have an open manner of analyzing your business practices
The eventual benefits to your bottom line include better market knowledge, more confidence in coming up with strategic plans, better cross-functional relationships in the organization and enhancements in product quality against the competition. These benefits can be summed up in three words – “better business performance” by doing things better, and this, is worth the effort.
As mentioned before, it is worth remembering that competitive intelligence is fully justified as long as it conforms to ethics and the law. When it doesn’t, it takes the form of corporate espionage that is an unfair approach for gaining a competitive advantage.
Whether your business has been in the market for a long time or is a relative newcomer, recruiters …
Etsy is a popular ecommerce platform that serves a niche market of sellers. In this article we …