George S. Day and Christine Moorman

Checkmate: Anticipating Competitor Actions

Sunday Dec 19, 2010

Competitor intelligence efforts often degrade into an undigested mass of news clippings and some comparisons of product price and performance. Meanwhile, the most important information may never come to the attention of those who can act on it. A first step in improving competitor analysis is therefore to direct employee attention to key questions about competitors that are likely to produce valuable insights. We recommend these questions, from Chapter 11 of Strategy from the Outside In, which mirror the ones in last week’s blog post on customer insight.

  • Who are the firm’s competitors? Unfortunately, most managers don’t know who their real competitors are. Industry classifications can tell managers which firms sell similar products or services. Publicly available data can also tell managers which firms are similar in terms of size, revenues, profits, or geographic or industry scope. However, these data rarely address the question of competition. Companies can identify competitors by providing an assessment of which current and future firms inside and outside the industry offer the same benefits to customers. Firms are increasingly being threatened by competitors from distant product and geographic markets who are targeting their customers. The COO of a local credit union in Durham, North Carolina, recently commented that his biggest threat was not from traditional banks, but from Walmart entering retail banking.
  • What are competitors’ value propositions? This may be the easiest aspect of competitive insights. Most firms reveal who their customers are and the nature of their offerings when they launch into markets. Reviewing products, promotional materials, Web sites, and packaging and talking to salespeople will often yield remarkable insights into what the competitors’ value propositions are.
  • How do competitors create and capture value? This deeper question about a firm’s business model is often harder to answer. Competitors sometimes reveal the answers to these how questions by announcing partnerships or opening a new channel. However, other capabilities, such as how advertising is developed, prices are set, and segmentation is determined, are more difficult to understand about a firm’s competitors. Benchmarking takes competitor analysis somewhat further by comparing the firm’s costs and performance against that of its best rivals at every step in its value chain. This reveals advantages in capabilities and processes that can be used to increase a competitive lead or provide a warning that improvements are needed. Firms like Xerox often use the outcomes of these benchmarking studies to shake up complacent manufacturing and service groups with the news they are slipping behind.
  • Why are competitors taking actions? This deeper motivational question is likely to be associated with the firm’s history, current leaders, board composition, or financial pressures. For example, under Jack Welch, GE made public statements about the rationale for choices in the firm’s product portfolio—brands (or lines of business) had to be larger than $1 billion in sales, or they would be dropped. Public statements to shareholders and press releases can often convey the firm’s strategic rationale, but they may be shrouded in secrecy or intentionally vague.
  • What are the moves of our competitors? How will competitors respond to our moves? It is not enough to answer these questions with a focus on what competitors are doing now. Companies must anticipate both competitors’ next moves and their countermoves. The key to anticipating how a competitor will react is to think like its management team, given its resources and market positions. Thus, McDonald’s and Burger King had different responses to the negative publicity about obesity and fast foods. As the dominant and most visible player, McDonald’s couldn’t ignore these concerns and introduced a variety of healthier options. Burger King, on the other hand, saw a chance to cherry-pick customers in the less health-conscious market segment and introduced high-fat, high-calorie sandwiches supported by in-your-face ads parodying healthy choices. Burger King also knew that there was no way that McDonald’s could respond to this attack.
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