Bury the Competition: The Competitive Analysis

Bury the Competition: The Competitive Analysis

“Number one, cash is king… number two, communicate… number three, buy or bury the competition.”

-Jack Welsh

Of the three pillars for a successful business strategy, competition is the most dynamic. Identifying competition and completing a competitive analysis is paramount to create a competitive strategy. The process of competitive analysis is constantly required as economics, industries, customers, competition, products and every other factor is constantly in motion, changing. The goal of competitive analysis is to gain enough customer insight to create a value proposition greater than that of the competition, as viewed by the customers.

This process is to answer the fundamental customer value equation to ensure your offerings (Value-Price) are greater than your competitors. The competitive analysis process is a nine step process to assure a dynamic, effective strategy. It is important to make sure you are completely realistic with all information in the competitive analysis, as assumptions and sanguine expectations are potentially dangerous and may lead you away from targeting the true value as viewed by the customer. Each step has specific requirements and tools required to employ the step. The nine steps for a complete competitive analysis which answers the big competitive questions are:

1.       Hypothesis development

2.       Quantitative Baseline

3.       Identify competitors

4.       Segmentation analysis

5.       Hypothesis review

6.       Business economics

7.       Competitor teardown

8.       Strategy implications

9.       Operational implications

Step 1: Hypothesis Development

Big Question: What is your initial hypothesis of the market, competition, product and customer? Where do you want to be?

To effectively develop competitive strategy one is required to build a framework and goals in which the wish to reach at the conclusion of the analysis. This initial stage needs to answer the fundamental questions to create an initial baseline. What do you hypothesize that you need to know about the competition? Your hypothesis should include how: competitors are impacting your business and you believe your customers view your products and why. You are also hypothesizing your competitive goal and competitive situation. Finally, you need to identify which specific Income Statement items you are looking to impact through this process to grow your business.

The main tool required for this step, Voice of Customer (VOC). To answer these questions and test your initial hypothesis, you must go to the customer(s) and get candid feedback. This is a great conversation to have as they know you are looking to improve and require them to be on that journey of continual improvement. This initial step will result in necessary qualitative data points from which you can move forward.

Step 2: Quantitative Baseline

Big Question: How does your product compare competitively to the competition and the market in general? Are you serving all of the right markets?

The next step in competitive analysis is an in-depth quantitative analysis. The goal from this stage is to gather data points to complete the baseline of your business through the costing, buying, market environment and value equation. First, you must determine your cost structure and cost drivers and the implications of your product’s cost (high fixed/variable). Looking at your products as a whole the revenue, profitability, price, operating income and part numbers for all SKU’s should be analyzed to determine operating elements driven by your product mix. When looking at price, determine what drivers the upper and lower prices. Next, looking at your entire market, determine the size, market share, and market leader. In determining market conditions for your product, your business model and elements required to serve the market should be analyzed and reviewed, as well as the share of demand by geography and segment. As an extension to the hypothesis testing, buyer behavior should be analyzed for each of these geographic regions and segments.

Upon gathering all of this data, determine if there are any gaps in segments or markets you don’t serve and figure out why they are not served. As a culmination of the quantitative baseline, determine the value equation for each of your products. This value proposition should be based on the market willingness to pay, where this is a measure of how much value is truly accrued by the customer in doing business with your company.

This step is more involved, but it addresses the critical issues of the products and markets from a strategic standpoint. The tools required to fully employ this financial teardown step are: business financial analysis, cost structure analysis, market analysis and value equations.

Step 3: Identify Competitors

Big Question: What is your current and future competition and competitive products?

After creating an internal baseline for your business, an external view is required to evaluate competitors in your markets. This analysis would create the competitive landscape to which you are comparing your value to the customer. First, identify the customers that you have competed against historically for the products I question. Next, determine market entrance – who has/will enter the market, how did they enter and why did they enter? Looking at the value proposition created at the end of Step 2, what are the trends or alternatives to that value proposition and do alternatives already exist? Last, looking at product and competitive alternatives or market trends, are there any disruptive technologies that may be coming or products that fill any known gaps in the market.

This broad identification of previous, current and future competitors will help create foresight and help spearhead each possible competitor? The tools required to fully employ this competitor identification are: competitor target, five forces analysis, and disruptive technology identification.

Step 4: Segmentation Analysis

Big Question: Comparing yourself to your competition what specific markets do they serve, how do they serve them and what business model do they use to serve those markets?

After identifying (potential) competitors the next step is to determine to what extent the competitor is competing with you, answering the question: where does the competitor play? Using segmentation and analyzing competitive business models will be necessary in determining what segments you compete and how competitors vary by segment. Determine the regions, verticals and products in which your competitor serves. Looking at the markets your competitor serves and how they reach the market, you can compare the markets you serve and determine why there is a difference or advantage. Last, ascertain the explicit business model of the competitor. Determine how this business models differs to yours and if both business models differ from that of the business model employed.

Step 5: Hypothesis Review

At this point in the analysis, you need to review the data and reflect on your initial hypothesis. In review of your hypothesis and data, you may need to update initial conclusions. In reflection, review the: observations about how your competitor competes and differs from you; hypothesis about how much value you deliver versus your competitors as viewed by customers; and findings so far – see if there are holes or areas which require further investigation.

Step 6: Business Economics

Big Question: What do the leaders in your industry do to make them successful, how does it relate to the global macroeconomic environment and how is that implemented in their strategy?

To determine next steps for the competitor analysis, a review of the business economics is required to make specific steps for your product. To properly position yourself in the market targeting the specific knowledge of your cost base is required. Per this assessment, review the business economics for each product based on the cost structure determined from Step 2.

Identify if your product has high fixed cost and is driven by supply/demand economics. If so, determine what drives your revenue streams and determine the supply/demand/cost curves for your product. In determining the business economics of your product on a macro level, what dynamics do you expect from your target/strategic countries in which you function over the next five years? Determine where your product stands in regards to those macroeconomic dynamics and how that differs from the competition.

Identify if your product has high variable cost and is driven by value/mix. If so, determine what drives the customer’s willingness to pay. Looking at each segment, establish: the segments you serve, the cost and price drivers in those segments, and the best set of customers. Compare this with your key competitors. Look at the market leader for each segment and determine: how they go to market; what is their segment strategy and value proposition; and why are they growing and profitable?

As a final step for business economics, determine where your strategy currently stands in regards to these economics and how that differs in comparison to your customer. Analyze these strategies, keeping in mind that the goal of the value proposition is to deliver substantially more value to the customer over time as viewed by the customer. Make sure it will stand the test of time.

Step 7: Competitor Teardown

Big Question: What are the quantitative data points of my key competition from which any and all of their value derives?

At this point in your competitor analysis, you should know the most important competitors for your product. Ensuring that you have a sound reason on why you picked them, do a complete competitor teardown depending on your cost structure, expanding upon the results of Step 6.

For high fixed cost product driven by supply/demand economics:

• What is your competitor’s: capacity, cost position, asset utilization, markets served, competitive position, value proposition, value equation, price, cost to serve drivers, etc.?
• How does this vary to your current measures? What are the implications of this?

For high variable cost product driven by value/mix:

• What is your competitor’s: segments served, price/cost ratio for the segment, cost to serve drivers, market approach, marketing mix, positioning, services offered, logistics, outsourcing/off shoring, footprint, overhead, best customers, cost of complexity, margin rates, growth, revenue, etc?
• How does this vary to your current measures? What are the implications of this?

Much of this data is difficult to obtain, especially within a B2B setting, but with customer/distributor interviews, sales force conversations and marketing research targeting these data points, much of this information can be obtained.

Step 8: Strategy Implications

Big Question: How can I update or confirm the value of my products through the competitive strategy I implement?

In reviewing a competitive strategy based on the information gathered, one must note areas of best practice in relation to growth, acceptance, and wins in each segment as well as where value is not being provided to the customer. Upon noting a competitive strategy, it is not enough to implement and copy the best practices, but to create a strategy to deliver substantially more value than competitors over time as viewed by the customers. After looking at the financial analysis, comparative analysis, value equations, value propositions and how each relates to the cost/price equation, your current strategy must be reviewed. If changes are required to target specific markets or segments lay out the specific changes that must occur in the strategy and a plan to implement the changes.

Step 9: Operational Implications

Big Question: How can I update or confirm the value of my products through the operational strategy I implement?

Beyond the market strategy, based on the information gathered, are their operational changes that are required in order to improve value of the product to the customer and closing any competitive gaps? If there are areas of concentration, identify the specific changes required and justify the necessity of this change, noting if there are other options in order to address the opportunity of improvement based on capabilities and financial resources. If changes are required and it is operationally justifiable, create a specific timeline for making and implementing these changes, ensuring that the changes fill/exceed any competitive gaps identified.

This process does not end at Step 9; the competitive analysis process is a continual process which should: confirm market position and mix, identify areas of expansion and opportunity, create a competitive market plan and most importantly create a strategy to deliver substantially more value than customers as viewed by the customers. Jack Welsh was correct in identifying that competitive awareness is of high importance and the strategy to bury the competition is necessary to grow, which can be done when strategic competitive steps are taken.

-thePonderingNick