CREATING COMPETITIVE ADVANTAGE

COMPETITOR ANALYSIS

Competitive advantage is an advantage over competitors gained by offering consumers greater

value than competitors do. Competitive marketing strategies exist of competitor analysis and
developing competitive marketing strategies. Competitive marketing strategies are strategies
that strongly position the company against competitors and give the company the strongest
possible strategic advantage. Competitor analysis is the process of identifying key competitors,
assessing their objectives, strategies, strengths and weaknesses and reaction patterns, and
selecting which competitors to attack or avoid. It includes three steps:

1. Identifying competitors:

This might seem easy, but companies face a lot more competitors than can be identified at first
sight. At the narrowest level, company’s competitors are those offering the same product or
service to the same customers at similar places. The company can also define competitors as
those with the same class of products, or companies that make products that help supply the
service, or companies that compete for the same consumer dollars. Companies must avoid
competitor myopia as they are most likely to be overtaken by latent competition. Competitors
can be identified from an industry point or a market point of view.

2. Assessing competitors:

a) Determining competitors’ objectives: each competitor has a mix of objectives, and

company want to find out their relative importance as it suggests what reactions
competitors may have to company’s actions. The company also needs to continuously
monitor competitors’ objectives for various segments.
b) Identifying competitors’ strategies: strategic group is a group of firms in an industry
following the same or a similar strategy. Competitors can be sorted into such groups and
competition is the most intense within groups. However, there is also rivalry among
groups, as they may be overlapping customer segments, customers may not see big
differences between groups’ offers, and members of each group can expand into new
segments. The company needs to examine all dimensions that identify strategic groups
within industry understanding how each competitor delivers value to customers.
c) Assessing competitors’ strengths and weaknesses: firms assess the strengths and
weakness of competitors learning what they can do through secondary data, personal

1
 expertise and word of mouth, as well as primary research and online sites. The firm can
also benchmark. Benchmarking is the process o’ comparing one company’s products
and processes to those of competitors or leading firms in other industries to identify best
practices and find ways to improve quality and performance.
d) Estimating competitors’ reactions: the company wants to anticipate competitors’
reactions as they can differ according to their objectives and strategies.

3. Selecting which competitors to attack and avoid:

a) Strong or weak competitors: most companies prefer to compete against weak

competitors as it requires less time and fewer resources, but may lead to little gain. A
useful tool ’or assessing competitor’s strengths and weaknesses is the customer value
analysis: an analysis conducted to determine what benefits target customer’s value and
how they rate the relative value of various competitors’ offers. First company identifies
attributes that customer’s value and then it uses them to assess its performance against
competitors. The key to gaining competitive advantage is to take each segment and
examine how the company’s offer compares to that of competitors. The company should
place itself in a segment where it meets customers’ needs in a way that competitors
cannot.
b) Close or distant competitors: most companies compete with close competitors, but they
will also have distant competitors. The company may also want to avoid trying to destroy
close competitors.
c) Good or bad competitors: firms also benefit from having competitors, they share the
costs of market and product development and help legitimize new technologies.
Competitors may serve less attractive segments and create product differentiation and
they can help increase total demand. Good competitors play by the rules of industry,
whereas bad competitors break them.
d) Finding uncontested market spaces: instead of competing with established companies,
the firm should search for positions uncontested segments.

Designing a competitive intelligence system

Gathering competitive intelligence can be costly, so the company must design a cost-effective
competitive intelligence system. The system first identifies vital types of information needed and
best sources for it. Then it continuously collects information, and checks it for validity and
reliability, interpreting and organizing it. Lastly, it sends out relevant info to decision makers and

2
responds to inquiries. It helps managers obtain timely intelligence about competitors as well as
interpret it. Small companies that cannot afford such systems can appoint managers to become
expert on certain competitors.

COMPLETIVE MARKETING STRATEGIES

Competitive strategies differ for every company and so does their development process (from
formal to informal).

Approaches to marketing strategy often pass through three stages:

1) Entrepreneurial marketing: most companies are started by individuals who have no

explicit strategy.
2) Formulated marketing: as small companies are more successful; they move to more
formulated strategies.
3) Intrepreneurial marketing: many large companies get stuck in formulated marketing and
should re-establish their entrepreneurial spirit that made them successful in the
beginning.

There are many approaches to developing effective marketing strategies and there will always
be tension between the formal and creative sides. Basic competitive strategies: Porter is famous
for his competitive positioning strategies: three winning ones and one losing one. The three
winning strategies are:

1) Cost leadership: the firm has the lowest production costs and can therefore ask lowest
prices.
2) Differentiation: the firm creates a highly differentiated product line and marketing
program and comes across as class leader.
3) Focus strategy: the firm focuses on a small niche market segment.

The losing strategy is the ‘middle of the roaders’ and applies to firms with no clear strategy, as
they try to be good at everything and end up not being very good at anything.

Companies can pursue any of three customer-centred value disciplines for delivering superior
customer value (each value discipline defines a specific way to build lasting customer
relationships):

o Operational excellence: the firm provides superior value by leading in the industry in
price and convenience. It attempts to reduce costs and create lean efficient value

3
 delivery system for customers who want reliable, good-quality products cheaply and
easily.
o Customer intimacy: the firm provides superior value by precisely segmenting the market
and tailoring its products to match the needs of their customers. It specializes in
satisfying unique needs quickly and intimately for a premium. They build customer
loyalty and capture lifetime value.
o Product leadership: the firm provides superior value by offering a continuous stream of
superior products. These companies serve customers who want state-of-art products
regardless of cost.

Some companies can pursue multiple values at the same time, but this has the same pitfall as
‘middle of the roaders’ strategy. Most successful companies design the entire value delivery
network to support one chosen strategy.

Competitive positions: competing firms differ in their objectives and resources and there are
multiple competitive positions in a given market for them:

1. Market leader: the firm in an industry with the largest market share. The leader has the
largest market share and usually sets the pace in the market. Market leaders can
encourage users to usage their products more. Leaders must be constantly prepared for
other firms challenging its strengths. Sometimes attack is the best defense, and market
leaders should continuously innovate. The following are proposed strategies for market
leaders:
(a) Expanding total demand: this is when the leading firm gains most. It can be achieved
by finding new users or untapped segments, discovering and promoting new uses
and encouraging more usage of products.
(b) Protecting market share: the current business needs to be protected against
competitors. This can be done by preventing weaknesses, fulfilling value promise,
keeping relationships with valued customers. The best response is using continuous
innovation to increase competitive effectiveness and value to customers.
(c) Expanding market share: this helps increase profitability. However, profitability
increases as a business gains share relative to competitors in its served market.
Sometimes cost of buying higher market share may exceed the returns.
2. Market challenger: a runner-up firm that is fighting hard to increase market share in an
industry. The runner-up can either challenge the market leader or play along with
competitors and not ‘rock the boat’. Market challenger must first define which

4
 competitors to challenge and the strategic objectives. Challengers may have second-
mover advantages imitating and improving the ideas of previous leaders. It can attack
the leader by a full-frontal attack, by matching leader’s product, advertising, price and
distribution and attacking his strengths, but also by an indirect attack by attacking the
leader’s weaknesses.
3. Market follower: a runner-up firm that wants to hold its share in an industry without
rocking the boat. Followers can learn from the leader who bears the costs of innovation.
A follower may not overtake the leader, but can be just as profitable with less
investment. Runner-up must know how to current customers and win new ones as well
as find the right balance between following closely and avoiding retaliation. It needs to
keep costs and prices low or quality and service high.
4. Market niches: a firm that serves small segments that the other firms in an industry
overlook or ignore. By focusing on such a specific segment, the firms are often good in
exactly matching the product to customer needs. Mass marketer achieves high volumes,
whereas the niches – high margins. The key idea is specialization on, for instance,
specific customers, geographic markets, quality-price ratio, and service. However,
niching is risky, as niches may dry up, or attract larger competitors. To avoid these
pitfalls many companies, practice multiple niching.

Balancing customer and competitor orientations: competitor-centred company is the one that
spends most o’ its time tracking competitors’ moves and market shares trying to find strategies
to counter them. On the positive side, the company becomes a fighter and cautious of its own
weaknesses, whereas on the negative side, it becomes too reactive forgetting to seek
innovative solutions. Customer-centred company focuses on customer developments in
designing strategies. It is a good position to identify new opportunities and set long-term
strategies, as well as focusing on delivering superior value. Market-centred companies watch for
both competitors and competition, which is the most balanced strategy.