Competitive Analysis: The Secret to Sustainable Small-Business Profits
As many developed countries' economies emerge from a dark and laborious recession, their desire for survival has transformed into an appetite for increased and sustainable profits. As such, organizations are searching for tools and insight to help accomplish these goals.
Although there are myriad approaches, one fundamental tool essential for a successful businesses is competitive analysis. This tool is often used to help businesses demystify the competitive landscape and make better strategic decisions. Strategic management tome are abounding with suggestions and taxonomies associated with constructing a robust competitive analysis. This article will digest the scholarly research and provide a simple guide to help firms make sense of the literature, while providing insight into creating and implementing an effective competitive analysis.
Effective competitive analysis should answer three basic questions:
- Who are our competitors?
- Why current and prospective customers desire our products and services?
- What is the efficacy of our current strategy?
Who are our Competitors?
Let's start with question one as it is often the most misunderstood of the three. To better understand and appreciate your competitors, firms must be able to truly delineate their marketing into segments. For instance, the automobile industry is composed of many mini-segments as the high-end lines (BMW, Lexus, and Mercedes-Benz) do not compete with those that residue on the lower end (Kia®, Scion, Mazda). Have you ever heard of someone in the market for a BMW decide that they want to purchase a Kia? This is due to the results of true market segmentation which can be illuminated with a perceptual map, which is a marketing tool that is constructed using a (X and Y) axis. On each axis is a germane variable that is of value to the prospective customer.
Why do Customers Desire our Products or Services?
The aforementioned concept is a great introduction for question two. Organizations need to better understand why customers select their products and services over others in the same or related industry.
Let's return to the automobile example and use BMW as a hypothetical scenario. Following market research, the company decides that its customers highly value image and performance. These traits are then placed on the X and Y axis respectively. The byproduct is a two-dimensional chart that can be used to determine how the company compares to other manufacturers. It will become clear which firms compete. Granted, customers desire many attributes thus this process can be repeated numerous times. The key is to determine the top five or six drivers - (attributes the customer highly values) and ensure that your firm excels in those areas.
What is the Efficacy of our Current Strategy?
Now that your organization has a better handle on questions one and two, it is imperative that a strategic evaluation is performed to determine how well the company is accomplishing its mission and how the various parts fit together to meet customers' needs and desires. A detailed analysis of strategic planning is beyond the scope of this paper but is important to note that many scholars have extolled the idea that firms can accomplish their goals utilizing any one of the following three pathways: low cost, niche, and differentiation. Michael Porter first developed the generic idea in the 1980's. A related perspective is to view strategy from the perspective of operational excellence, customer intimacy, and product leadership.
Although some contemporary literature posits alternative viewpoints, it is still strongly believed that in most cases, strategy is comprised of one of the three aforementioned approaches. In short, business must decide to use one of the vehicles connoted above in order to arrive at their competitive destination.
Many organizations spend a great deal of time and resources indicating ways in which to improve their competitive position. A more resourceful approach is to conduct a robust competitive analysis that illuminates a firm's competitive position in the market and affords the organization the ability to better meet the needs and wants of its target customer. Granted increased market share and increased profits are desirable, there is wisdom in truly knowing and understanding your target market as you can't be all things to all people. If you try, the end result often times leads to meeting the needs of no one or as others have asserted - "being stuck in the middle."
This is a guest post by Antar Salim, MBA. Antar serves as a coordinator for Rasmussen College School of Business, at the Eagan, MN college campus, where he teaches business degree-seeking students.
