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Analysing the competition

12/31/2019

Porter's forces model helps us understand what competitors — in the wider sense discussed earlier — are doing. It also treats competitors mainly as threats. In fact, for many organisations what other similar organisations do can be a source of learning.

Benchmarking in the private, public and non-profit sectors requires seeking out and learning from best practice in similar, and sometimes not so similar, organisations.

Many managers in all sectors learn from what others are doing by attending conferences and joining professional bodies which embrace staff from different and often competing organisations. In this age of the rapid dissemination of information, whatever you do will not be new for long, and your competitors and others will try to emulate and improve on what you do.

You can see competition as one of the spurs that drive you to ensure you give value to your customers.

One approach to analysing competitors is to use the four key elements of competitor analysis put forward by Greenley (1986):

The nature of competitors and any potential changes: you need to watch your environment constantly, and in particular, note who is moving in and out of it.
The objectives and strategies your competitors appear to be pursuing: you have to try to interpret their actions. To a degree this means guesswork or, perhaps more correctly, detective work to try to inform your guesses.
The main strengths and weaknesses of each competitor: they often determine the options open to you.
The effects of competitors on your own organisation and its marketing operations: this point is a reminder that while you are analysing your competitors, they are likely simultaneously to be analysing you!

You may wish to construct your own framework for the key components of competitor analysis in your sector or industry, based on the factors that determine success or failure in it.

What is important to analyse in your competitors will depend on various factors, such as:

what is analysable (what you can get information on)
what is changing in your industry or market-place and the demand for the product or service being competed for
what factors are unchangeable in the short term
what factors can be changed
what customers say they like or prefer, and dislike.

In this way, competitor analysis enables you to address a central theme of this book: how you can help to generate and provide what your customers value.

You should clearly not lose sight of them while you are looking at your competitors. In particular, you should not just copy what your competitors do in the hope that this will ensure that you continue to serve your customers.

You should use competitor analysis to improve your current product or service and find ways to offer a better performance to your customers. If you can understand the key components for success, it should give you additional clues about what your customers value.

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The bargaining power of suppliers and customers

12/1/2019

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Some important retailers in the food and clothing sectors have been referred to as ‘manufacturers without factories’. They so dominate their suppliers that they can dictate many trading conditions, from payment terms to production methods. If most of a supplier’s output goes to one retailer, the latter’s bargaining power is even greater. If, however, the supplier is one of only a very small number of sources of a particular service or product, that supplier has a stronger bargaining position with their customer.

Porter argued that organisations' competitive positions depended in part on the relative bargaining power of their suppliers and their customers.

Suppliers are powerful if some or all of the following apply:

There are many small customers buying from only a few larger suppliers.
They sell unique products or services.
It costs the customer a lot to change to buying from another supplier (switching costs).
They are not dependent on the fortunes of only one industry.
They could start doing themselves what their customers do.

Customers are powerful if some or all of the following apply:

They purchase in huge volumes.
It is easy for them to buy alternatives from different suppliers.
They have the financial power and purchasing systems that can secure good prices and high quality from their suppliers.
What they are buying is of relatively little importance to what they sell.
They could make the products or provide the services themselves if necessary.

The threat of substitute products or services The final force discussed by Porter is the threat of something new replacing the need for the services or products provided in a particular industry or sector. The replacement of mechanical dispensing machines with electronic ones is an instance of this, although sometimes whole industries can virtually disappear.

Porter argued that as well as technological developments, there is a greater likelihood of substitute products or services when existing ones are generally perceived to be too costly or lacking in quality; this can apply in public as well as commercial sectors.

We arrived at the model of Porter's forces by extending the scope of market research to include the environment beyond your organisation, and more specifically the near, or competitive, environment populated by organisations whose actions your organisation influences and whose actions influence it.

Our aim here is not to move on to the strategic level of what an organisation should do to position itself in its competitive environment; rather it is to help you to be more aware of what to look out for in the near environment, and offer you a framework for thinking about your organisation's relationship with its competitors, suppliers, collaborators and customers.

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Analysing the competition

The bargaining power of suppliers and customers

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