* * * *
It goes without saying that understanding the competitive landscape is crucial to identifying competitors and succeeding in the market. Consulting firms, such as Corporate Business Solutions Reviews, and academic strategists over the years have studied countless organizations and derived several competitive analysis frameworks. A few examples include:
- Porter’s Five Forces
- Industry Lifecycle Analysis
- Strategic Groups Analysis
We can use these established strategy frameworks to understand the competitive environment in our industry. Understanding competitive dynamics enables you to ask lots of other interesting questions.
Useful insights we discover include:
- How concentrated the market is.
- Competitor background (traditional, foreign, lots of new players).
- Positioning along the Value Chain.
- How competitors have evolved.
- What has happened to financials.
These insights lead us to the right, probing strategic questions, such as:
- How easy is it to grow market share?
- How easy is it to enter?
- Who are suppliers and buyers and what is their power?
- What are the key industry trends?
- Why is the industry in decline or growth?
Porter’s Five Forces
In the 1940s, the Structure Conduct Performance (SCP) framework was invented as a standard tool for market analysis. The SCP framework is now rarely used, as it has evolved into Porters Five Forces.
Michael Porter’s Five Forces analysis provides a framework for the structural analysis of an industry or a market. Porter assumes that competition in an industry depends on five basic forces:
- Potential New Entrants
- Internal Rivalry
- Suppliers
- Buyers
- Substitutes (and Complements)
The strength of each force for a particular industry is identified by considering important technical and economic characteristics. The collective strength of these forces determines the ultimate profit potential and allocation in the industry.
Porter’s Five Forces analysis is often used strictly qualitatively. But, quantifying findings broadens the scope for applications of this framework.
Industry Lifecycle Overview
Lifecycle Analysis presumes that sales and profitability in an industry follow a predictable pattern. In this model, we distinguish among five stages of development:
- Introduction
- Growth
- Maturity
- Saturation
- Decline/termination
Note that growth is still possible in mature categories, but typically will require greater investment or greater creativity than in less mature categories.
The model assumes that, as time progresses, markets move through distinct stages. Each stage is characterized by distinct attributes and thus, as has distinct competitive strategies that work well.
For instance, the Growth phase is characterized by significant increase in sales volume growth and profitability. It is also marked by decreasing prices due to competitive pressure. As such, successful competitive strategies include:
- Focus on building customer loyalty and repeat purchases.
- Invest in process improvement to reduce manufacturing costs faster than prices are falling.
- Proactively invest in capacity to maintain cost advantage and discourage additional competitive entry.
The results of Industry Lifecycle Analysis can drive a number of strategic hypotheses, such as:
- Forecasts of industry or product sales
- Estimations of competitors’ strategic moves
- Identification of the appropriate pricing for a product
Strategic Groups Analysis
Lastly, let’s take a look at Strategic Groups Analysis. The idea behind this framework is that companies that share similar strategies compete more directly with each other than with other firms in the same industry. They are conceptual clusters, as strategic groups are identified merely for analytical purposes in order to better understand competition within an industry.
An industry could have one strategic group if all the firms followed the same strategy, alternatively, each firm in an industry could be in its own strategic group. Identifying strategic groups may help focus analysis on more direct competitors.
Firms like Corporate Business Solutions can help conduct these competitive analyses for your organization.
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