A Framework for Competitor Analysis

“There are four components to a competitor analysis: future goals, current strategy, assumptions and capabilities.”

The competitor response profile

“The first step is to predict the strategic changes the competitor might initiate.”

“a move that will allow a competitor to share costs with another division, thereby dramatically reducing its relative cost position, may be a lot more significant than a move that leads to an incremental gain in marketing effectiveness.”

“what moves have asymmetrical profit consequences, i.e., affect a competitor’s profits more or less than they affect the initiating firm’s?”

“find a strategy that competitor’s are frozen from reacting to given their present circumstances.”

“Another key strategic concept is creating a situation of mixed motives, or conflicting goals for competitors. This strategy involves finding moves for which retaliation, though effective, would hurt the competitor’s broader position.”

Market Signals

“A prerequisite to interpreting signals accurately is to develop a baseline competitor analysis.”

“Reading market signals, a second-order form of competitor analysis, rests on subtle judgments about competitors based on the comparison of known aspects of their situations with their behavior.”

“announcements can be tests of competitor sentiments, taking advantage of the fact that they need not necessarily be carried out.”

“a sixth function of announcements is to avoid costly simultaneous moves in areas like capacity additions, where bunching of new plant additions would lead to overcapacity.”

The cross-parry

“When one firm initiates a move in one area and a competitor responds in a different area with one that affects the initiating firm..”

“the cross-parry response represents a choice by the defending firm not to counter the initial move directly but to counter it indirectly.”

“the cross-parry can be a particularly effective way to discipline a competitor if there is a great divergence of market shares.”

“maintaining a small position in cross-markets can be a useful potential deterrent.”

Competitive Moves

Industry instability: the likelihood of competitive warfare

“The underlying structure of an industry determines the intensity of rivalry..”

“The greater the number of competitors, the more equal their relative power, the more standardized their products, the higher their fixed costs and other conditions that tempt them to try to fill capacity, and the slower the industry’s growth, the greater is the likelihood that there will be repeated efforts by firms to pursue their own self-interest.”

“Multiple bargaining areas, or situations where firms are interacting in more than one competitive arena, can also facilitate a stable outcome in an industry.”

“Industry structure influences the position of the competitors, the pressures on them to make aggressive moves, and the degree to which their interests are likely to conflict.”

Competitive moves

“When making moves whose success is contingent on competitors following, the risk is that competitors will not follow.”

“Lags in retaliation stem from.. an inability to pinpoint retaliation, which raises its short-run cost.”

“From a defensive point of view perceptual lags may be shortened by having a competitor monitoring system in place which continually assembles data from the field salesforce, distributors, and so on.”

“If a firm can find moves that are much less costly for it to make than they are for its competitors to respond to, it can produce lags in retaliation..”

“commitment can deter retaliation, create trust and deter threatening moves..”

Communicating commitment

“Discipline mechanisms include cash reserves, excess production capacity, a large corps of salespersons, extensive research facilities, small positions in a competitor’s other businesses, and fighting brands.”

“Thomas Schelling’s work on game theory suggests that an important part of reaching an outcome is the discovery of a focal point, or some prominent resting place on which the competitive process can converge its expectations.”

“Focal points can take the form of logical price points, percentage markup pricing rules, round-number divisions of market shares, informal sharing of the market on some basis, etc”

“firms should seek to identify a desirable focal point as early as possible.”