Competitor Analysis and Multimarket Competition

1. Competitor Analysisand Multimarket Competition The Role of Competitor Position in Crafting Strategy

2. Know Your Rivals • What: their objectives and strategies • Why? to predict their future strategies • Why? to guide own strategies • What: their strengths and weaknesses • Why? to compare with own strengths and weaknesses • Why? to evaluate opportunities and threats • Why? to build and sustain own position

3. Sources of information • Recorded data, e.g, annual reports; press releases; newspaper articles; analyst reports; tender offers; regulatory reports; government reports • Observable data, e.g., pricing; advertising and promotion; seminars and conferences; patent applications; presentations/speeches; trade shows • Opportunistic (anecdotal) data: from suppliers; distributors; customers and competitors; ex-employees

4. Hard-to-find information • Overall sales and profits • Sales and profits by market • Sales by main brand • Cost structure • Market share (revenues and volume) • Organization structure • Distribution system • Advertising strategy and spending • Customer/consumer profile & attitudes

5. Multimarket Competition • What: firms competing against each other in several markets in, e.g., • different geographical markets for the same products • different parts of a vertical • substitute markets • Why • Increase in related product diversification • Increase in geographic market diversification • Greater use of coordinated worldwide strategies • Results • “Mutual forbearance”: benefit of aggressive action in any market is reduced because rivals can retaliate in multiple common markets • True for repeated actions (e.g., promotional activities) but not introduction of innovations

6. Visual Aids • Multimarket Competitor Chart: displays competitors in common markets • Strategic Group Map: displays clusters of rivals along two dimensions of industry positioning

7. Simple Multimarket Competitor Chart 2000 2011

8. Global Product-Market Competition

9. Segment Multimarket Competition Pet Food Industry Economy Average Dog Food Gourmet Cat Food Moist Wet Dry Snack

10. Strategic Group Maps • A strategic group consists of rival firms with similar competitive strategies and positioning in an industry • A strategic group map displays clusters of groups within an industry based on two variables that you choose for their strategic significance.

11. Some Strategic Variables • Specialization • Brand identification (private label, brand) • Distribution channels • Product quality • Vertical integration • Cost position • Service • Price point ***Outcome variables like profit and market share should not be used to distinguish competitive groups

12. Constructing a Strategic Group Map • Choose two variables that distinguish competitors • Maximize contrast • Minimize correlation • Plot on graph • Represent firm/group size with circle proportional to market share OR • Begin grouping firms and then identify variables • Position firms on map • Represent firm/group size with circle proportional to market share

13. Example of Strategic Group Map in Stage 1

14. Luxury Goods Market Hermes Chanel Loro Piana Louis Vuitton Tiffany Burberry Gucci

15. Luxury Goods Market: Potential Variables • Target customer* • Top tier: (24%) not affected by business cycles • Aspirational: (36%) upper middle class; make luxury purchases “AOAP” • Accessible luxury: (40%) affluent middle class; make occasional luxury purchases when times are good • Scope of products sold • Degree of vertical integration • Distribution channel * Research by Bain and Co.

16. Interpreting the Map • Fiercest rivalry occurs within strategic groups • The closer the clusters, the stronger the rivalry • Firms attempt moves into different segments as industry conditions change • Mobility barriers: group-specific entry barriers that restrict movement across groups • Identify mobility barriers