1. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. C H A P T E R Competitor Analysis 4 1.Essence of a “Strategy” 2.Increasing Importance

2. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Continuiting from Chs. 2 & 3 Define the competitive set  Boundary Industry Analysis  Macro level Competitor Analysis  Micro level

3. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Competitor Analysis System What are they going to do? Differential competitor advantage analysis i.e. Who has the competitive product advantage? Key questions: -Who are they? -What are the competing product features? -What do they want? -What is their current strategy? Primary data Secondary data Differential Advantage Analysis

4. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Key Questions to Ask Do you know…? What are the Capabilities of competitors? What are the Competitors’ Objectives? What are the Current Strategies being used and how successful have they been? What are their likely Future Strategies?

5. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Secondary Sources of Competitor Information Secondary data Customer communications Internal sources Local newspapers Annual reports Patent filings Business press 10Ks GovernmentElectronics databases News releases Trade associations Promotional literature Internet Trade press Consultants www.dialog.com www.dnb.com http://www.beernet.com http://www.crn.com

6. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Primary Sources of Competitor Information Primary data Consultants/ Specialized Firms Investment bankers Employees Customers Suppliers Sales force

7. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Other Sources of Information Help-Wanted Ads Reverse Engineering Monitoring Test Markets Hiring Key Employees* Plant Tours

8. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Information Sources with Ethical Considerations Aerial Reconnaissance Buying/Stealing Trash (Garbology) PCs/Printers Phony Want Ads

9. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Step1: Assess Competitors’ Objectives Three Categories Market share or profit Issues to consider Ownership structure Operating philosophy and procedures Country of origin

10. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Step 2: Assess Competitors’ Current Strategies Assess competitors’ Marketing Strategy Target Market Selection Core Strategy (Value-chain comparison) Implementation (Supporting Marketing Mix) Pricing Promotion Distribution Product/Service Capabilities: Product Features Matrix (Figure 4-8)

11. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Value Chain Service Firm Infrastructure Firm Infrastructure Human Resource Management Technology Development Procurement Marketing and Sales Operations Outbound Logistics Inbound Logistics Margin Support Activities Primary Activities

12. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Example) Energy Bars: Competitor Feature/Strategy Matrix

13. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Step 2: Assess Current Strategies (Cont’d) How to Assess Competitors’ Strategies Two key elements of a strategy: Segments appealed to Core strategy For Industrial Products: Sales literature For Consumer Products: Media Tracking (SOV) Marketing Mix variables: Ask Distributors, Salespeople, Customers

14. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Step 2: Assess Current Strategies (cont’d) Assessing Competitors’ Technological Strategy 1.Technology selection or specialization 2.Level of competence 3.Sources of capability: internal versus external 4.R&D investment level 5.Competitive timing: initiate versus respond 6.R&D organization and policies

15. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Step 2: Assess Current Strategies (cont’d) Four Basic Technological Strategies (Figure 4-11) 1.First to Market 2.Second to Market 3.Late to Market or Cost Minimization 4.Market Segmentation For your report: Figure 4-12* (p. 102)

16. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Step 3: Assess Competitors’ Capabilities Ability to conceive and design Ability to produce Ability to market Ability to finance Ability to manage Don’t Forget to include your firm too!

17. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. What to do with all the information?  Make a Table! (Differential Advantage Analysis) GalloHeubleinVintnersCanandaiguaSeagram Commitment to wine business15234 Financial strength 21453 Brand awareness 12354 Management ability 14235 Highest = 1 Lowest = 5 Market Factors Simplified Competitive Analysis: Wine

18. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Energy Bars: Differential Advantage Analysis

19. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Energy Bars: Differential Advantage Analysis

20. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Step 4: Assess A Competitor’s Will and Future Strategy Questions to assess a competitor’s will - How crucial is this product to them? - How visible is the commitment to the market? - Who is involved? To Figure out Future Strategy Forecast with historical data Simulation with historical data Game Theory

21. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. A Competitive Conjecture Process Customer response We lower our price Our unit sales Their expected price Our profit Their price reaction Customer response Our unit salesOur profit Our total outcome Second period First period Should we cut price?

22. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. Example: Energy Bars: Current & Future Strategy Matrix

23. McGraw-Hill/Irwin © 2002 The McGraw-Hill Compnies, Inc., All Rights Reserved. In summary, you need to know Major Competitors’ Objectives Major Competitors’ Strategies* Target Market Core Strategy Major Competitors’ Capabilities