Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context through which to identify opportunities and threats. Competitor profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.

Given that competitor analysis is an essential component of corporate strategy, it is argued that most firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is called “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” As a result, traditional environmental scanning places many firms at risk of dangerous competitive blind spots due to a lack of robust competitor analysis.

The strategic rationale of competitor-profiling is powerfully simple. Superior knowledge of rivals offers a legitimate source of competitive advantage. The raw material of competitive advantage consists of offering superior customer value in the firm’s chosen market. The definitive characteristic of customer value is the adjective, superior. Customer value is defined relative to rival offerings making competitor knowledge an intrinsic component of corporate strategy. Profiling facilitates this strategic objective in three important ways. First, profiling can reveal strategic weaknesses in rivals that the firm may exploit. Second, the proactive stance of competitor profiling will allow the firm to anticipate the strategic response of their rivals to the firm’s planned strategies, the strategies of other competing firms, and changes in the environment. Third, this proactive knowledge will give the firms strategic agility. Offensive strategy can be implemented more quickly in order to exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be employed more deftly in order to counter the threat of rival firms from exploiting the firm’s own weaknesses

Clearly, those firms practicing systematic and advanced competitor profiling have a significant advantage. As such, a comprehensive profiling capability is rapidly becoming a core competence required for successful competition. An appropriate analogy is to consider this advantage as akin to having a good idea of the next move that your opponent in a chess match will make. By staying one move ahead, checkmate is one step closer. Indeed, as in chess, a good offense is the best defense in the game of business as well.

A common technique is to create detailed profiles on each of your major competitors. These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies. This involves:

Background
-location of offices, plants, and online presences
-history - key personalities, dates, events, and trends
-ownership, corporate governance, and organizational structure

Financials
- P-E ratios, dividend policy, and profitability** various financial ratios, liquidity, and cash flow
- Profit growth profile; method of growth (organic or acquisitive)

Products.
- products offered, depth and breadth of product line, and product portfolio balance
- new products developed, new product success rate, and R&D strengths
- brands, strength of brand portfolio, brand loyalty and brand awareness
- patents and licenses
- quality control conformance
- reverse engineering

Marketing
- segments served, market shares, customer base, growth rate, and customer loyalty
- promotional mix, promotional budgets, advertising themes, sales force success rate
- distribution channels used (direct & indirect), exclusivity agreements, alliances, and geographical coverage
- pricing, discounts, and allowances

Facilities
- plant capacity, capacity utilization rate, age of plant, plant efficiency, capital investment
- location, shipping logistics, and product mix by plant

Personnel
- number of employees, key employees, and skill sets
- strength of management, and management style
- compensation, benefits, and employee morale & retention rates

Corporate and marketing strategies
- objectives, mission statement, growth plans, acquisitions, and divestitures
- marketing strategies


Media scanning

Scanning competitor's ads can reveal much about what that competitor believes about marketing and their target market. Changes in a competitor's advertising message can reveal new product offerings, new production processes, a new branding strategy, a new positioning strategy, a new segmentation strategy, line extensions and contractions, problems with previous positions, insights from recent marketing or product research, a new strategic direction, a new source of sustainable competitive advantage, or value migrations within the industry. It might also indicate a new pricing strategy such as penetration, price discrimination, price skimming, product bundling, joint product pricing, discounts, or loss leaders. It may also indicate a new promotion strategy such as push, pull, balanced, short term sales generation, long term image creation, informational, comparative, affective, reminder, new creative objectives, new unique selling proposition, new creative concepts, appeals, tone, and themes, or a new advertising agency. It might also indicate a new distribution strategy, new distribution partners, more extensive distribution, more intensive distribution, a change in geographical focus, or exclusive distribution. Little of this intelligence is definitive : additional information is needed before conclusions should be drawn.

A competitor's media strategy reveals budget allocation, segmentation and targeting strategy, and selectivity and focus. From a tactical perspective, it can also be used to help a manager implement his own media plan. By knowing the competitor's media buy, media selection, frequency, reach, continuity, schedules, and flights, the manager can arrange his own media plan so that they do not coincide.

Other sources of corporate intelligence include trade shows, patent filings, mutual customers, annual reports, and trade associations.

Some firms hire competitor intelligence professionals to obtain this information. The Society of Competitive Intelligence Professionals maintains a listing of individuals who provide these services.

New competitors

In addition to analyzing current competitors, it is necessary to estimate future competitive threats.

The most common sources of new competitors are:
- Companies competing in a related product/market
- Companies using related technologies
- Companies already targeting your prime market segment but with unrelated products
- Companies from other geographical areas and with similar products

New start-up companies organized by former employees and/or managers of existing companies

The entrance of new competitors is likely when:
- There are high profit margins in the industry
- There is unmet demand (insufficient supply) in the industry
- There are no major barriers to entry
- There is future growth potential
- Competitive rivalry is not intense
- Gaining a competitive advantage over existing firms is feasible

 

Risk analysis is a technique to identify and assess factors that may jeopardize the success of a project or achieving a goal. This technique also helps to define preventive measures to reduce the probability of these factors from occurring and identify countermeasures to successfully deal with these constraints when they develop to avert possible negative effects on the competitiveness of the company.

One of the more popular methods to perform a risk analysis in the computer field is called Facilitated Risk Analysis Process (FRAP).

Facilitated Risk Analysis Process

FRAP analyzes one system, application or segment of business processes at time.

FRAP assumes that additional efforts to develop precisely quantified risks are not cost effective because:

• such estimates are time consuming
• risk documentation becomes too voluminous for practical use
• specific loss estimates are generally not needed to determine if controls are needed.

After identifying and categorizing risks, a team identifies the controls that could mitigate the risk. The decision for what controls are needed lies with the business manager. The team's conclusions as to what risks exists and what controls needed are documented along with a related action plan for control implementation.

Three of the most important risks a software company faces are unexpected changes in revenue and costs from those budgeted and amount of specialization of the software planned. Risks that affect revenues can be unanticipated competition, privacy, intellectual property right problems, and unit sales that are less than forecast; unexpected development costs also create risk that can be in the form of more rework than anticipated, security holes, and privacy invasions.

Narrow specialization of software with a large amount of research and development expenditures can lead both business and technological risks since specialization does not lead to lower unit costs of software. Combined with the decrease in the potential customer base, specialization risk can be significant for a software firm. After probabilities of scenarios have been calculated with risk analysis, the process of risk management can be applied to help manage the risk.

Methods like Applied Information Economics add to and improve on risk analysis methods by introducing procedures to adjust subjective probabilities, compute the value of additional information and to use the results in part of a larger portfolio management problem.