Marketing Series Article Analyzing the Competition Part One...getting them organized! by Dick Barnes, Principal, The Freeland Group In our last column we began a dialogue on competitors. The reasons you need to study and understand who you compete against are no different in business than in sport. Knowing what you are facing helps you prepare for the game. If you were to coach a professional sports team, you would certainly send scouts to watch your future opponents play, then use that information to help your players in understanding what the other team might do on the field. Why would any manager do less for their team at work? In any discussion of competition there is the necessity of defining competitors and placing them into useful categories. Inevitably any plan to deal with one category of competition will not be completely compatible with another category. Managers should refine market moves while keeping the characteristics of each competitor in mind. Most firms, unfortunately, consider only one or two categories of competition when they make their marketing decisions. Let's get into a bit more depth than that, starting with four major categories: Indirect Competitors: Every customer that has a need for your products also had needs for other products of dissimilar nature. For example; a wholesaler with a warehouse might find it desirable to have one more piece of your equipment on hand, but they also need to pay rent, purchase office supplies, and restock inventory. In fact, they probably have a large “wish list” on which your equipment is only one entry. Everything else on that list is in indirect competition with your product. Each is competing for a limited number of that customer's available dollars. Direct Competitors: These are the competitors that are right in our face…the ones we normally pay most of our attention to. In fact, we sometimes become absolutely mesmerized by them; watching what they do, trying to anticipate their every move, and breathlessly awaiting their price changes and product introductions. The association between direct competitors is usually adversarial as each is going after the same customer's limited dollars. That customer will only spend those dollars with one of you. So one of you wins the battle and the other loses. Both indirect and direct competitors threaten to drain limited dollars from your potential customer, but the direct competitor will do so by making the sale you wanted to make. The bottom line; both types of competition have to be taken into account and both must be prepared for. It might be a good idea, at this time, to remember that products and industries have life cycles. The product life cycle begins with the introduction to the market place, then moves through a growth stage, a maturity stage, and eventually to a decline stage. If your product is relatively young, in the growth stage of the life cycle, the number of direct competitors will likely grow as well. This continues until the more successful competitors begin to consolidate the market and push out the failing firms; usually in the maturity stage. An analysis of product life cycle will help you to forecast what may happen to the number and strength of your competitors. Competitor growth is not always due to new business formation. Some of your most dangerous direct competitors may be established firms that decide to expand their product lines to include yours. The fact they are known entities lends credence to their claims of expertise in any market segment they choose to enter. In one step they move from being indirect competitors to being direct competitors. This is the most threatening type of competitive growth; and a strong sign that your product is entering its growth stage. Competitive Allies: Similar to indirect competitors, competitive allies also want your customer's limited dollars, and they have a product or service that is in some way related to yours. Most managers don't take indirect competitors into account at all, they concentrate on direct competitors, and they cooperate with their allies. Their relationship with competitive allies, on the other hand, may be rather unique and delicate in nature. The entire relationship may consist of a strange type of unspoken truce. Competitive allies may sell the same products and services as your firm, but may not be in direct competition because they are operating in a neighboring region. They might deal with government buyers while you deal only with the private sector. There will be something that sets the two firms apart, and keeps them from directly interfering with one another's activities. Some of your staff people may have worked for them, and some of theirs might have been with you. You might occasionally contact one another to exchange parts or inventory when meeting a rush order. There may be a bond because both of you are in direct competition with a third company. They may even send you customers that would be a better fit for you than for them…and you may return the favor. They are still, however, in competition and will first try to satisfy a potential client before making a decision to pass them along. The main difference in this competitor is that you have the luxury of watching your customer instead of your back. The competitive ally may even become someone you can feel comfortable with and send referrals to with confidence. Allies: Allies are usually in the same marketplace, but in a different aspect of the industry. The Ally generally isn't trying to satisfy or serve the same needs as the firm they are allied with. The products of Allies are often complimentary and the use of one product might lead to the use of the Ally’s product, or vice versa. Allies are of value to each other because they can, together, better serve the client and therefore increase their business while increasing the customer's satisfaction. An alliance is a way of allowing others to leverage your organization’s skills and knowledge while you gain leverage from theirs. Alliances can be delicate or strongly knit, they can be short-lived or enduring, and they are often unspoken but understood. It is always wise to remember that an ally may still be an indirect competitor in some areas and will place their needs before yours. And even a good Ally must be reminded from time to time that you exist and that the relationship has value to them. The relationship has to be nurtured. We must keep in mind, throughout this process, that these categories are nothing more than an attempt to organize a response to different types of activity in the market. This can result in some pretty gray areas. For example, an organization that is an ally on one day, may the next day be allied with your direct competitor. In the same context, a competitive ally may send you a referral in their territory if they are simply too swamped to handle it, making them more like an ally for that moment. Many of your competitors simply won’t fall into a category and stay there. Still, categorizing the competition is a good start to understanding them. And seeing what is going on around you, through such understanding, is mighty important. It's true that a manager's main focus should always be on the customer, but in today's marketplace some peripheral vision is a good thing to have. In our next column we will continue to develop our analysis of the competition; in whatever category we place them. (next article in series) |
