Competitors

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As with other external forces, management must also prioritize the importance of the factors that affect competition. The relationships between these elements and competition must be understood if the organization is to be able to develop and sustain a competitive advantage.

Competitive analysis focuses on opportunities and threats that may occur because of actual or potential competitive changes in strategy. It starts with identifying current and potential competitors. For example, who are General Motors' competitors? If you named companies like Toyota, Ford, Chrysler, and Honda, you are right, but you have just begun. Table 5.1 outlines some of General Motors' competitors, and Table 5.2 does the same with Nintendo's competitors.

It is essential that the marketer begin this assessment by answering the following question: "What criteria can be used to identify a salient set of competitors?"

It is clear from these two examples that an accurate accounting of competitors is much broader than the obvious. If we define our competitors too narrowly, we risk the chance that an unidentified competitor will take market share away from us without our knowledge. For example, General Motors obviously competes against Ford, Chrysler, Toyota, and other auto manufacturers. They also compete against Sears in the repair market, the subway in large cities, the airlines, and Schwinn, among people for whom bicycle riding is popular. Nintendo competes against Sega in the video game market. They also compete against Blockbuster Video, the local gym, board games, the theater, and rock concerts. Competition focuses on the wants and needs being satisfied, not the product being produced. General Motors, then, is competing to satisfy your need for transportation. Nintendo is competing to satisfy your need for entertainment.

In addition to identifying a competitor from the perspective of the customer, other criteria might be the geographic location of competitors, relative size, history, channels of distribution, and common tactics.

A second question to consider is the following: "What criteria do we need to use to make sure that our competitors are 'correctly' identified?" One way of answering this question is to track the customers' perceptions of product groupings and substitution. Do they change over time? Likewise, tracking expected competitors over time may prove insightful.

Once competitors are correctly identified, it is helpful to assess them relative to factors that drive competition: entry, bargaining power of buyers and suppliers, existing rivalries, and substitution possibilities. These factors relate to a firm's marketing mix decisions and may be used to create a barrier to entry, increase brand awareness, or intensify a fight for market share.

Barriers to entry represent business practices or conditions that make it difficult for new or existing firms to enter the market. Our entrepreneurs, Carol and Jane, aced several barriers to entry. Typically, barriers to entry can be in the form of capital requirements, advertising expenditures, product identity, distribution access, or switching costs. Japan has been accused of having unofficial cultural-based barriers to the Japanese market.

In industries such as steel, automobiles, and computers, the power of buyers and suppliers can be very high. Powerful buyers exist when they are few in number, there are low switching costs, or the product represents a significant share of the buyer's total costs. This is common for large retailers such as Wal-Mart and Home Depot. A supplier gains power when the product is critical to the buyer and when it has built up the switching costs. Examples include Microsoft and BMW.

Existing competitors and possible substitutes also influence the dynamics of the competition. For example, in slow-growth markets, competition is more severe for any possible gains in market share. High fixed costs also create competitive pressure for firms to fill production capacity. For example hospitals are increasing their advertising in a battle to fill beds, which represents a high fixed cost.