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Competitor Analysis is an important concept in marketing and strategic management. It is an assessment of the strengths and weaknesses of competitors. The analysis can provide a detailed study of the competitors with a defensive and offensive outlook. It can provide a context through which opportunities and threats can be identified. While in some industries the moves of any single competitor may be less important, in other industries competitor analysis becomes a vital part of strategic planning. 

Competitor analysis has two primary activities, obtaining information about important competitors and using that information to predict competitor’s behaviour.

The goal of the competitor analysis is to understand: 

  • Who are the major competitors to compete
  • Competitors’ strategies and planned actions
  • How competitors might react to a firm’s actions
  • How to influence competitor behaviour to the firm’s own advantage 

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There are four diagnostic components to a competitor analysis: future goals, current strategy, assumptions and capabilities. Understanding these four components will allow an informed prediction of the competitor’s response profile. Most companies develop at least an intuitive sense for their competitors’ current strategies and their strengths and weaknesses. Much less attention is usually directed at understanding what is really driving the behaviour of a competitor. These driving factors are much harder to observe than is actual competitor behaviour, yet they often determine how a competitor will behave in the future.

The basic framework for competitor analysis consists of components like: Future goals, Current strategy, Assumptions and Capabilities with Competitor’s response profile. 

Future goals:The knowledge of goals will allow the competitors to predict the basic moves of the company. For example, an automobile manufacturing company, if it produces only SUVs, then its competitors will think in terms of SUVs or high-end sports models or sedans. But on the contrary if the company starts to manufacture small cars concentrating families and teenagers then, this move is an unexpected move for its competitors in the SUV market as well as small car market. 

Current strategy:Knowledge of current strategy of company will reveal the short run and mid run goals. These goals are revealed in the annual shareholder reports, interviews with analysts, statements by managers and through press releases. 

Objectives:The knowledge of a competitor’s objectives facilitates a better prediction of the company’s reaction to different competitive moves. Competitor’s objectives can be financial, non-financial and short-term or long term profitability. If a company’s objective is non-financial and wants to earn long term profits, then that company might participate in a cut-throat price competition in which no firm will earn profit. 

Assumptions:The assumptions that a competitor’s managers hold about their firm and their industry help define the moves that they will consider. A competitor’s assumptions may be based on a number of factors, which include past experience with the product, regional factors, industry trends, rules of thumb, beliefs about its competitive position. 

Resources and capabilities:Analyzing a competitor’s resources and capabilities can be done in a similar manner as in SWOT analysis. This will reveal what are the resources and capabilities and how these resources and capabilities can be put to the use and what is the resultant product that might be released. The analysis can be taken further by evaluating or predicting the company’s next moves with regard to mobilizing resources for a sustainable growth rate. The ability to react quickly to the changing situations and market conditions can also be evaluated. Some firms have heavy momentum and may continue to be in their present position for many years. 

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