The answer is that it depends upon the context. The adoption curve (see below) can provide some insights.
When a new product or service is launched into the market, the organisation’s main focus is to capitalise on any first mover advantages and achieve critical mass quickly. If the product or service is unique there is likely to be a window of opportunity in which there are no competitors. And even if there are active competitors, there is little point on focusing on competitors. Rather focus on targeting the innovators who will be prepared to pioneer the new product.
As the market takes up the product/service offering, early adopters will enter the market. They will feel that there is some evidence to support the value that the new product or service delivers and will be prepared to try the new offering. At this point, it is likely that the market will be growing reasonably quickly. Management’s focus is to capture as much of the growth as possible. Therefore the cost of undertaking competitor analysis as part of your business planning is likely to be higher that the benefits achieved.
When the market enters the high growth phase, the early majority will follow the early adopters. We are now into the mass market. New competitors will most likely have entered the market, being attracted by the margins and growth prospects that the opportunity provides. Notwithstanding the growth in the number of competitors, the market demand should be growing faster than the industry’s ability to satisfy demand. Under these circumstances, there is still little benefit in undertaking competitor analysis as part of your business planning process. If market supply exceeds demand, then the organisation will be seeking to capture as much of the pie as possible. Under these circumstances, it is definitely worthwhile to understand the capabilities, strengths and weaknesses that each competitor offers. Competitor analysis tools are available to support your business planning templates. Management can use this knowledge to differentiate its offer relative to other competitors.
Once the market reaches saturation, growth will slow dramatically. In order to maintain historical growth rates, let alone increase market share, management will need to:
- Capture as much of the late majority who enter the market because the product or service has become accepted by the mass market. For them, there is little risk in acquiring or using the product or service; and/or
- There is also likely to be excess supply in the market as the numbers of existing competitors are chasing declining market growth. Management’s focus now shifts to “taking the lunch away from other competitors”. To do this, management will need to have an in-depth knowledge of all competitors. Competitor analysis will definitely be worthwhile as part of the strategy planning process; and/or
- Some competitors are likely to be doing it tough if the costs of delivering the product or service are too high relative to other competitors. If it makes commercial sense, there may be some good opportunities to acquire selected competitors at below net asset value thereby consolidating the industry and increasing your relative market power.
- In any event, management will need to streamline operations and drive unnecessary costs out of the system. Any business planning process must examine ways of reducing cost and adding real or perceived customer value.
When demand falls off dramatically, the last category, the laggards enter the market. There are insufficient numbers of this category to maintain industry growth. It is important to note that in most first world countries, the majority of companies will fall into this category. Inevitably, there will be some industry shake out as some competitors find it unsustainable to incur ongoing losses. The remaining competitors could be forced to make some irrational pricing decisions just to keep the ‘engine room’ going. Knowing your competitors strengths and weaknesses and how customers perceive each competitor relative to you is essential in this environment. In addition, Management might be able to acquire some distressed assets as more and more businesses go into liquidation. It is imperative that competitor and competitive analysis tools must be incorporated into your strategic thinking and business planning process. And reinventing the business of the business is also a strategic imperative.