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“Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity.” -Nancy Pearcy
Competition within a market is oftentimes a good thing. One extremely useful benefit of competition is a persistent boost in innovation within the market. Competition from many different companies and individuals through free enterprise and open markets is the basis of the U.S. economy. When businesses are pushed into a competitive relationship consumers get the best possible prices, quantity, and quality of goods and services.
An analysis of the competition’s business strategies and branding may help to dictate not only operations within a company but also how advertisements, branding, and project management are handled. For instance, if a service that outdoes the competition continues to be neglected by consumers it may be time to promote awareness for that service through targeted advertising.
This again applies to how customers view a brand and affects how the workload is distributed. If consumers aren’t interested in a product that means, a shifting of the focus to promote the product or decreasing the time in production of the product.
There are, however, some competition types that aren’t considered as beneficial. There are four types of competition in a free market system: perfect competition, monopolistic competition, oligopoly, and monopoly. Running a competitive analysis can help an organization decipher which of these competitive types their service or product business fits into.
First, a perfect competition is a market structure where all firms are price takers that sell an identical product and the market share has no influence on prices. An example of a perfect competition would be the agriculture market where many farms sell the same products and there are many different buyers.
Monopolistic competition is characterized as an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors. Some well known examples of this competition are hairdressers, clothing, and restaurants.
Oligopoly is a state of limited competition, in which a market is shared by a small number of producers or sellers. Oligopoly exists when there are two to ten sellers in a market selling homogeneous or differentiated products. It’s a form of imperfect competition and is usually described as the competition among a few. A few good examples of Oligopoly are the cold drinks industry as well as the automobile industry.
And finally, a monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. One well known example of this competition type would be Microsoft and Windows.
When the market is booming with competition, it is within a companies responsibility to attempt to gain market recognition whether that recognition be for their product or service. A competitor analysis is crucial when assessing the strengths and weaknesses of current and potential competitors. It gives major insight on not just the competitors, but also the consumers. Armed with this information changes can be made to promote efficiency and advertising efforts. The first step in a competitor analysis is to identify the current and potential competition.
There are essentially two ways to identify competitors. The first is to look at the market from the customer’s viewpoint and group all competitors by the degree to which they compete for the buyer’s dollar. The second method is to group competitors according to their various competitive strategies to understand what motivate.
Competitive analysis has many benefits when viewed the right way. A competitive analysis should be known as a dynamic process in which a company continues to understand the strengths, weaknesses, industry gaps, marketing trends, and how to promote new products and services with intent.
Many businesses already gather information about their competition, but don’t recognise this as competitive analysis. In our mind, the most important thing to take away is that any information about the competition is considered competitive analysis and to think about it in those terms.
There are a multitude of additional business benefits that can be gained by having insight into the competitive market, particularly if an organization tracks products, prices, staffing, research and development, and other aspects of the competition on an ongoing basis.
There are quite a few benefits to be gained by having specific insight into the landscape of niche markets, especially if information is itemised. For example, if a company sells computer monitors, tracking the competitor’s products offered, price points, staff levels, social media traffic and promotion scheduling might offer significant insight into their company over a year and even more insight over a five year period.
This analysis provides both an offensive and defensive strategic plan to identify opportunities and threats. Every marketing plan needs one to gauge the market they are in and position themselves correctly into that particular market space.
There are many advantages of conducting a competitor analysis such as economic climate tracking, market potential forecasting, and better targeting of customers.
There are essentially two ways competitors can be identified. The first is to view the overall market from the customer’s point of view and group all of the competitors by how they compete for the buyer’s dollar. The second method is to group competitors according to their individual competitive strategies to gain better insight on what motivates the consumer.
Once a business has grouped its competitors, they can start to analyze their strategies and identify the areas where they are most vulnerable. This can be done through an examination of competitors’ weaknesses and strengths. A competitor’s strengths and weaknesses are usually based on the presence and absence of key assets and skills needed to compete in the market.
The strengths and weaknesses can be used to direct advertisements as well. While a competitor’s strength may seem like a leg up on the competition this strength could lead to oversights and neglected products or services.
For example – A business owner is having competitor analysis conducted within the automotive industry. One competitor shines when it comes to painting cars, and is well known for the service, though their other services such as break servicing are lackluster. This allows the competition to focus efforts on break servicing, and direct advertising towards their services.
To determine just what constitutes a key asset or skill within an industry, David A. Aaker in his book, Developing Business Strategies suggests concentrating efforts in four areas:
According to the theory, the performance of a company within a market is directly related to the possession of key assets and skills. Therefore, an analysis of strong performers should reveal the causes behind such a successful track record.
This analysis, in conjunction with an examination of unsuccessful companies and the reasons behind their failure, should provide a good idea of just what key assets and skills are needed to be successful within a given industry and market segment.
For instance, in the personal-computer operating-system software market, Microsoft reigns supreme with DOS and Windows. It has been able to establish its dominance in this industry because of superior marketing and research as well strategic partnerships with a large majority of the hardware vendors that produce personal computers. This has allowed DOS and Windows to become the operating environment, maybe not by choice, but of necessity for the majority of personal computers on the market.
The competitor analysis is compiled and now it’s time for the company to make use of it! Businesses should at this point consult the agency that conducted the analysis or the individuals within the company who compiled the information and line out a plan of action.
This plan should involve a social media strategy, an advertising plan, and organization wide action plan to transition based on the results of the analysis.