Analyzing the competition.

This, the third and final installment regarding competitive analysis, will cover anticipating competitors' actions and reactions. Anticipating competitors' actions both without an intrusion of a new supplier and then with the addition of a new supplier and product is a very important portion in competitive analysis.

In the top graphic on the next page we see that two competitors have both a high propensity to attack and capability to attack making ABC and DEF "dangerous" to compete with in this market. Conversely, XYZ, GHI and JKL are considered either no threat or good competitors in this scenario.

Five steps are required in the fundamentals of competitive evaluation: 1. Defining the competitive arena for generic, specific, and variant products; 2. Identifying and describing key competitors; 3. Evaluating key competitors; 4. Anticipating actions of competitors; and 5. Identifying potential competitors.

Steps four and five in the analysis consider what each competitor may do with and without certain competitive stimuli and the identity of potential competition beyond the immediate direct offerings, that is, indirect competitors.

Competitors' future strategies may continue in the direction that they established in the past, particularly if no major external influences require them to change their strategies. Nevertheless, assuming that an existing strategy will continue is not wise. Competitors' current tactics may signal probable future threats.

By understanding competition from an "insiders" perspective--that is as though you were within their operations--and developing a SWOT (strengths, weaknesses, opportunities, and threats) detailed matrix at least once annually, you will create a business analysis format that helps anticipate competitive changes as well as competitive reactions to yours as well as others' value system changes.

New Competitors

New competitors may evolve from four sources: companies competing in related markets; companies with related technologies; companies already targeting similar customer groups with other products; and/or companies competing in other geographical regions with similar products. New competition market entry is more likely to occur when these conditions exist:

* High profit margins are being achieved by the market incumbents;

* Future growth opportunities in the market are attractive;

* Few to no market-entry barriers are present;

* Competition is limited to one or a few competitors; and

* Gaining an equivalent (or better) competitive advantage over existing firms serving the market.

When one or more of these conditions are present, new competition will probably appear.

When considering an entry strategy into a new market arena, one must anticipate the relative competitive incumbents' speed of reaction to your entry as well as its relative costs to respond as a deterrent.

In the example on this page we se one competitor that will not only respond quickly and aggressively to defend its market position, but will do so at a low relative cost to its' own position. Therefore, we must measure not only the willingness of competitors to attack a new entrant and its ability to do so, but also the competitors' speed of attack and relative internal cost to do so.

Increasingly we find that change and turbulence, rather than stability, characterize many coatings, adhesives, sealants and specialty chemicals segments product/markets. Additionally, it is often possible to identify the forces and undertows that will alter these segments structures. These influences are not easily identified, but organizations that choose to invest substantial time and effort in anticipating the future create an opportunity to gain competitive advantages in the process.

Hamel & Prahalad offer a blueprint for analyzing the forces of change. Here is a brief outline of their suggested questions: What are the influences (discontinuities) present in the market that have the potential to profoundly change market/competitor structure? Investigate each discontinuity in substantial depth. (How will the trend will affect customers? What is the economic impact? How fast is it developing? Who is exploiting this trend? Who has the most to gain/lose? The new product opportunities that will be created by this discontinuity? and? How we can learn more about this trend?)

Following this blueprint requires in depth evaluation of the relevant forces of change in a product/market and other markets that are interrelated. Anticipating the future requires searching beyond the existing competitive arena for influences promising to affect product/market boundaries. The process further, requires the involvement of the entire organization and demands a substantial amount of time commitment.

A company with market-oriented and multifunctional processes should be able to utilize those processes for anticipating the future. It is also apparent that developing a vision about the future needs is an ongoing process.

Phil Phillips can be reached at [e-mail].