ANALYZING THE COMPETITION

EXTERNAL ANALYSIS

ANALYZING THE COMPETITION

Competitive Position


It is important that enterprises are able to know where they stand against their competitors. No business is an island. For success, the business will need to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organisations offering similar products to similar customers. Competitors include those enterprises that offer the products and services and serving the same markets that the enterprise has. It may also include those that produce substitute products and services as well as those enterprises that have the capabilities to produce similar products. Competitive position is the degree to which the enterprise fare vis a vis other competitors. It is usually manifested in the market share of the enterprise. Probably no enterprise can be classified as being in a strong competitive position unless it has some clear basis for declaring superiority over all competitors in that category. Their objective is the same as yours - to grow, make money and succeed. Effectively, the businesses are at war - fighting to gain the same resource and territory : the customer. And like in war, it is necessary to understand the enemy. It is therefore important that the entrepreneur must know his competitor on

how he thinks;



what his strengths are;



what his weaknesses are;



where he can be attacked;



where the risk of attack is too great....



Criteria for a strong competitive position include:

good location and logistical delivery system;

large reservoir of client, or support group loyalty;

superior track record (or image) of service delivery;

large market share of the target clientele currently served;

gaining momentum or growing in relation to competitors;

better quality service and/or service delivery than competitors;

superiority of technical skills needed

ability to conduct needed research and development and/or properly monitor enterprise performance;

superior ability to communicate to stakeholders; and

most cost effective delivery of service.

The following are some of the areas that you should cover in this section of your business plan:

A. Description of Competitors

Identify those businesses that are or will be competing with you. If the number is few, list them by name. If there are many, then describe the group without naming them individually (for example, 47 Filipino restaurant operators or company A, B,C, D for toll food packaging companies ). List any expected or potential competitors. Competitors can be classified as direct competitors (those that are within the enterprise's geographic market area, market segment, existing markets) and indirect competitors (those that are beyond the enterprise's geographic market area, other market segments that vacillate or shift to the enterprise's market segment and those that produce substitute products and services).

B. Size of Competitors

Estimate the size of the assets and sales volume of the major competitors. Will you be competing against firms whose size is similar to yours, or will you be competing against giant corporations? If assets and sales volume cannot be determined, try to find other indications of size, such as number of employees, number of branches, etc.

C. Profitability of Competitors

Estimate how profitable the business is for those companies already in the industry. Which firms are making money? Losing money? How much? This is important to determine your relative performance in terms of profitability. It is also important to know the reasons for their profitability - the revenue and cost factors.

D. Operating Methods

For each of the major competitors, try to identify the relevant operating methods. For example, what pricing strategy does each firm use? Are they using cost plus pricing ? or competitive pricing or set pricing, or mark-up pricing etc. Compare them against the enterprise's practices. Other operating methods, besides price, that you may consider are· quality of product and/or service

· hours of operation

· ability of personnel

· servicing, warranties, and packaging

· methods of selling—distribution channels

· credit terms—volume discounts

· location—advertising and promotion

· reputation of company and/or principals

· inventory levels

Many of the above items will not be relevant to all businesses. Location will not be relevant, perhaps, to an internet service provider or hours of operations for a printing press. Location however will be very relevant to a theatre snack bar or a pawnshop. On the other hand, there are many items that are not listed above that may be very relevant to your business. In fashion garments material and styling may be as relevant as the price.



It is useful to summarize the findings in tabular form after completing the research on competitors. Relevant characteristics that will go into the table will then have to be decided.

After completing the table, an analysis will have to be done to reach conclusions. Is there a correlation between the methods of operation and other characteristics, and the size and/or profitability of the competitors? A thoughtful analysis is essential, because there may be many patterns shown. For instance, it could be deduced that all the profitable companies are large, and all the unprofitable companies are small. Similarly, appliance retailers with repair services sell more that those that are not. Those differences would be easy patterns to spot (and an important one, as well) because they involve only few factors, profitability, size and added service. However, it is more common that success and failure correlate with a number of factors that are not always so easy to discern, even when the findings are summarized.

Looking for patterns is not the only type of analysis that is needed. One may find that an enterprise is very successful, even though its characteristics are completely different from the other profitable firms. What factors apparently contribute to its success? Or one may find that a company is losing despite the fact that its operational characteristics are similar to those of the profitable firms.

Once a conclusions is reached about the competition, it is important that these be related to the enterprise.

What is the competitive situation in the market?

Is everyone making money and expanding, or is it a dog-eat-dog situation?

Are competitors likely to be much larger than the enterprise ? If so, what effect will this have?

Are there some operating methods that appear critical to success in this market? If so, will the enterprise be able to operate in the necessary fashion?

Are there operating methods or characteristics not being widely used in the market that have merits? If so, why are they not found at present? Is it because they have been overlooked or because they have problems that have not been foreseen?