Competitor Analysis
What is it?
Competitor analysis is a framework for evaluating current or potential competitors of a firm. While
deceptively simple, a competitive analysis is an indispensable tool in the strategist’s toolkit.
Why do we use it?
A good strategic analysis requires an analysis of the firm’s competition in order to be able to assess
and predict the sustainability of any competitive advantage and the response of rivals to various
strategic actions. Competitor analysis can help firms make strategic decisions and gather com-
petitive intelligence on the industry. A detailed competitor analysis can help firms’ influence their
rivals’ behavior to their own advantage.
When do we use it?
While competitor analysis is by nature only one component of a more full strategic analysis that
employs multiple frameworks and tools, it can be a useful starting point for thinking about com-
petitive dynamics and analyzing the industry in greater detail.
How do we use it?
Step 1. Identify Competitors.
While seemingly straightforward, competitor identification is a critical, and often challenging,
first step in a competitor analysis. Two companies in the same industry may vary significantly in
the degree to which they compete. They may compete in different geographic markets or target
radically different customer segments. For example, is there much use to Porsche, a luxury sports
car manufacturer, in analyzing Kia, a builder of low-cost sedans? In some cases, even identifying
a company’s industry can be difficult.
There are two common ways to identify competition. The first is to look at the industry from a
customer’s viewpoint and group all firms providing a similar product or service. Marketers have
developed various techniques such as perception mapping and brand-switching analyses to aid in
identifying the most relevant competitors. Point-of-sales and scanner data provide rich sources to
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T h e S t r a t e g i st ’ s T o o l k i t
help with such analyses. The gold standard is to identify the cross-price elasticity between pairs of
products, i.e., the percent increase in demand for one product given a one percent decrease in price
for another product. The larger the increase in demand, the more that two products are substitutes
and their makers rivals. In practice, however, cross-price elasticity can be difficult to calculate.
The second approach is to carry out a detailed analysis of industry players and group firms with
similar strategies as competitors. For example, if analyzing the U.S. steel industry, it may be useful
to classify companies into three strategic groups: large integrated steel mills, mini-mills (which use
a different technology), and foreign importers. It may also be worthwhile to collect data on those
who provide related products; for example, aluminum and plastic manufacturers as alternative
competitors in the case of the steel industry. By clustering competitors into strategic groups, you
can prioritize your intelligence gathering, focusing first and foremost on those rivals most closely
related to the focal firm while also being cognizant of more distant competitors. Strategic group
identification can be a quick and easy approach in many situations.
Step 2. Gather intelligence
Once the competition has been identified, data can be gathered to provide insight on the
competitor(s). These include historical data such as shareholder reports or SEC filings, as well
as press releases, media coverage, interviews with analysts and managers, and public relations
events. Recent performance, existing strategies and organizational capabilities can also be studied
by examining the firm’s hiring activity and patterns, research and development activity, capital
investments and strategic partnerships.
Competitor information can be pulled together in a simple spreadsheet. For example,
Market R&D Strategic
Revenues ROA
Share Investment Partnerships
Focal Firm
Strategic Group 1
Competitor 1
Competitor 2
Competitor 3
Competitor 4
Strategic Group 2
Competitor 1
Competitor 2
Competitor 3
Competitor 4
Strategic Group 3
Competitor 1
Competitor 2
Competitor 3
Competitor 4
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C O M P E T I T OR A N AL Y S I S
Step 3. Analyze rivals
The final step is analyzing the competitive positions of rivals and comparing their relative strengths
and weaknesses. The simple diagram to the right is a useful guidepost for thinking about competi-
tive responses. First, what drives a given competitor? What are their objectives and their operating
assumptions? Second, what is the competitor capable of doing? How do their strategy, resources,
and capabilities allow them to compete now and in the future?
While this last part of a competitor analysis is the most subjective, it can provide useful insights
into the sustainability of a focal firm’s competitive advantage and to how competitors may respond
to specific strategic actions by the focal firm.
what the competitor
what drives the
is doing or is
competitor
capable of doing
Objectives Strategy
competitor
response
profile
Assumptions Resources & Capabilities
Adapted from Michael E. Porter, Competitive Strategy