competitor and clc analyses

MGT 450: Business Policy & StrategyRanucci, Spring 2016 52

Competitor and Competitive Life Cycle Analyses

• Independently conduct competitor and competitive life cycle analyses

Learning Objectives


Connecting Industry & Competitive Analysis 2. Within that industry context

how can my firm be differentfrom the other competitors?

Analyze the firm-competitor dyad

Firm Competitor1. What are the drivers of an industry’s profit potential?


Competitors

• Competitors are firms operating in the same market, offering similar products and targeting similar customers


• Competitive Rivalry includes ongoing actions and responses taking place between an individual firm and its competitors for advantageous market position

Firms study competitive rivalry in order to predict the competitive actions and responses that each of the their competitors likely will take.

Competitive Rivalry


Competitive Analysis

Step 1: Identify your competitors

Step 2: Gather intelligence on your

competitors

Step 3: Analyze the competitive positions of

rivals and compare strengths and weaknesses with you own and other

competitors


1. Market commonality– Number of markets (product, geographic, consumer) with which the

firm and competitor are jointly involved– Multimarket competition occurs when firms compete against each

other in several product or geographic markets– Degree of importance of the markets to the firm and the competitor

What product markets does AT&T have in common with Verizon?With Comcast?What information can you use to ascertain the relative importance of a market to a firm (e.g. how would you do this for your project)?

Who are a firm’s direct competitors?


Who are a firm’s direct competitors?2. Resource similarity

– Extent to which the firm’s tangible and intangible resources are comparable to a competitors in terms of type and amount

What are AT&T’s key resources?How similar are they to Verizon’s resources?Comcast’s resources?

High on both (market commonality & resource similarity) then more likely to be direct and mutually acknowledged competitors


Gather Intelligence on competitors• Organization Website to identify a wide array of organizational details

from geographic footprint to stated strategy (usually in a tagline or “About us” section)

• Performance Metrics (revenues, market share, ROA, R&D investment, profit margins, etc.), past and present to identify trends

• Analyst Reports (in Lexis Nexus database) to provide indicators of strengths/weaknesses, market expectations, future outlook

• Hiring activity to identify areas/geographies of strategic focus or growing capability

• Press releases and News coverage of strategic partnerships, product launches, new services, geographic expansion, plant closures, employee issues, etc.

• Put it in a spreadsheet or table for easy comparison– These will be appendices in your written projects– Link on Blackboard to book templates


Analyze Rivals

Future Objectives:•What drives the competitor?

Assumptions:•What does the competitor believe about the industry?

Current Strategy:•What is the competitor currently doing and what can they do?

Capabilities:•What are the competitors strengths and weaknesses?

In undertaking a competitor analysis a firm is trying to understand:– What will our competitors do in the future?– Where do we hold an advantage and where do they hold an advantage?– How will any action change our relationship with our competitors?


Use your Competitive analysis to draw insights….

• Does the firm recognize the resource similarity and market commonality enough to act or react?

• Does the firm recognize the resource similarity and market commonality enough to act or react? Awareness

• Do the gains of engaging in competitive rivalry outweigh the losses?

• Do the gains of engaging in competitive rivalry outweigh the losses?Motivation

• Does the firm have the resources and flexibility to act or react?

• Does the firm have the resources and flexibility to act or react?Ability

Will your competitors take a particular action? If you act will your competitors react? Their action will be a function of their:


Types of Actions and Responses

Tactical• Involves fewer resources so easier to implement and reverse

• Should only be used to fine‐tune a strategy

Tactical• Involves fewer resources so easier to implement and reverse

• Should only be used to fine‐tune a strategy

Strategic• Significant commitment of organizational resources• Difficult to implement and reverse

Strategic• Significant commitment of organizational resources• Difficult to implement and reverse

After considering likelihood of action or response, it is important to consider:

Speed, Magnitude, Location…..and Type:


Act or React?First Movers(takes initial

competitive action)

Second Movers(Followers or imitators)

Advantages Disadvantages

• Gain early customer loyalty and market share

• Can dictate the direction or focus of the competition

• Learns from mistakes of first mover

• Takes advantage of additional time, so more efficient and lower initial outlay

• Higher risk• Large resource

commitment• Learning curve may be

steep

• More effort to shift loyalty and capture market share

• Less of an understanding about how to create value for customers

Henry Ford is credited with saying he would rather be the first person to be second.Being a second mover can be an intentional strategy ‐ Can you think of any successful second‐movers?


Competitive life cycle (CLC) analysis

Analysis of the pattern of competitive action and reaction among all firms in an industry

Emergence•Disruptive new technology, product, process•Widespread market entry, lots of variance & experimentation

Growth•Convergence on a dominant design (annealing) leads to increased adoption by customers •Significant growth in demand moves focus to meeting demand and head‐to‐head competition

Maturity•Marginally competitive firms exit (Shakeout)•Focus on cost savings and incremental innovation.•Price pressure compresses margins

Profita

bility

Emergence

Maturity


Step One: Chart your position and your competitors positions on the CLC• What phase of the life

cycle are your products and technology in?

• Repeat for competitors products and technology

The book charted Apple in 2011. How would you chart Apple products today?

Emergence

Growth

Maturity


Step Two: Characterize the CLCsHow long is each phase?

Emergent phase• Is there a dominant design or multiple designs?• How close is the industry to a dominant design?

Growth phase• Is demand still growing?• Are there barriers to imitation?• Are competitors starting to exit?• Are competitors starting to compete on cost?• Are competitors starting to make just incremental

improvements to the product or technology?

Maturity Phase• How significant are the price pressures?• How many more incremental improvements can be made?• Is there a lot of room for prices to move down?• Is there a new disruptive product or technology on the

horizon?

Profita

bility

TimeEm

ergence

Maturity


Slow Cycle Markets• Competitive advantages are shielded from

imitation commonly for long periods of time• Imitation is costly• Example: Proprietary advantages, Pharmaceuticals

Time

EmergenceDiscovered: 1972Beecham Research Laboratories

Growth Maturity1998Generic brands


Fast Cycle Markets• Imitation is rapid and inexpensive• Cannibalization common

– Examples: PCs, Smart phones, Tablets

Time


Standard Cycle Markets• Each new disruption moves through

the cycle at a different speedTime


About you current product & technology portfolio• Need to understand where your current products or technology are in their

life cycle so you can anticipate future returns to profitability (e.g. profit margins tend to be higher for products in the growth phase than in the mature phase)

• May want to diversify across phases

What does the Apple CLC tell you about future margins on their products?The diversity of their portfolio?

Profit potential of new product or technology investments• If entering with a product in the mature phase, demand may be high but

competition will be tough and margins will be lower

Important inputs for future tools• Scenario planning, Portfolio planning

What can you learn from a CLC analysis?


StratSim CLC AnalysisStep 1: Chart your position and your competitors positions on the CLC

Step 2: Characterize the CLCs

These require insights across gathered across tabs and over time:• Internal (e.g. product margins)• Market (e.g. demand, new product launches or product development)• Competition (other products, product price and features)• Tools (e.g. demand expectations)

You don’t have a lot of “history’ to do Step 2 at this point which is why CLC is not required for your StratSim Strategic Analysis but it is required for your individual assignment


StratSim Competitor and CLC AnalysisStep 1: Identify your competitors (Some will be more direct than others)

– Market commonality – product, consumer (consumer-customer segments), geographic market (dealers)

– Resource similarity – technology and product attributes, financial resources

Step 2: Gather intelligence on your competitors– Hint: Use competition tab in StratSim

Step 3: Analyze the competitive positions of rivals and compare strengths and weaknesses with your own and other competitors


Take-Aways– Don’t assume you will be able to execute your strategy without

competitive challenges. Competitive analysis plays an important role in strategy development.

– Competitor analysis involves gathering and analyzing information on competitors to anticipate competitive actions and develop differentiated strategies

– The set of competitive actions and responses will differ with the competitive life cycles in which a firm operates

competitor and clc analyses

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