In a previous article, I discussed analyzing your own company as an essential part of crafting a marketing strategy. Equally if not more important is the analysis of your competition.
Competitors can come from anywhere, even though we tend to focus on the most immediate competition. But as the classic strategist Michael Porter has pointed out, competitors can come from companies you sell to, companies you buy from, substitutes, and new entrants.
Of course, if you focus on customer benefits, as opposed to specific product or service categories or verticals, you'll have a wider range of potential competitors vying for your customers.
For example, recall how the taxi industry was blindsided by the entrance of industry outsiders Uber and Lyft. They entered the market by offering benefits that customers wanted, including more control over the process (an app would let you see where the driver was at all times), and more manageable payment (no more having to come up with cash or hassle with the driver about using a credit card)—and, in general, an easier experience.
Gathering and Acting on Competitive Intelligence
When you focus on competition, the first issue you face is the need to collect information about potential and actual competitors. There are many ways to do that, but fortunately companies now exist that scour the Web and provide competitive intelligence, thus making the job of getting competitive information a lot easier.
The issue then becomes what you do with that competitive information.
Now, imagine if you worked for a football team, and you're watching the films of your competitor for next week's game. I doubt you would say let's just do a SWOT analysis and be done with it. The same goes if you were a world-class chess player; in fact, in most games that are played at the highest levels, the players and coaches don't take just a passive, "one and done," look at the competition; it's ongoing analysis before and during every match.
But in business, it seems that static, passive analysis is exactly what is done: People have been taught to do a fixed description of the competition rather than a dynamic, proactive perspective on the competition.
However, competitors don't act passively (unless you've made an agreement with all your competitors to act passively). Competitors have an incentive to make continual, ongoing efforts to take market share away from you.
One way they do that is to position themselves for strategic advantage. For example, a competitor could drop its price significantly so that any price advantage you have diminishes. Competitors could launch another product aimed right at the same positioning you aim to take with your brand. In addition, your company might be inviting new competitors if you're in a segment with few or no competitors, especially if the competitor believes there is a lot of money to be made there.
I've seen organizations that say they do competitive intelligence effectively stop after gathering competitive information, putting together competitive profiles, and crafting battlecards (which are essentially a one-page visual aid comparing an organization's pricing, product, features, etc. vs. a competitor).
A Better Way: Play a Competitive Game
All that is fine, but a far better approach is to take competitive intelligence as input for a dynamic game you're playing.
To do that, organize your competitive information into two groups:
- Ability: Do your identified competitors have the resources to react (e.g., money for advertising)?
- Motivation: This is a combination of the competitor's objectives and strategy: Would reacting be consistent with their financial objectives? Would responding be consistent with their strategy?
Why do you need information grouped this way? Because to act and succeed, competitors need both components: Imagine a competitor who has high ability but lacks motivation, or a competitor with motivation but no ability.
When you have the competitive information grouped into motivation and ability, you are able to play out a thoughtful competitive game.
Take any competitor you have and start the game by asking what their most likely next move will be. Will it be price drop, an increase in advertising, a launch of a new product, etc.? Alternatively, you can start the game with a move your company is going to make.
For the case wherein the competition moves first, ask what is your next move in response? Then ask, given your response, what is the competitor's next move. Then, given that move, what will you do in response... etc., etc.
Play out the game until the end. Typically, you'll know the end after a few moves. If it turns out the game ends and you're in a worse position than today, simply play the game again with different moves on your part.
For example, let's say your competitor drops its price, and you react by dropping your price, which then leads to the competitor's dropping its price again... and before you know it, you're in a price war.
What would happen if you tried a different first reaction to your competitor's price drop?
The point of this exercise is to play out a game—to play the entire game out in your mind before you spend precious resources and figure out later you have played a losing hand. If you play out a game and you lose, try again with a different set of moves. What you're looking for is a game where you win in the end.
A final point: when playing a dynamic game, you need to make certain assumptions. That's not a problem. You just test out your competitor analysis against those assumptions (what-if scenarios). If your analysis hinges on many assumptions' being correct, then the decisions you reach based on that analysis are likely not robust. Instead, run alternative assumption scenarios so you can make decisions that are robust. (In essence, this process is like doing a Monte Carlo simulation.)
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The mere effort of doing dynamic competitive analysis will reveal a host of insights you can use thereafter in your marketing.
