Analyze Your Industry and Competition

posted: May 04, 2010

understanding who can hurt your business

Competition! That is what makes American business work. But it can be a thorn in your side as you try to keep up with competitors down the road or across the country.

That is why you need to innovate your product and service offering, offer price incentives, improve your customer service and expense dollars to build your brand. But before you do any of this, you need to understand "who or who may be" your competitor.

Who is the Competition?

Certainly, the guy down the street offering the same product or service is your competition. We often refer to those players as our "local competition". It is fairly easy to analyze their operations, find their competitive advantage (or disadvantage), and to tailor a program within your organization that places you in a competitive position.

But what about the competitor that is across the country? Granted, you may have the advantage of local presence, but with the emerging technologies of online and wireless connections, an operation situated in a low-cost region of the country may pose a threat.

For example: local floral shops generally competed locally on site location, customer loyalty and brand advertising. Now online floral web sites with huge national advertising budgets have forced local floral operations to change their marketing offering in order to remain in business.

You need to analyze your competitive environment to design the right marketing plan to build and protect your future competitive position.

other competitive groups

There are other players that can pose competitive challenges in your overall marketing plan. The illustration below briefs diagrams who these players could be:

You can download our illustration on competitive analysis and notes of competitive determinants: download file (pdf form)

The Threat of New Entrants

What are the barrier costs of new entrants into your market? Again let's reference our floral shop illustration above. In the early years, the barrier costs of new entry included ideal retail space and/or location, operation start-up costs, advertising, and customer loyalty programs. These costs could be extremely high to avoid any new entrants into the market thus securing your competitive position.

But then the technology changes — gone are the operation costs of retail space and location — available are the opportunities to market your floral arrangements to anywhere in the world. With a warehouse operation in a low-cost rental district, the barrier costs for an online floral operation suddenly comes down. That now becomes the threat to your business.

It is crucial that you analyze your entrant barriers to develop a plan that allows you to adjust and protect your competitive position.

the threat of suppliers

Your supplier could become your direct competitor. For example, some appliance manufactures have opened their own retail operations (many online) to compete directly against local retail operations. Dell computer is a prime example. They supply both Dell computers for retail distribution (Bestbuy, Wal-Mart, others) and sell Dell computers that you can personally design online.

You need to analyze the threat of your supplier entering into your market as you develop your marketing strategy.

The threat of buyers

Buyers of your product or service could move into your market to compete. For Sale by Owners (FSBO) is a prime example. In the good old days of real estate brokering, there was the real estate agent that competed against agents in a local market. The buyer of these agent services were the respective home sellers.

Again with changes in technology and tailored product offerings, the buyer entered the market as respective FSBO sellers, putting a beginning and slight competitive threat on the agent. The real threat eventually came with discount brokerage services and MLS services that tailored to the FSBO market. Now buyers can get the same full-fledge services of an agent while remaining a FSBO seller.

This illustrates a prime example of real estate companies need for discount pricing to offset the FSBO competitive threat.

The threat of substitutes

Changes in technology, delivery, and customer expectation have given rise to substitutes that can enter into your competitive market.

The great example often used in marketing courses is the train industry. Back at the turn of the 19th century, train barons ruled the long-distant transportation market. They competed (and more likely, set up individual monopolies) to dominate their market and stomp out any competitive threats from suppliers, buyers and new entrants.

What they failed to protect themselves was the advent of the airplane - a substitute for long-distant transportation. The railroad barons scoffed at the airplane, noting that they were in the railroad industry instead of the transportation industry. In time, the airplane destroyed the railroad's competitive hold on long-distant transportation.

That "substitute" becomes a competitive threat and dominance. If the railroad barons understood the long-term implications of the threat, they would have developed their own air travel transportation mechanisms.

You too must analyze any substitute threats that may force your need for new product or service developments.

Next topic

Our next topic will analyze your value chain activities.

Don't forget to download our market model as we work through each of the issues needed to formulate your marketing plan.

print illustration (pdf form)