Competitor Analysis and Multimarket Competition The Role of Competitor Position in Crafting Strategy

Know Your Rivals  What: their objectives and strategies  Why? to predict their future strategies Why? to guide own strategies  What: their strengths and weaknesses  Why? to compare with own strengths and weaknesses Why? to evaluate opportunities and threats – Why? to build and sustain own position

Sources of information  Recorded data, e.g, annual reports; press releases; newspaper articles; analyst reports; tender offers; regulatory reports; government reports  Observable data, e.g., pricing; advertising and promotion; seminars and conferences; patent applications; presentations/speeches; trade shows  Opportunistic (anecdotal) data: from suppliers; distributors; customers and competitors; ex-employees

Hard-to-find information  Overall sales and profits  Sales and profits by market  Sales by main brand  Cost structure  Market share (revenues and volume)  Organization structure  Distribution system  Advertising strategy and spending  Customer/consumer profile & attitudes

Multimarket Competition  What: firms competing against each other in several markets in, e.g.,  different geographical markets for the same products  different parts of a vertical  substitute markets  Why  Increase in related product diversification  Increase in geographic market diversification  Greater use of coordinated worldwide strategies  Results  “Mutual forbearance”: benefit of aggressive action in any market is reduced because rivals can retaliate in multiple common markets  True for repeated actions (e.g., promotional activities) but not introduction of innovations

Visual Aids  Multimarket Competitor Chart: displays competitors in common markets  Strategic Group Map: displays clusters of rivals along two dimensions of industry positioning

Simple Multimarket Competitor Chart

Industry/ Country Industry/ Country Industry/ Country Industry/ Country ClientProducts: a, c Products: c, d Products: a, b, c Products: b, c, d Competitor #1Products: a Products: e Products: c, e Products: d, e Competitor #2Products: a, b, c, d, e Competitor #3Products: a, e Products: a, e Competitor #4Products: a Products: a, b Products: a, b Global Product-Market Competition

Dry Wet Moist Cat Food Dog Food Gourmet Average Economy Segment Multimarket Competition Pet Food Industry Snack

Strategic Group Maps  A strategic group consists of rival firms with similar competitive strategies and positioning in an industry  A strategic group map displays clusters of groups within an industry based on two variables that you choose for their strategic significance.

Some Strategic Variables  Specialization  Brand identification (private label, brand)  Distribution channels  Product quality  Vertical integration  Cost position  Service  Price point ***Outcome variables like profit and market share should not be used to distinguish competitive groups

Constructing a Strategic Group Map 1.Choose two variables that distinguish competitors  Maximize contrast  Minimize correlation 2.Plot on graph 3.Represent firm/group size with circle proportional to market share OR 1. Begin grouping firms and then identify variables 2. Position firms on map 3. Represent firm/group size with circle proportional to market share

Example of Strategic Group Map in Stage 1

Burberry Louis Vuitton Chanel Loro Piana Hermes Gucci Tiffany Luxury Goods Market

Luxury Goods Market: Potential Variables  Target customer*  Top tier: (24%) not affected by business cycles  Aspirational: (36%) upper middle class; make luxury purchases “AOAP”  Accessible luxury: (40%) affluent middle class; make occasional luxury purchases when times are good  Scope of products sold  Degree of vertical integration  Distribution channel * Research by Bain and Co.

Interpreting the Map  Fiercest rivalry occurs within strategic groups  The closer the clusters, the stronger the rivalry  Firms attempt moves into different segments as industry conditions change  Mobility barriers: group-specific entry barriers that restrict movement across groups  Identify mobility barriers