May 9, 2018, posted by Kevin Smith
Do You Really Know Your Competition?
Knowing your competition seems like a simple task, right? After all, it would make sense that Pepsi knows that Coca-Cola’s Dasani is a competitor to its Aquafina brand and Sony knows that Microsoft’s Xbox competes with their PlayStation. However, the range of a company’s competitors is typically much broader and more complex than that. In many cases, a company is more likely to be hurt by emerging competitors, new technologies, or changes in consumer behavior than they are by in-market competitors.
Industry and Market Views of Competition
To fully understand your brand’s competition, you must examine it from both an industry point-of-view and a market point-of-view. Within an industry, competitors are selling a similar product or service to the same audience. Pretty straightforward. However, looking at competitors through the lens of the overall market helps to identify competitors that may satisfy the same customer need – regardless of industry.
For example, let say your car breaks down and you’re in the market for a new car. If so, the competitive set may be Ford, Chevy, BMW, etc. However, if that consumer lives and works in a city, the competitive set may include, public transportation, Lyft, Uber, bike shares, or other transportation alternatives that can best solve that consumer’s unique requirement.
Taking a market-wide approach when looking at your competitive set reveals a broader set of actual and potential competitors. A great way to identify these market competitors is to build customer journey maps which reveal direct and indirect threats to each step in the buyer’s process when researching, obtaining, and ultimately using your product or service.
Understanding Competitive Forces
A useful framework for understanding the variety of competitive threats along your audiences’ consumer journey is Michael Porter’s Five Forces.
Porter’s framework is based on the concept that there are five key forces that determine the competitive intensity of a given market. Obtaining a better understanding of where your brand exists within this framework will help you identify strengths, improve weaknesses, and avoid positioning and marketing mistakes.
The threats these forces pose are:
- Threat of intense segment rivalry. A segment is unattractive if it already contains numerous, strong, or aggressive competitors. It’s even more unattractive if fixed costs or exit barriers are high.
- Threat of new entrants. The most attractive segment has high entry barriers, and low exit barriers, so few new firms can enter, while poor-performing firms can exit easily.
- Threat of substitute products. A segment is unattractive when there are actual or potential substitutes for the product. If technology advances or competition increases in these substitute industries, prices and profits in the segment are likely to fall.
- Threat of buyer’s growing bargaining power. A segment is unattractive if the buyers possess strong or growing bargaining power. Buyer’s bargaining power grows when the product or service is undifferentiated or when switching costs and effort is low.
- Threat of suppliers’ growing bargaining power. A segment is unattractive is the company’s suppliers can raise prices or reduce quantity supplied. Suppliers tend to be powerful when the costs of switching suppliers are high, and when suppliers can go direct-to-consumer.
Free Resource: Competitive Audit Checklist
Understanding your competitors and the impact that they have on your marketing and audience is more complex than it often seems. And without the proper information at the start, it is nearly impossible to gauge where your brand stands. Provide your email in the following form to download our one-page checklist to ensure you are doing everything you can to study and track trends, listen to customer input, and fully understand your market and your competitive set.