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Chapter 6: Market Structure and Competitor Analysis
Chapter Objectives
After reading this chapter, students should understand:
·How to perform a market structure analysis, which identifies major competitors
·How to perform a competitor analysis
·Alternative sources of information for analyzing competitors
·Using game theory in the development of competitive strategy
Chapter Overview
The purpose of this chapter is to introduce the notion of competitor orientation.
Although customer focus has received considerable attention in the marketing literature,
recent years have seen an increased emphasis on understanding competitors and predicting
their moves.
Chapter Outline and Key Terms
Market Structure Analysis
Key Terms:
·Market structure analysis
·Competitor analysis
·Industry
·Product class/product category
·Product types
·Product variants
·Brands,
·Product class/product category competition
·Product form competition
·Generic competition
·Budget competition
·Cross-elasticity of demand
·Scenario planning
A. Definitions
1. Market structure analysis: An analysis in which the marketing manager
seeks to better understand who the competition is and thus define the
market.
2. Competitor analysis: An analysis in which the strengths and weaknesses of
competitors and their current and likely future strategies are examined.
3. Industry: A group of products that are close substitutes to buyers, are
available to a common group of buyers, and are distant substitutes for all
products not included in the industry.
4. Product class/product category: Also called a product category, one
5. Product types: Group of products that are functional substitutes.
6. Product variants: Also called product brands, different specific combinations
of features within a specific product types.
7. Brands: A name, term, sign, symbol, or design (or a combination thereof)
intended to identify the goods and services of a seller and differentiate them
from the competition.
8. Product form competition: A level of competition in which only products or
services of the same product types are considered.
9. Product class or product category competition: A level of competition in
which products or services that have similar features and provide the same
function are considered.
10. Generic competition: A level of competition that includes all products or
services that the customer views as fulfilling the need requiring satisfaction
on a particular purchase or use occasion.
11. Budget competition: A level of competition that includes any product,
related or unrelated, that could be viewed as substitutable in a budget.
12. Cross-elasticity of demand: the percentage of change in one product’s
sales caused by a percentage change in a marketing variable for another
product.
13. Scenario planning: Planning that involves asking “what-if” questions to
produce forecasts of alternative outcomes based on different assumptions.
B. Market Structure Analysis: Understanding the Competitive Environment
1. Classifying competitors into two classes:
·Demand-based approaches: Classifies competitors based on customer
attitudes and behaviors
·Supply-based approaches: Classifies competitors based on objective
attributes of the firms.
2. Demand-based approaches
·Figure 6.2 Page 154: An alternative way to define the competition that
better incorporates the customer’s perspective. Narrowest definition of
competition that results in the fewest competitors would include only
products or services of the sample product type.
·Illustration: Telepresence, Page 155
·Illustration: Halitosis, Page 155
3. Supply-based methods
·Table 6.1 Concentration by Largest Firms for the United States: 2002,
Page 157, demonstrates classification of competitors by kind of
business, number of businesses, dollar volume
C. Competitor Analysis
1. Competitor analysis: a forecast of competitor’s likely strategies
2. Framework for competitor analysis: Figure 6.4 Page 159 Competitor
Analysis Framework:
·Expected future strategies = What are their objectives? How do you
match up against them? What are their weaknesses? What is the current
strategy?
3. Main parts of a competitor analysis:
·Determination of the competitor’s major objectives: Useful to know
whether they are pursuing growth (sales volume, market share)
objectives or profit related objectives
·Assessment of their current marketing strategies: Includes segments
pursued, how they are positioning the products or services, their value
propositions, and the marketing mix
·Assessment of their strengths and weaknesses: These can be evaluated
on a number of dimensions, particularly key success factors in the
market
·Internal analysis of your firm’s strengths and weaknesses relative to the
competitors: How your firm matches up against your competitors
·Key objectives of the competitor analysis include:
·Insight into competitor strategies
·Insight into customer and competitor targets
·Assessment of competitors’ core strategies
·Assessment of competitors’ marketing mix:
·Price
·Communications
·Distribution
·Product or service capabilities
·Competitor strengths/weakness assessment can include:
·Ability of competitor to conceive/design new products
·Ability of each competitor to produce the product or deliver
the service
·Ability to market
·Ability to finance
·Ability to manage
·Illustration: Table 6.3 Competitor Capabilities Matrix Page
164 demonstrates a matrix that could be constructed to
assess each above area
·Illustration: Table 6.4 Types of Competitor Information to
Collect Page 165 details types of information that could be
collected about a competitor
·Illustration: Figure 6.6 SWOT Analysis Page 166 is an
alternative way to summarize strengths, weaknesses,
opportunities and threats
·Scenario planning: Asking “what-ifs” to produce alternative
outcomes based on different assumptions.
·Illustration: Rockwell Collins (www.rockwellcollins.com)
Page 168
·
·Illustration: Intuit (www.intuit.com) Page 168
·
Where Can We Get the Information?
A. Secondary Sources
1. Some of the best sources of secondary information include:
·Internal sources (old marketing plans, market research studies, sales
management reports, and other documents.
·Annual reports
·Patent and trademark filings
·Other government resources
B. Primary Sources
1. Some of the best sources of primary information include:
·Sales force and customers
·Employees
·Suppliers
·Trade shows
·Reverse engineering or sampling competitors’ products
·Plant tours
·Internet newsgroups and blogs
Illustration: Palm, Inc. (www.palm.com) Page 170
Illustration: Apple iPad (www.apple.com) 170
Competitive Strategy: Some Game Theory Notions
Key Terms:
·Payoff matrix
·Nash equilibrium
·Prisoner’s dilemma game
A. Definitions
1. Payoff matrix: In game theory, a graphic depiction of the rewards or costs to
each player for each possible combination of strategies.
2. Nash equilibrium: In game theory, the most common form of equilibrium,
which involves a list of strategies, one for each player, with the property that
no manager wants to change its strategy unilaterally.
3. Prisoner’s dilemma game: A particular form of competitive game in which
neither participant wants to change his or her current strategy because if one
does and the competitor matches, both will be worse off.
B. Using game theory: the game theory concept of equilibrium can help you strategically
apply your expectations of competitors’ likely future actions and their impact on
marketing outcomes such as profits and market share.
Teaching Tips and Strategies from Barbara S. Faries, MBA
This chapter introduces the usefulness and concept of the structure of markets and
competitor analysis. Both concepts are key to analyzing markets and creating strategies.
Key Terms and Concepts Introduced Include:
·Market structure analysis
·Competitor analysis
·Industry
·Product class/product category
·Product types
·Product variants
·Brands,
·Product class/product category competition
·Product form competition
·Generic competition
·Budget competition
·Cross-elasticity of demand
·Scenario planning
·Game theory
Note: Two recurring themes in this Instructor’s Manual are the first two items:
·Link theory to practice.
·Engage students to link work experience to the concepts demonstrated in
the text.
·Instructors are encouraged to link theory to practice by finding current examples
in the business environment that demonstrate the key concepts above.
·If your class contains those already working in the field, have them describe how
the concepts in theory match those in the actual workplace.
You may find that some of your students have been introduced to market and
competitor analysis in other courses. However, in my experience few students have been
taught how to actually perform a competitive analysis and what factors need to be
considered. This is an excellent chapter for introducing them to the fundamentals of
competitive analysis.
Conversely, I have found that students often become engrossed with the
competition and focused only on the competitors and their strategies. I encourage you to
point out that they should analyze and be aware of the competition and associated
strategies; however, they should not lose focus on their own strategies and objectives. I also
point out that setting strategy against or to match a competitor’s may be deadly. The
assumption is that the competitor’s strategy is correct, which is not always the case.
Good examples to focus on in this chapter (and ones which I have used as an
executive) include:
Table 6.2 Product Feature Matrix: Small Sports Sedan: This is one example of a
product competitive analysis. A product competitive analysis is very useful in
technical settings.
Table 6.3 Competitor Capabilities Matrix: This is one approach to analyzing
competitors. The students should understand that each situation is different and that
different parameters may be useful. In other words, the “template” will change
according to varying situations.
Table 6.4 Examples of Competitor Information to Collect: This is useful for the
students to use as a guide to the types of information that might be analyzed or
included in a competitive analysis. Again: They should understand that not all of the
listed items are necessarily appropriate or included. The “template” will change
from situation-to-situation.
NOTE: I emphasize the usefulness of using a table format. Using that format
enables them to see all competitors on equal parameters. The common error I find
that students often make is to randomly compare competitors on various
parameters. In addition, they do not use a table format so they can clearly
understand the need for looking at the competitor across common items.
Table 6.5 Differential Competitor Advantage Analysis: As an executive, I have
used this type of analysis infrequently, however, it is useful and succinctly lays out
competitive advantages.
Figure 6.6 SWOT Analysis: Most of the students have been exposed to the SWOT
as part of an environmental analysis. However, it is very useful in summarizing key
strengths, weaknesses, opportunities, and threats of the competition.
Review Questions
1. Most marketing managers consider their product form or product category competitors
to be the most serious threats. What are the pros and cons of this perspective?
2. Suppose you were the marketing manager for Steinway in charge of its line of grand
pianos. How would you design a research study to better understand the generic
competitors of the product?
3. In most case, competitors are viewed as being undesirable, that is, having fewer
competitors is better than having many. Can you think of situations in which
competitors can help you?
4. What are the limitations of game theory approach to understanding competitive
strategy?
5. Other than the Coke/Pepsi illustration used in the beginning of this chapter, have you
observed any other markets in which the competitors appeared to be acting
strategically in the game theory sense?
Exercises, Activities, and Projects
Purpose: To help students link theory to real life.
To demonstrate the usefulness of competitive analysis.
·Have the students create a mini-competitive analysis of their own companies or
a company of interest to them. Limit the number of competitors to 2 – 3
maximum. Pick some basic parameters that might be likely included in a real-
life setting. This is a “learn by doing” exercise. This is probably best used as a
project versus an in-class exercise. The objective is to give them a feel for
creating a competitive analysis and not overwhelm them.
·Create a scenario situation for the students using a well-known company. Have
the students discuss the scenario in class.
