Competitive Analysis

Generally, there are seven major components that make up abusiness plan. They are:

1. Executive summary

2. Business description

3. Market strategies

4. Competitive analysis

5. Design and development plans

6. Operations and management plans

7. Financial factors

The competitive analysis is a statement of the business strategyand how it relates to the competition. The purpose of thecompetitive analysis is to determine the strengths and weaknessesof the competitors within your market, strategies that will provideyou with a distinct advantage, the barriers that can be developedin order to prevent competition from entering your market, and anyweaknesses that can be exploited within the product developmentcycle.

The first step in a competitor analysis is to identify thecurrent and potential competition. As mentioned in the "MarketResearch" chapter, there are essentially two ways you canidentify competitors. The first is to look at the market from thecustomer's viewpoint and group all your competitors by thedegree to which they contend for the buyer's dollar. The secondmethod is to group competitors according to their variouscompetitive strategies so you understand what motivates them.

Once you have grouped your competitors, you can start to analyzetheir strategies and identify the areas where they are mostvulnerable. This can be done through an examination of yourcompetitors' weaknesses and strengths. A competitor'sstrengths and weaknesses are usually based on the presence andabsence of key assets and skills needed to compete in themarket.

To determine just what constitutes a key asset or skill withinan industry, David A. Aaker in his book, Developing BusinessStrategies suggests concentrating your efforts in fourareas:

1. The reasons behind successful as well as unsuccessfulfirms

2. Prime customer motivators

3. Major component costs

4. Industry mobility barriers

According to theory, the performance of a company within amarket is directly related to the possession of key assets andskills. Therefore, an analysis of strong performers should revealthe causes behind such a successful track record. This analysis, inconjunction with an examination of unsuccessful companies and thereasons behind their failure, should provide a good idea of justwhat key assets and skills are needed to be successful within agiven industry and market segment.

For instance, in the personal-computer operating-system softwaremarket, Microsoft reigns supreme with DOS and Windows. It has beenable to establish its dominance in this industry because ofsuperior marketing and research as well strategic partnerships witha large majority of the hardware vendors that produce personalcomputers. This has allowed DOS and Windows to become the operatingenvironment, maybe not of choice, but of necessity for the majorityof personal computers on the market.

Microsoft's primary competitors, Apple and IBM, both havecompeting operating systems with a great deal of marketing toaccompany them; however, both suffer from weaknesses that Microsofthas been able to exploit. Apple's operating system for itsMacintosh line of computers, while superior in many ways to DOS andWindows, is limited to the Macintosh personal computers; therefore,it doesn't run many of the popular business applications thatare readily available to DOS and Windows. To an extent, IBM'sOS/2 operating system suffers from the same problem. While it willrun on all of the personal computers DOS and Windows can run on andeven handle Windows applications, the number of programs producedfor OS/2 in its native environment is very small. This is the typeof detailed analysis you need in analyzing an industry.

Through your competitor analysis you will also have to create amarketing strategy that will generate an asset or skill competitorsdo not have, which will provide you with a distinct and enduringcompetitive advantage. Since competitive advantages are developedfrom key assets and skills, you should sit down and put together acompetitive strength grid. This is a scale that lists all yourmajor competitors or strategic groups based upon their applicableassets and skills and how your own company fits on this scale.

To put together a competitive strength grid, list all the keyassets and skills down the left margin of a piece of paper. Alongthe top, write down two column headers: "weakness" and"strength." In each asset or skill category, place allthe competitors that have weaknesses in that particular categoryunder the weakness column, and all those that have strengths inthat specific category in the strength column. After you'vefinished, you'll be able to determine just where you stand inrelation to the other firms competing in your industry.

Once you've established the key assets and skills necessaryto succeed in this business and have defined your distinctcompetitive advantage, you need to communicate them in a strategicform that will attract market share as well as defend it.Competitive strategies usually fall into these five areas:

*Product

*Distribution

*Pricing

*Promotion

*Advertising

Many of the factors leading to the formation of a strategyshould already have been highlighted in previous sections,specifically in marketing strategies. Strategies primarily revolvearound establishing the point of entry in the product life cycleand an endurable competitive advantage. As we've alreadydiscussed, this involves defining the elements that will set yourproduct or service apart from your competitors or strategic groups.You need to establish this competitive advantage clearly so thereader understands not only how you will accomplish your goals, butwhy your strategy will work.

Part four of seven. Tomorrow, we'll cover design anddevelopment plans. Tips are updated daily at 8:30am PST or 11:30EDT.