Providing superior customer value is necessary, but not sufficient for success in the marketplace. Besides fulfilling the needs of customers, marketing strategies must build a decisive advantage over the competition. For this, a competitor analysis is the foundation: by identifying the 4 types of competitors in the market environment, the firm can respond with the right strategies.
The Competitor Analysis
A competitor analysis investigates the competing firms in the marketplace and reveals their competitive power against the own firm. For this, we need to consider the size and industry position of our own company. This is compared to the 4 types of competitors as revealed by the competitor analysis. Based on these two pillars – the own competitive strength and the power of the 4 types of competitors in the marketplace – the firm can decide how to position itself to gain the strongest possible competitive advantage.
The Competitor Analysis Process
How does a competitor analysis work?
Step one: The company constantly compares the value and customer satisfaction delivered by its products, prices, channels and promotion activities with those of its close competitors.
This gives an answer to a set of questions:
- Who are our competitors?
- What are their objectives and strategies?
- What are their strengths and weaknesses?
- How will they react to different competitive strategies we might use?
Step two: Based on the position and performance of the firm relative to that of competitors, the company can discern areas of potential advantage and disadvantage.
4 Types of Competitors
In step one of the competitor analysis, the company will cluster competing firms in its market into 4 types of competitors. The cluster is an indication of the competitive strength of the competing firm – and thus an indication of the danger it means for our company.
The market leader is the most powerful one among the 4 types of competitors. The market leader is the firm in an industry with the largest market share. It usually leads other firms in price changes, new product introductions, distribution coverage and promotion spending. In other words, it is the firm that dominates a market.
Examples of market leaders include Nescafé, Chanel, Johnnie Walker, Coca-Cola, McDonald’s, Marlboro and Shell.
The market challengers may not be the most powerful ones in an industry, but can still be the most dangerous ones due to their aggressiveness. A market challenger is a runner-up firm in an industry that is fighting hard to increase its market share. It aggressively attacks competitors to get some of their market share. For example, Lexus challenges Mercedes, Adidas challenges Nike, and Airbus challenges Boeing. The challenger might attack the market leader, other firms of its own size, or smaller local and regional competitors. Some runner-up firms will choose to follow rather than challenge the market leader.
Market followers are firms that just play along. They seek stable market shares and profit by following competitors’ product offers, prices and marketing programmes. In other words, a market follower is a runner-up firm that wants to hold its share without rocking the boat.
Market nichers are firms in an industry that serve small segments that the other firms overlook or ignore. Market nichers are often smaller firms in a market, but can even be larger firms that lack established positions. Market nichers avoid direct confrontations with the big companies by specialising along market, customer, product or marketing-mix lines. However, through clever niching, low-share firms in an industry can be as profitable as their large competitors.