Consumer and business markets have distinct characteristics by which they function. Earlier, importance was given mainly in understanding customer and their business. But in this age of technology and globalization companies cannot afford to ignore competition. Many companies are lowering their cost by outsourcing production to Asian countries. Companies must keep an eye on strategies and marketing program undertaken by competitors, to remain successful.
Michael Porterâ€™s five force model is appropriate in identifying competitive forces, which affect business in any given environment. These five forces are the threat of companies from same segment, threat of new entrants in the segment, threat from substitute products, threat from the increase in consumerâ€™s bargaining power and threat from supplierâ€™s bargaining power. If in the same segment there are too many players, if the segment is reaching saturation, if no further scope of expansion than to continue operation is difficult for the company. If the entry barrier are few and far than it makes easy for companies to enter, making segment un-attractive but if the entry barriers are tough than the company is
better off in entering the segment. Substitute products are big threat and limit scope of a price increase. If consumers are better organized, have a choice in terms of product available and can create pressure on profits, making segment un-attractive. Similarly, if suppliers are better organized, less in number and supply is a key raw material for final output than also segment is unattractive.
Dealing with threats is one thing but if companies are not able to identify their competition than it can cause serious consequences. In recent years technology and internet have change the way business is conducted. Many companies were caught napping with respect to competition coming from the internet. Retailers like Wal-Mart and Target are facing competition from online retailer Amazon.com. Companies see competition in a direct format. This direct format consists of industry structure, number of players, entry-exit barriers, business model and ability to globalize. Market looks at competition in much more holistic manner where different products can satisfy a similar need. For example, for teens fashion can be explained by apparel to a music player, so with limited budget choice can only be one. Market approach increases the number of competitor in a real and abstract manner.
Companies after going through the process of identifying competition, also need to do in-depth analyze in terms of nature, strategy, strength, weakness and operation pattern. Companies following similar strategy need to group existing player in a matrix of product offering. For example, in the laptop market, apple is on the high end where as Dell offers low end models. Companies need to understand competitorâ€™s motive and goal to be in the market. US companies believe in shareholder value where as Japanese companies believe in market share. Next companies need to understand competitorâ€™s strength and weakness. For example, GM has good reach in USA but its weakness is quality where as Toyota does not have extensive dealer network but offers quality. Competitorâ€™s operating pattern also need careful study like competitorâ€™s action in the face of challenge to their position in the market.
To deal with competition companies need to design an intelligence system. Companies need to identify parameters which will help in analyzing the competition. It is then followed by gathering information for which source and methodology have to be finalized. Once the information is collected it has to be analyzed and sent to appropriate decision makers to act upon. As there are cost involved in design and maintaining such system, some companies give out contracts to companies which specialize in intelligence gathering activity.
The information from system is helpful in designing marketing strategies. Marketing strategy evolve depending on company position in the market. Market leaders, market challenger, market follower and niche players are four types of position strategy companies follow.
Dealing with competition is not an easy task and it requires dedicated resources of manpower, system and budget. Any lapse from company would result in decrease of market share and profit.