The competitive environment surrounds all companies. In most cases each new product is a certain modification of the one already existing on the market, therefore, we can say that it enters into relations of indirect competition. In order to plan correctly the marketing component of business, it is necessary to make a detailed analysis of the competitive environment.
Why does a company need a competitive environment analysis?
Competition in the economic area can be defined as “rivalry of subjects of market relations for the best conditions of commercial activity”. If to take into account more global meanings, it is possible to formulate a competition concept as a struggle for the buyer. Therefore, all aspects of the competitive environment and competitive advantages are the fundamental indicators that distinguish one firm from others and allow it to draw the attention of customers to itself.
When a company does not take into account the analysis of the competitive environment of the enterprise (and there are many of them), there are issues in making marketing decisions. For example, this mistake is common in start-ups. There are two most important axioms in competitive analysis that apply to all types of businesses.
Knowing the competitors, their weaknesses and strengths, and analyzing this information.
It is no coincidence that marketers introduced the notion of “competitive wars” in a competitive environment, as competition is close to military action: there are reconnaissance, analysis, working out strategies and tactics of winning back and strengthening one’s position in a certain market segment. We can also talk about offensive or defensive actions, global observation of the enemy, and sometimes about sabotage. Rivals in the market environment are not always in a state of confrontation with each other, but you must always have an accurate picture of whether there is someone in the market who is engaged in activities close to yours. Assessment and analysis of the competitive environment will allow you to simulate the scheme of business growth, define goals and guidelines.
Making the most accurate forecast and analysis of potential competitors’ actions is quite problematic. And it is even more complicated when it comes to small enterprises. At the same time, the actions of large firms are somewhat easier to predict. It is market flexibility – the ability to respond quickly to changes in the competitive environment and take appropriate action. However, a market analysis of the competitive environment should be carried out all the time and very carefully.
During all changes in the activity of any firm, whether it is price policy, advertising campaigns, the introduction of new directions, goods or services, innovative actions, it is necessary to analyze the external competitive environment, and also to predict, what changes in the market will follow these innovations.
It is not enough just to follow the activity of competitors, a full-fledged comparative analysis of the competitive environment is necessary which allows forming the scheme of consumer attraction and estimating the development of the situation on the market and in the company.
The analysis of the competitive environment in a certain industry can be as detailed as possible (it is possible to make a forecast of activity of companies-competitors even for several years ahead), and capacious in the context of short-term tasks. Potential situations which require analysis of competitive environment:
- Creating a marketing policy for product positioning;
- Prediction of a sales plan;
- Preparation of assortment and product policy scheme;
- Determination of the price of the product in the context of the competitive price monitoring;
- Product development: choice of product features and key performance indicators in the context of competitive environment;
- Development of the scheme of product promotion in the context of the competitive environment.
Experts advise to consider the following rules of competitive market analysis:
- Be accurately aware of the goals of competitive market analysis (it can take a long time to research the data, but the point is to target the process);
- Establish competitive boundaries in advance and identify the most important competitors to analyze;
- Conduct a marketing analysis of your competitors’ activities.
What are the peculiarities of competitive environment analysis in an industry?
The analysis of the competitive environment in the industry is characterized by the designation of the competitive struggle that exists in it, identifying its causes, assessing the level of influence of competitive forces.
There are 4 types of competition:
Analysis of intense competition shows that the actions of competing companies lower the average profit in the industry. Moderate competition analysis shows that most companies make average profits in the industry. Weak competition is characterized by the fact that most firms in the industry are able to make above-average profits by investing only in production.
Certain strategies, built by managers, help to exist well in the market and to be embedded in the competitive environment, preventing the negative effects of competitors, but many strategies fail. Successful strategies would be:
- Would isolate the firm from competitive influences as much as possible;
- Influence the competitive laws in the industry in ways that are convenient for the firm;
- Create conditions for the formation and maintenance of a strong and stable position, which would guarantee competitive advantages.
The analysis of the competitive environment in an industry can be done with the help of the map of strategic groups. This map provides an opportunity to analyze and compare the competitive positions of companies operating in the selected industry.
A strategic group of competitors is a certain number of companies occupying similar market positions and competing on the basis of the same advantages using the same schemes. The companies will refer to a common strategic group in case they have similar characteristics (size, degree of integration, choice of goods, the geographical field of activity, price policy, percentage of market segments, etc.), they apply similar competitive strategies, operate in the same range of criteria “price-quality”, serve the same customers and build identical benchmarks.
A company’s strategic decisions are always guided by competitors’ strategies and their possible future actions. It is the competitive environment that dictates whether to wait a bit now or, on the contrary, to start active actions while the competitors give such a chance.