Competitor analysis is never just about obtaining competitor data. Rather it is all about crafting competitor understanding that you can use to outwit, outmanoeuvre, and outperform your rivals says Liam Fahey
One of the most common laments I have heard from executives is that their companies are awash in historical competitor data, but they are sadly lacking real insights into what the competitors will do in the future. The whole point of competitor analysis is to gain new and valuable insights that will significantly help your own organisation compete. In my work coaching management teams from global corporations to startups I have seen them sharpen their competitor analysis by focusing on three key tasks: outwitting, outmanoeuvring, and outperforming rivals.
Before I describe the three techniques, consider for a moment the example of a biotech company we’ll call ‘Omega.’ Their competitor analysis team was asked to analyse their largest competitor, affectionately known within the firm as the ‘Big Beast.’ The analysis would focus on one product group in which Omega had 20% global market share while Big Beast boasted a 60% share.
Omega’s executive team was concerned that Big Beast was about to ‘turn up the heat,’ based on comments they’d picked up by Big Beast’s management and salesforce indicating that aggressive marketing and sales initiatives would be launched within the next six months with the intent of ‘buying market share,’ as one Big Beast executive put it at an industry trade show.
The competitor analysis team began by reviewing Omega’s own strategy documents to identify Omega’s main assumptions about Big Beast, which had historically dominated the product market via new product launches, extensive marketing programs and an aggressive salesforce. Omega’s strategy documents revealed three assumptions about Big Beast:
- The product group in question appeared central to Big Beast’s product portfolio;
- Big Beast’s historic success in launching new products would likely lead to a significant revitalisation of its products group; and
- Big Beast’s strategic moves would not likely be constrained by financial wherewithal.
The competitive analysis assignment: Influenced by the three assumptions about Big Beast, the competitor analysis team was asked to integrate all its prior studies of Big Beast and conduct any further analysis it deemed necessary to address three questions:
- Where does this product line fit in the firm’s product portfolio?
- What was the firm’s commitment to this product line?
- What change might occur in Big Beast’s financial state over the next one-to-three years?
The major new understanding: After completing their assessment, the analysis team understood that Big Beast was pulling back from its historic commitment to this product line. Previously the executive team’s deliberations about its strategy to compete against Big Beast were driven by what one team member described as the ‘old understanding’: Big Beast would fight like heck, not just to protect its market position, but to extend it.
The core new understanding was informed by a new insight about Big Beast’s financial resources: Big Beast’s free cash flow had been drastically reduced in the past 24 months and the decline was projected to continue in the next twelve months. Omega’s executive team had been unduly influenced by the financial projections of a third-party industry consultants.
The core new understanding was also based on new understanding about the commitment of Big Beast’s top executives to this product line: Big Beast’s executive team was clearly focusing the firm’s growth initiatives away from this product line.
So how did the Omega team leverage their new insights? They focused on three key tasks.
1Outwitting competitors by gaining insight faster
‘Outwitting’ here means to outsmart or outthink rivals. In a nutshell, it involves quicker thinking – that is, understanding change in the competitive marketplace more quickly and more incisively than rivals. The initial emphasis should be on detecting change and projecting its possible market implications.
Omega outwitted Big Beast (and other rivals) by detecting its emerging shift in market strategy (that is, pulling back from its historic commitment to this product line), anticipating Big Beast’s likely next market moves (e.g., moving some salesforce members to other products) and projecting subsequent marketplace dynamics (e.g., some customers would need to seek supply from a provider other than Big Beast) before they became fully visible to rivals.
Outwitting typically involves challenging and refining long-held core assumptions. Omega now found it necessary to replace the old assumptions with new understandings.
By seeing the change in Big Beast’s marketplace thrust before it had formally communicated its intent to downgrade its investment in the product line, the firm was able to think about its strategy response far sooner than otherwise would have been the case—which greatly enabled the possibility of outmaneuvering.
2Outmanoeuvring competitors by using insights for preemptive action
Manoeuvring is what firms do to compete by leveraging their new insights: the strategic actions they take and the moves they make to get ahead and stay ahead of rivals. Outmanoeuvring rivals often occurs when a firm preempts rivals from doing something or forces a rival to change course by doing something unexpected.
Omega moved quickly to outmanoeuvre Big Beast. First, it speeded up the launch of the modification to its leading product with the intent of inhibiting Big Beast from proclaiming that its product was scientifically the most sophisticated in the market. It designed and delivered a communications program around the launch to signal to rivals and customers that it was upping its commitment to product line X. The intent was to motivate Big Beast not to add to its product promotion budgets. Perhaps, most aggressively, it developed a dedicated sales program to offer to several of Big Beast’s key accounts and channels ‘an incentive package’ (e.g., more favorable terms and conditions for six-month period) to migrate to Omega should Big Beast show any signs of wavering in its commitment to product X.
3Outperforming competitors based on the new insights
Outperforming focuses on achieving outcomes and results based on the new insights. It has two timelines, the present and the future; it must go beyond who has won and lost. Outperforming obsesses on identifying and assessing which competitors are positioning themselves to win in the marketplace of tomorrow and how they are planning to do so before the results or outcomes are evident for all to see in the competitive space.
Omega tracked monthly sales and estimated costs for all rivals. In the first months after its product extension launch, Omega’s margins and profits declined slightly due to the increased marketing, sales, and communications costs. But sales turned up later in the year when Big Beast formally announced it was deemphasising its commitment to the previously central product line.
Perhaps more importantly, Omega was the only competitor that was prepared to attack Big Beast at the time of its formal announcement. Its success in winning sales in Big Beast’s channels and key accounts surprised even the firm’s marketing team. Over a two-year period, Omega attained a roughly 40% global market share, doubling its previous position.
In summary, competitor analysis is never just about obtaining (legally and ethically, of course!) revealing competitor data. Rather it is all about crafting competitor insight—new competitor understanding that you can use to outwit, outmanoeuvre, and outperform your rivals.
Dr Liam Fahey is Professor of Management Practice at Babson College US, Cofounder of Leadership Forum and author of new book, The Insight Discipline (Emerald Publishing).