CH5 - Competitor Analysis

Question 1

What is the Cima definition of competitor analysis?

Answer 1

Identification and quantification of the relative strengths and weaknesses (compared with competitors or potential customers), which could be of significance to the development of a successful competitive strategy.

Question 2

Why is competitor analysis important?

Answer 2

The actions of competitors will impact on the profits of a business. E.g. Price cuts, launching new products, aggression expansion, upgrading of products features which customers then expect

Question 3

According to Wilson and Gilligan competitor analysis has three main roles ( to which we can add a fourth) what are these?

Answer 3

1- help management understand their competitive advantage/disadvantages relative to competitors

2- generate insights into competitors past, present and potential strategies

3- to give informed basis for developing future strategies/ maintaining advantage

(4) to assist with forecasting the returns of strategic investments for deciding between alternative strategies

Question 4

What are the key concepts of competitor analysis?

Answer 4

Gain understanding of market size (annual sales of competitors)

Estimating market growth- if an organisation has a strategy which involves quick growth, then it would be attracted to a rapidly growing market

Gain understanding of market share - larger share is strategically beneficial- may be possible to influence prices and reduce costs through economies of scale

Question 5

What is the Boston Consulting group model used for?

Answer 5

It is used in competitor analysis when considering market share and market growth. Each product is assessed in terms of its market share, relative to that of the market leader. This is mapped against the growth rate of the sector.

Question 6

What are the 4 steps in using the BCG Model?

Answer 6

1. Identify the company’s product or product lines
2. Place each product into the matrix depending on analysis of relevant market share (to that of larger rival in market sector) and market growth.
3. Assess the prospects of each product and compare against others in the matrix.
4. Develop strategic objectives for each product

Question 7

What does the BCG matrix look like?

Answer 7

See photo

Question 8

Explain each of the 4 quadrants of the BCG Matrix

Answer 8

Cash cows - high market share in a low growth market. Generally cash generators and profitable. Low capital requirements. Profits from this area can be used to support stars and question marks. A defensive strategy is often adopted to protect the position.

Star - relatively high market share in a high growth market. Often market leader. Attractive long term prospects, may become cash cow. Can require large investment in non current assets and need to defend against competitors attacks.

Question marks - relatively low market share in a high growth market. Opportunities exist, but investment is needed to secure market share. May also require substantial management time any may not develop successfully.

Dogs - relatively low market share in a low growth market. To cultivate these products would require substantial investment and would be risky. May be turned into niche products or carried as loss leader

Question 9

What are the limitations of the BCG model?

Answer 9

Simplistic- only consider 2 variables

Connection between market share and cost savings is not strong. Low market share companies use low share technology and can have lower production costs

Cash cows don’t always generate cash. They can require substantial cash investment just to remain competitive and defend their position

Fails to consider value creation. Management of a diverse portfolio can create value by sharing competencies across SBUs, sharing resources to reap economies of scale or by achieving superior governance. BGC would divert cash away from cash cows and dogs and fails to consider the benefit of offering the full range and the concept of loss leaders

Question 10

Before a company can analyse its competitors, it must decide on the level at which it will consider competitors. Kotler (2008) identified 4 levels of competitor. What are they?

Answer 10

Brand competitors - companies who offer similar products to the same customers and who are similar in structure and size. Coca Cola & Pepsi

Industry competitors - companies who produce similar goods but not necessarily the same size and structure or who compete in a more limited area or product range. British airways and Singapore airlines

Form competitors - companies whose products satisfy the same needs although technically different. E.g. Speedboats and sports cars

Generic competitors - companies who compete for the same income. E.g. Home improvements and golf clubs

Question 11

The level of threat posed by competitors depends on which factors?

Answer 11

Number of rivals and the extent of differentiation in the market

Entry and mobility barriers

Cost structure

Degree of vertical integration- highly vertically integrated firms have considerable strength in a market. However they are also inflexible because they are committed to buying from their own upstream supply divisions. International oil firms have repeatedly lost out to discounting petroleum retailers able to buy supplies on the worlds spot markets.

Question 12

What is porters competitive framework?

Answer 12

Need to understand what competitors are offering so you can offer at least as much. Identify who competitors are and which pose largest threat. Also important to monitor new entrants.

Porter suggested a framework for analysing competitors. He suggested to establish a competitor response profile analysis would have to consider
What drives the competitor
What is the competitor cable of doing.

The analysis is based on 4 key components of a competitor

1. Identifying competitors strategy- identifying what the company says and does. “Does” is more important!
2. Identifying competitors objectives- are they driven by short term profit goals or long term objectives. This will exhibit significantly different behaviours
3. Indentifying competitors assumptions about the industry - these perceptions will often be driven by the value systems of senior management.
4. Identifying competitors resources and capabilities. To evaluate wether they pose a serious threat. Emphasis should be on what they are capable of doing.

Question 13

A competitor may respond to any action a company takes. Kotler identified 4 response profiles of customers. What are they?

Answer 13

1. Laid back competitor- doesn’t respond
2. Selective competitor - reacts only on certain markets or types of attacks.
3. Tiger competitor- responds aggressively to any threat to send a message.
4. Stochastic competitor- no predictable pattern to responses

Question 14

Why is it important to consider why a competitor does or does not respond to actions your company?

Answer 14

They may give insight into competitors beliefs and strategy.

E.g
They believe a market isn’t worth defending anymore
They know in the market it is difficult to affect customer behaviour
They are looking to develop new products so are less bothered if their present one is affected by competition.

Question 15

What types of information should be collected in competitor analysis?

Answer 15

Info on Competitors strategy- by looking at products offered and how they operate. Published accounts?

Competitors goals and objectives- established by looking at activities undertaken by competitor, e.g. Moving into new markets or developing products

Competitors products and services - how do we compare. From this info can be gathered on the segment of the market they operate in, their pricing and quality strategy, their branding and image

Competitors resource and capabilities- financial, human, technological and physical.

Question 16

What are the Sources competitor information?

Answer 16

Website of competitor-may contain information on strategy and objectives, details of past performance, info on where they operate, what sectors and type of product. However published sources can only contain a partial picture, more strategic (and more useful) information is usually confidential.

Annual report and accounts - publicly available- contain details on governance issues and financial performance.

Newspaper articles and online data - an internet search

Magazines and journals

Online data services such as FAME to collect financial and statistical info

Directories and yearbooks covering particular industries

Becoming a customer of the competitor

Market research-produced by specialist firms such as mintel and economist intelligence unit

Customer market research - independently commissioned to establish consumer attitudes. This is most costly of data sources, but most specific in meeting the needs of the competitor analysis.

Question 17

Market research (remember costly) largely falls into 2 distinctive areas. What are they? Explain each

Answer 17

Quantitative research - what where and when questions.
Different ways of collecting e.g face to face after purchase or internet survey, general research using questionnaires/surveys
Analysis can be used to provide info - e.g. 80% of our customers would recommend our product to a friend, 90% are very satisfied with service given.
Company can compare these against industry average or select and discuss those ratios that have an impact on important company issues.
Financial and non financial data can be collected.
Non financial data can often be more useful in terms of competitor analysis. E.g. Time between order and delivery

Once quantitative data has been collected it is useful to rank and rate competitors. Competitors can be assigned a score for each product or service area measured and then weighted on importance to the company. This aggregate can be compare against company for comparison purposes.

Qualitative research- collection of non numerical data - investigate why decisions rather than the what, where and when. One aspect of competitor analysis is brand perception. Why do customers prefer one job over the other?

Question 18

After you’ve carried out competitor analysis you can benchmark against competitors. What are the types of benchmarking? Give examples

Answer 18

Strategic

• Market share
• return on assets
• gross profit margin on sales

Functional

• % deliveries on time
• order costs per order
• order turnaround time
• average stockholder per order

Question 19

Brief flowchart for benchmarking?

Answer 19

1. Decide on activity to be benchmarked
2. Study activity in own organisation
3. Identify suitable benchmarking partners
4. analyse activities of partners and identify features accounting for superior performance
5. Adopt best practices
6. monitor and revise

Question 20

What is big data?

Answer 20

Most commonly referring to large volumes of data (petabytes and exobytes). Definition can be extended to incorporate the variety oaf types of data involved. Not just financial data and often unstructured in form.

Question 21

What is big data management?

Answer 21

Storage administration and control of these vast quantities of structured and unstructured data. Main aim of big data management is to ensure the data stored is of high quality and accessible. One key challenge in managing big data is to identify repeatable business patterns in this unstructured data. Managing this data can lead to greater competitive advantage,improved productivity and increasing levels of innovation.

Question 22

What are the four v’s of big data?

Answer 22

Velocity- data streaming from sources such as social media at a virtually constant rate and current processing servers unable to cope with this and generate meaningful analysis

Volume - more sources of data and increase in data generation in the digital age.

Variety - traditionally was structured in spreadsheets and databases, data is now generated and collected in a huge range of formats including rich text, audio,GPS data etc

Veracity- relates to truthfulness. Vital that organisation collects data that is accurate otherwise analysis is meaningless. Using non biased sources of information such as purchasing or web browser history rather than relying on customer feedback is important

Question 23

Why is big data important?

Answer 23

Business benefits of being able to mange big data successfully-
Innovation and improved product development
More informed decision making
Better market segmentation.

All can lead to gaining competitive advantage

Question 24

How is big data used in competitive analysis

Answer 24

Consumer facing organisations monitor social media activity to gain insight into customer behaviour and preferences. This source can be used to identify and engage brand advocates and detractors and assess responsiveness to advertising campaigns and promotions

Sports teams can use data of past fixtures to tracking tactics, player formations, injuries and results to inform future team strategies

Manufacturing companies can monitor data from their equipment to determine usage and wear, allowing them to predict optimum replacement cycle.

Financial services can use data on customer activity to carefully segment their customer base and therefore accurately target individuals with relevant offers.

Health organisations can monitor patient records and admissions to identify risk of recurring problems and intervene to avoid further hospital involvement

Question 25

Give examples of data which may input into big data systems.

Answer 25

Social network traffic
Web server logs
Traffic flow monitoring 
satellite imagery 
Streamed audio content
Banking transactions
Audio downloads
Web pages content
Government documentation 
GPS tracking

Question 26

What are the risks associated with big data

Answer 26

Availability of skills to use big data systems, compounded by the fact many of systems are rapidly developing and support is not always easily and readily available.

Increasing need to combine data analysis skills with deep understanding of the industry.

Security of data, especially if organisation lacks resources

Data protection issue as organisations collect a greater range of data from increasingly personal sources (eg Facebook)

Risk wasting valuable time measuring relationships that have no organisational value. Just because something can be measured doesn’t mean it should be.

Technical difficulties associated with integrating existing data warehousing and Hadoop systems