INTRODUCTION

This article focuses on the key aspects of competitor analysis. It defines competitor analysis and gives
suggestions on how to write a good competitor analysis. The article identifies sources on where to find
information for a good competitor analysis, and also gives organisational examples to provide good
illustrations of utilising information for competitor analysis.

Competitor analysis is a critical part of a firm's activities. It is an assessment of the strengths and
weaknesses of current and potential competitors, which may encompass firms not only in their own
sectors but also in other sectors. Directly or indirectly, competitor analysis is a driver of a firm's strategy
and impacts on how firms act or react in their sectors. Gluck, Kaufman and Walleck (2000) showed that
competitor analysis is one of two components that give a firm a strong market understanding (see figure
1). This drives the formulation of a strategy and it applies whether a firm formulates a strategy through
strategic thinking, formal strategic planning, or opportunistic strategic decision making. Competitor
analysis, together with an understanding of major environmental trends, is a key input in strategy
formulation and should be developed properly.

In utilising competitor analysis as part of strategy formulation, firms are able to adapt or build their own
strategies and be able to compete effectively, improve performance and gain market share in their
businesses. In a large number of instances, firms are able to tap new markets or build new niches. For
example, after European air travel was deregulated in the mid-1990s, Ryanair and Easyjet focused on the
no-frills market and provided low-cost travel across Europe after figuring out through competitor analysis,
where the opportunities were emerging (Binggeli and Pompeo, 2002). The authors showed that, at the
point in time, Ryanair and Easyjet were performing better than their competitors with operating margins of
26% and 9.5% respectively, which were significantly better than the operating margins achieved by the
traditional airlines.

MAIN ASPECTS OF COMPETITOR ANALYSIS

The key objectives in competitor analysis are to develop a greater understanding of what competitors
have in place in terms of resources and capabilities, what they plan to do in their businesses, and how the
competitors may react to various situations in reaction to what the firm does. Michael Porter has defined
a competitor analysis framework that focused on four key aspects (Porter, 1980 cited in netmba.com):
competitor's objectives, competitor's assumptions, competitor's strategy, and competitor's
resources and capabilities. These four aspects of competitor analysis are the areas critical for a firm to
understand and they should pursue this knowledge not only for current competitors but also for other
potential competitors in the business.
There are other competitor analysis frameworks that firms can utilise. An example is an international
competitor analysis framework presented by Garsombke (1989) but the foundations follow Porter's
framework with additional components relating to the understanding of the "international" marketplace.
Others focus on specific components and thus become a subset of the framework. For example, Slater
and Narver (1994) looked at this through the value to customers and identified three components in the
analysis: customer orientation, competitor focus and cross-functional coordination.
Rather than compare various competitor analysis frameworks, the focus from hereon is Porter's
framework (see figure 2) for competitor analysis. This framework is broken into two parts. The
competitor's objectives and assumptions drive the competitor while the competitor's strategy and
resources and capabilities define what the competitor is doing or is capable of doing. Together, these
four aspects define a competitor response profile which gives the firm an understanding of what actions a
competitor may take. Taking this analysis across a firm's key competitors will give the firm a viewpoint on
where the sector is heading, and provides the firm with a basis for developing their strategy and actions.
The key aspects of competitor analysis and the resulting competitor response profile are defined further
below.

Competitor's Objectives
In competitor analysis there are two key factors to note in building knowledge of a competitor's
objectives. The first factor is to know the actual objectives of a competitor. This could range from
building market share in a specific market or overall business, entering a new market or even just
maintaining profitability. This should also look at not only current competitors but also potential
competitors. For example, in Denmark's telecommunications sector in 2000, a new entrant Telmore
targeted college students with a specific promotion catering to their requirements (Dahlstrom, Deprez and
Steil, 1994). The authors mentioned that by 2004, Telmore already captured about 20% of the national
mobile market.
The second factor is to know if the competitor is actually achieving their stated (or sometimes unstated
but implied) objectives. Looking at these two factors will provide a firm with an opinion on a competitor's
potential actions to changes in the sector. As part of a comprehensive competitor analysis piece, firms
should identify their key competitors and be able to define the objectives of each competitor and their
likelihood of achieving their objectives.
An example we can look at is Apple which recently launched its iPhone product. Knowing the innovation
in Apple, one could sense that the eventual goal of Apple would be to have a product that combines the
iPhone capabilities and the iPod features, or have an iPhone with other capabilities such as a global
positioning system (Baig, 2007). With the recent success of Apple in various markets, there would be no
doubt that Apple would be able to achieve this.
Some of the questions to ask for the competitor's strategic objectives are: What are the short-term and
long-term objectives? What are the financial objectives? Where is the competitor investing?

Competitor's Assumptions
Another key aspect in competitor analysis is an understanding of competitors' assumptions about the
overall market (trends in the market, products, and consumers). For example, competitors could define
their actions based on what their assumptions are on the growth of the market. In a cyclical industry (say
pulp and paper or shipping sectors), investments decided by players in the industry should be driven by
when competitors expect the industry to be at their peak, as timing is critical for players in the industry to
meet demand. However, this is not what usually happens. Typically, shipping companies such as China
Cosco (largest shipping line in China) tends to invest and order new ships when the industry is at its peak,
and financing is not an issue (Stanley, 2006). As shipbuilding takes a number of years, by the time the
ships are ready, the industry is at the other end of the cycle or in decline already. For a proper competitor
analysis work, the assumptions made by competitors on the industry and other players should be
indicated, but as seen in the example, the validity of these assumptions should be challenged.
Federal Express is a good example to highlight. When FedEx considered overnight delivery, they
assumed that demand would reach high levels and that it would change the mail-and-package delivery
industry (Courtney, Kirkland and Viguerie, 2000). FedEx turned out to be correct and this changed the
industry with other competitors following suit to offer the same service. In this example, FedEx made a
strong assumption on the industry behaviour and was able to establish a presence in overnight delivery
quickly.
Some questions to address for this aspect include: What is the competitor's viewpoint on the market and
development? Who are the key consumers or clients who the competitor feels will be most profitable?

Competitor's Strategy
A third aspect in competitor analysis is the understanding of a competitor's strategy. In most cases, this
strategy will be defined and stated, particularly for public firms. In other cases, it may not be openly
stated what competitors' strategies are but these can be understood by utilising a number of sources
available to firms from analysing a competitor's behaviour in certain situations to discussing with industry
experts to get their viewpoints.
For example, bookmaker Ladbrokes has clearly been expanding their international presence through joint
ventures in other markets. This strategy was pursued after the firm split from the Hilton Group in 2006
(Attwood, 2007). By observing Ladbrokes' activities, one can determine what the firm's strategy has been
since the split. Another example is Southwest Airlines, which pursued a "no-frills, point-to-point service
and which turned out to be a highly innovative, industry-changing and value-creating strategy" (Courtney,
Kirkland and Vihuerie, 2000). These two examples indicate the value of having an understanding of
competitors' strategies and their focus.
A number of questions that need to be addressed are: What are the strategy and plans of competitors in
their key markets? Which markets and products will the competitor focus on?
Competitor's Resources and Capabilities
Finally, a competitor analysis should also include an understanding of a competitor's resources and
capabilities as these would give a firm an idea of how a competitor can achieve its strategy and
objectives, and also give a firm a timeline for when it would expect competitors to pursue certain
activities. For this aspect, a large part of information can be gleaned from press articles and news. An
example is the increase in orders of the Airbus A380, the largest commercial aircraft in the world, by
Dubai-based Emirates Airlines from the current 55 to double the number (Dow Jones, 2007). This
indicates several thoughts: (1) Emirates Airlines has large funding capability, and (2) Emirates Airlines will
be expanding its international business and presence once these aircraft are received.
Another example is Lanier Business Products. A leading manufacturer of dictating machines, the firm
leveraged its marketing strength to successfully expand into another product, word processors, which
they sourced from another firm (Bales et al., 2000). This shows how important it is to understand a
competitor's resources and capabilities, and their strengths.
Several questions that can be raised in this respect are: What is the level of resources available to the
competitor for their investments? What are the areas of strength for the competitor?

Competitor Response Profile

The results of the analysis from the four aspects of competitor analysis, as defined above, lead to a
competitor response profile. In this profile, a firm can define its thoughts on what actions competitors may
purse depending on the understanding given by the competitor analysis. This provides a firm with a
better grounding and preparation to react to competitor actions.

HOW TO WRITE A GOOD COMPETITOR ANALYSIS

There are several principles to follow in writing a good competitor analysis. These principles are:

• Understand the key aims in pursuing a competitor analysis – While these follow the
objectives mentioned in the previous section, a competitor analysis can be pursued with a
specific aim in mind. This could be as specific as defining a competitor's strategy, understanding
a firm's competitive advantages versus a particular competitor, or just keeping management
informed of any recent developments that need to be highlighted.
• Utilise comprehensive sources of information relevant to the particular aim – As will be
discussed in the next section, there is much information available for carrying out a competitor
analysis. The key point is to ensure that the relevant ones are included for the specific analysis
needed.
• Analyse the information relative to the firm and also relative to other competitors – It is
important to analyse the information within the context of the sector or the other players. For
example, having a pre-tax ROIC of 27.2% does not mean anything on its own. It can only
become an important figure when presented versus other benchmarks or information from
competitors (see figure 3), with further analysis explaining these.

• Summarise key points of analysis – Finally, instead of including all the information that's
retrieved from various sources, a good competitor analysis would analyse the information and pull
out the key points.

FINDING INFORMATION FOR A GOOD COMPETITOR ANALYSIS

There are good sources of information existing already in order to do a good competitor analysis.
Possibly up to approximately 90% of the information needed for a proper competitor analysis and related
assessment and decisions already exists in the public domain (McGonagle and Vella, 2002). The
information can be organised across a number of different groupings. One way is to look at what the
competitor presents about them and what other sources external to the competitor present about the
competitor. Some examples of these are shown below:

• Company reports – annual reports, regulatory filings (e.g. financials), investor presentations,
patent applications
 • Company advertisements – TV and print advertisements, sales literature, company website,
product literature
• Company news – press releases, general news articles
• External reports – equity/analyst reports (for public companies), ratings agencies reports (for
credit-rated companies), industry associations, government publications
• External, but common, network – buyers and suppliers, third-party affiliates, industry experts

Most of the information mentioned above can be accessed through the internet already. The last point on
external, but common, network is a source that will require interaction as this requires getting the
viewpoints of other people. While this would comprise only a small part of the competitor analysis, this
may actually prove to be quite insightful as different viewpoints are received from other people who would
have had interaction as well with the competitor.

Limitations
The limitations of competitor analysis are linked to the information gathered from various sources and the
interpretation of the information. Also, with the exception of a few information sources (e.g. patent
applications, forecast financial statements), most of the other printed information shows historical
information and may not necessarily give a good indication of a competitor going forward. This is
particularly the case if there are a lot of structural changes happening in a sector and all players are
expected to have dynamic strategies to capture their market.

CONCLUSION
Competitor analysis is an important part of a firm's development of its strategy. Its importance lies
in the understanding of competitors, their strategy, and resources and capabilities. More specifically,
competitor analysis also allows a firm to assess its own firm versus competitors and plan for what
competitors' actions may be as a reaction to actions the firm may take.
A competitor analysis provides a firm with the knowledge to leverage its strengths and address its
weaknesses and, conversely, take advantage of weaknesses of competitors and counter their strengths.
Finally, competitor analysis also gives a firm a better understanding not only of the competitors but also
their overall sector and where the emerging opportunities may be.

BIBLIOGRAPHY AND REFERENCES

Attwood, K., 2007. Ladbrokes places bet on Spain with joint venture. The Independent. [Published 9
January 2007]. Available from: http://www.factiva.com. [cited 7 September 2007].

Baig, E., 2007. iPhone's fab, but Apple could make it even better. USA Today. [Published 5 July 2007].
Available from: http://www.factiva.com. [cited 7 September 2007].

Bales, C., Chatterjee, P., Gluck, F., Gogel, D. and Puri, A., 2000. The business system: a new tool for
strategy formulation and cost analysis. The McKinsey Quarterly. Available from:
http://www.mckinseyquarterly.com. [cited 7 September 2007].

Bingelli, U. and Pompeo, L., 2002. Hyped hopes for Europe's low cost airlines. The McKinsey Quarterly.
2002 (4), pp.87–97.

Courtney, H., Kirkland, J. and Viguerie, P., 2000. Strategy under uncertainty. The McKinsey Quarterly.
Strategy Anthology, pp.81–90.

Dahlstrom, P., Deprez, F. and Steil, O., 2004. Meeting the no-frills mobile challenge. The McKinsey
Quarterly. October 2004, pp.9–11.
Dow Jones International News 2007. Emirates Plans To Double Airbus A380 Order To 110. [Published 8
September 2007]. Available from: http://www.factiva.com. [cited 8 September 2007].

Garsombke, D., 1989. International Competitor Analysis (Special Issue: Competitive Analysis). Planning
Review. [online]. [Published 1 May 1989]. Available from: http://www.factiva.com. [cited 7 September
2007].

Gluck, F., Kaufman, S. and Walleck, S., 2000. The evolution of strategic management. The McKinsey
Quarterly. Available from: http://www.mckinseyquarterly.com. [cited 7 September 2007] .

Koller, T., 1994. What is value-based management? The McKinsey Quarterly. 1994 (3), pp.87–101.

McGonagle J. and Vella, C., 2002. A case for competitive intelligence. Information Management
Journal. [online]. 36 (4). Available from: http://www.factiva.com. [cited 7 September 2007].

Netmba.com 2007. Competitor analysis. www.netmba.com [Accessed: 6 September 2007].

Slater, S. and Narver, J., 1994. Market Orientation, Customer Value, and Superior Performance.
Business Horizons. [online]. [Published 1 March 1994]. Available from: http://www.factiva.com. [cited 7
September 2007].

Stanley, B., 2006. China Cosco may offer a harbour if shipping runs into rough seas. The Wall Street
Journal Asia. [Published 11 July 2008]. Available from: http://www.factiva.com. [cited 7 September
2007].

Copyright 2002-2007 Papers4You.Com All Rights Reserved