Competitor Analysis

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Text Preview INTRODUCTION This article focuses on the key aspects of competitor analysis. It defines competitor analysis and gives suggestions on how to write a good competitor analysis. The article identifies sources on where to find information for a good competitor analysis, and also gives organizational examples to provide good illustrations of utilizing information for competitor analysis. Competitor analysis is a critical part of a firm's activities. It is an assessment of the strengths and weaknesses of current and potential competitors, which may encompass firms not only in their own sectors but also in other sectors. Directly or indirectly, competitor analysis is a driver of a firm's strategy and impacts on how firms act or react in their sectors. Gluck, Kaufman and Walleck (2000) showed that competitor analysis is one of two components that give a firm a strong market understanding (see figure 1). This drives the formulation of a strategy and it applies whether a firm formulates a strategy through strategic thinking, formal strategic planning, or opportunistic strategic decision making. Competitor analysis, together with an understanding of major environmental trends, is a key input in strategy formulation and should be developed properly. In utilizing competitor analysis as part of strategy formulation, firms are able to adapt or build their own strategies and be able to compete effectively, improve performance and gain market share in their businesses. In a large number of instances, firms are able to tap new markets or build new niches. For example, after European air travel was deregulated in the mid-1990s, Ryanair and Easyjet focused on the no-frills market and provided low-cost travel across Europe after figuring out through competitor analysis, where the opportunities were emerging (Binggeli and Pompeo, 2002). The authors showed that, at the point in time, Ryanair and Easyjet were performing better than their competitors with operating margins of 26% and 9.5% respectively, which were significantly better than the operating margins achieved by the traditional airlines. MAIN ASPECTS OF COMPETITOR ANALYSIS The key objectives in competitor analysis are to develop a greater understanding of what competitors have in place in terms of resources and capabilities, what they plan to do in their businesses, and how the competitors may react to various situations in reaction to what the firm does. Michael Porter has defined a competitor analysis framework that focused on four key aspects (Porter, 1980 cited in's objectives, competitor's assumptions, competitor's strategy, and competitor’s resources and capabilities. These four aspects of competitor analysis are the areas critical for a firm to understand and they should pursue this knowledge not only for current competitors but also for other potential competitors in the business. There are other competitor analysis frameworks that firms can utilize. An example is an international competitor analysis framework presented by Garsombke (1989) but the foundations follow Porter's framework with additional components relating to the understanding of the "international" marketplace. Others focus on specific components and thus become a subset of the framework. For example, Slater and Narver (1994) looked at this through the value to customers and identified three components in the analysis: customer orientation, competitor focus and cross-functional coordination. Rather than compare various competitor analysis frameworks, the focus from hereon is Porter's framework (see figure 2) for competitor analysis. This framework is broken into two parts. The competitor's objectives and assumptions drive the competitor while the competitor's strategy and resources and capabilities define what the competitor is doing or is capable of doing. Together, these four aspects define a competitor response profile which gives...
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