This idea is based on the notion that groups of companies with similar strategic characteristics within an industry are in more direct competition with one another than other groups of companies in the same industry with dissimilar strategic characteristics. The strategic characteristics appropriate to form strategic groupings differ from industry to industry, but Johnson et al.9 include the following:
An example of strategic groupings for the UK brewing industry produced by Johnson and Thomas10 to illustrate how this concept works. The figure shows that there were four distinct strategic groupings in the UK brewing industry when this analysis was conducted. In this example, the strategic groupings (which show companies with similar strategic characteristics and/or following similar strategies and/or competing on a similar basis) have been arrived at on the basis of the extent to which the companies are national or local, and the extent to which they have diversified into non-brewing activities. Unsurprisingly, these two characteristics also appear to be linked to the size of the organization, with smaller companies being less diversified and more local.
Strategic groups in the UK brewing industry
Competitors’ objectives and strategies
As the strategic group analysis approach to analysing competitive industry structure indicates, in addition to structural characteristics of an industry, it is also important to assess how a company’s competitors compete (their strategies) and to what purpose (their objectives). If a company was contemplating entering a new market in which there were existing competitors, it would be important to analyse how these competitors compete. For example, competition might be based primarily on price;
it might alternatively be on delivery and quality. Whatever the basis, it is important to assess the extent to which the company can compete successfully on the same basis, or whether competing on a different basis might be more appropriate. In markets where competitors compete on a similar basis i.e. where their competitive strategies are similar, competition tends to be fiercer. Markets where there are a variety of strategies for competing tend to offer more scope for establishing a competitive advantage for a company and are usually more attractive.
Competitor objectives should also be considered in this part of the appraisal. In many organizations the overall objective may be to maximize profits, but objectives are rarely as simple as this. In any event, many companies that operate in the non-profit-making business arena still have fierce competition.
As an example of the importance of establishing competitor objectives, consider the case where a company establishes that its major competitor has objective of increasing market share with a long-term view to securing market leadership. Knowing this would not only indicate what the major thrusts of this competitor are likely to be, but in addition, the company would also begin to delineate what its defensive reaction should be. Similarly, if competitors are part of larger companies it is useful to know how they feature in the overall operation and plans of these parent companies.
Competitors’ strengths and weaknesses
Having identified competitors, assessed the competitive structure of the industry and assessed competitors’ present and future objectives and strategies, the next stage is to assess their relative strengths and weaknesses.
It is not too difficult to appreciate the importance of this part of competitive analysis. A soccer team manager assesses the relative strengths and weaknesses of opponents before deciding how to take them on. If major competitors are aggressive, cash rich and have lower operating costs than we have, it would not make sense to attack them on price. Similarly, if competitors are much larger than ourselves (and consequently more powerful) it would make more sense to avoid head-on confrontation and instead pursue flanking or niche strategies in the market. We examine the range of competitive strategies in subsequent chapters, but at this stage we need to consider the sort of factors that should be included in an analysis of their strengths and weaknesses.
Clearly, there are many factors against which we might assess the relative strengths and weaknesses of identified competitors. In addition, some of them would not be easy to assess. In order to help in this process of assessment it helps to proceed in a systematic and objective way using rating scales. One possible approach is as follows:
For example, if product quality, price and delivery are essential to competitive success in the industry, it makes sense to appraise your own company and competitors against these factors.
Better still, where appropriate get your customers to make the evaluation; after all it is their perceptions which count.
Having completed the evaluation, a company is then in a position to assess what its future competitive strategies need to be so that account can be taken of the relative strengths and weaknesses identified.
You will note that we have included in this assessment the assessing of the company itself; this is important as we are assessing relative strengths and weaknesses. The fact that competition is strong, but you are stronger, would result in a very different competitive strategy from one where the assessment shows that you are strong, but your competitors are stronger. Similarly, an assessment which showed your competitors to be weak, but your company weaker would result in different strategies from one where the assessment showed your company to be weak but your competitors weaker.
This sort of analysis can be useful in determining which competitors to attack (if any) and which to avoid. It is impossible to be definitive about the criteria for assessment. After all, the key factors for success will vary from industry to industry and even from one customer group to another. Certainly, financial and market strengths and weaknesses are likely to figure in most assessments, but it is for the marketing planner to determine the assessment criteria most appropriate to the circumstances. Owing to the importance of assessing ‘relative’ strengths and weaknesses we return to this important aspect later in the chapter when we look at the assessment of internal strengths and weaknesses.
Assessing and anticipating competitors’ reactions
A crucial stage in competitor analysis is to try to gauge how competitors will react in the marketplace, and in particular to assess how they might respond to your own competitive moves. In a sense this is similar to an army general trying to assess how his counterpart might respond in battle. Studying competitors can tell us a lot about their likely moves and reactions to such things as promotional campaigns, price cuts or new product launches. However, different competitors will react in different ways to different forms of competition. Kotler11 outlined four common ‘reaction profiles’ among competitors in 1997:
Likely competitor actions are perhaps the most difficult aspect of behaviour to assess. Even the most predictable of competitors can sometimes act or react unpredictably.
Competitor intelligence: collecting information on competitors
Competitor analysis requires an efficient and effective competitor intelligence system. One of the problems here is that competitors are not knowingly willing to volunteer information required for the analysis we have just covered. Indeed this information can be amongst the most difficult and sensitive of market information to obtain. Some sort of competitor intelligence-gathering goes on in most organizations. A competitor intelligence system should address the following:
There is a fine dividing line between what could properly be termed ‘legitimate’ intelligence-gathering activities on competitors and what might be termed ‘snooping’. At the extreme, of course, some intelligence-gathering activities fall into the category of industrial espionage, which may bring with it legal ramifications. Having said this, competitor intelligence-gathering is becoming more and more intense.
The lengths to which some companies will now go in order to collect this information is evidenced by Flax12 who lists at least 20 techniques for ‘snooping’ on competitors. In addition to the more conventional sources, such as competitors’ publications, balance sheets and past employees, Flax also includes more radical approaches such as ‘collecting competitors’ garbage’ and aerial photography.
Data for analysing the environment
The scope and complexity of environmental analysis means that the marketer can be involved in extensive data collection. As we have seen, not all this data is readily available. Moreover, the amount of data that can be required for environmental analysis means the marketer must be careful to avoid the problem of information overload. The marketer must discriminate between essential and nonessential data for the analysis. Data can come from a variety of sources: internal data, for example, can come from sales, accounts, customer service and research and development, whereas external data can come from secondary sources such as government publications and industry statistics, and from primary sources such as customer questionnaires and focus groups.
Much information for environmental analysis is collected online and analysed via computer-based information systems. We have seen the growth of databases which allow constant and instant access to up-to-date information on a company’s environment. These and other aspects of information provision for marketing analysis and decision making have already been considered in the previous chapter.
Problems and issues in assessing strengths and weaknesses
The assessment of strengths and weaknesses is central to the development of strategic marketing plans. In many case-based marketing courses and texts, this analysis is often suggested as being the starting point for students. Resource analysis, and interpreting what this implies in terms of strengths and weaknesses, is often misunderstood and performed poorly by academic analysts and marketing practitioners. Underpinning this misunderstanding are two basic factors.
First, assessment of strengths and weaknesses is complex and multifaceted and there is a need to exercise creativity, judgement and managerial expertise in the assessment process. Appraisal of strengths and weaknesses involves more than a ‘mechanical’ listing of organizational resources, although such a ‘listing’ commonly occurs in practice. Second, development of conceptual frameworks and methods to help marketing planners assess strengths and weaknesses have been poor. There is a need to recognize and deal with the practical problems and issues which confront the strategic marketing planner in this area. Specifically, it is essential to address the following questions:
We now turn our attention to each of these questions.
What attributes and activities should be included in the appraisal?
The first step in conducting an appraisal of strengths and weaknesses is to determine the attributes to assess, i.e. what activities and resources should form the basis of the analysis? According to what we assess in our strengths and weaknesses analysis, we will arrive at different conclusions and thus very different strategy formulations. Determination of the ‘right’ attributes to measure is not easy and requires considerable analysis and creativity.
The most common approach to analysing strengths and weaknesses is to use a checklist for the delineation of resources and/or activities to be assessed. For example, it is suggested that one should start by listing all the functional areas in the organization and then proceed to produce a list of all the attributes in each functional area which might conceivably be assessed for strengths and weaknesses. An example of this type of approach is:
Checklists are helpful in enabling the market planner to think more broadly about the range of factors which might usefully be assessed. However, there are three problems with the use of checklists:
There are many possible attributes which could conceivably be appraised. Analysis of all of them is extremely time consuming and costly. More importantly not all company resources and activities are strategically significant. This brings us to the second problem associated with using ‘standardized’ checklists.
A particular company’s resources and activities are strategically important. Which ones are vital to assess from a ‘strengths’ and ‘weaknesses’ perspective, are specific to that company and the roduct/market combinations in which it operates. It is crucial to asses the resources and activities which are what Ohmae13 first referred to as key factors for success (KFS) in the markets in which the company competes. KFSs are resources and activities that underpin the key factors that should be assessed. This point is strongly emphasized. This, in turn, means that each company must establish its own list of attributes for assessment according to its existing or proposed market strategy.
If a company does not know what these critical success factors are, it must establish them. It is important that the process of establishing these key attributes be carried out as systematically and objectively as possible and not based on guesswork of what management ‘feels’ the key attributes should be.
In most industries and companies the critical attributes against which to assess strengths and weaknesses will be ‘known’ to experienced marketing managers. For example, in the confectionery industry, both brand reputation and strong distribution are critical factors to competitive success and these will need to be appraised in any analysis of strengths and weaknesses. Similarly, for most companies, assessment of, say, financial strengths and weaknesses will be critical in delineating and selecting between alternative marketing strategies. It is often the case that relatively few factors will be critical to success or failure in a market. The key factors for success in the UK fashion jeans market are:
A company that has all of these attributes and remains a leader in this market, despite extensive competition, is the Levi Strauss Company. Building on its strong brand presence in this market, combined with a reputation for quality, Levi Strauss continues to innovate. The ‘Engineered’ range proved to be very popular. Levis focused on the quality end of the market with this product and its strong distribution channels gave it a competitive edge in the market. A key attribute for strengths and weaknesses assessment is how and why customers choose, and in particular what they consider to be of value. Customer needs assessment is crucial in answering the question, namely: ‘How can we evaluate what are strengths and what are weaknesses?’ A customer-oriented focus is vital. Before we consider this question we must consider the third problem in the checklist approach to assessing strengths and weaknesses.
Even after identifying key attributes for the strengths and weaknesses assessment, it is important to recognize that invariably individual attributes will be interlinked. A simple checklist approach, even if this is based on an objective, customer-based assessment of key attributes, fails to recognize this. For example, a company may be only moderately strong in, say, selling and sales management, branding and promotion, and product range when these are assessed independently. Looked at in combination, ‘moderate strengths’ may be such that it will render the company very competitive in the marketplace.
This concept of the combined effect of parts being greater than the sum of their individual effects as the concept of synergy was first popularized in planning by Ansoff.14 Synergy can be either positive or negative in its effect. The checklist approach tends to underestimate the importance of assessing the extent to which various activities and resources of an organization complement, or do not complement, each other. Very often it is the balance of organizational resources and activities which is crucial. Although this makes the assessment of strengths and weaknesses more problematical, it is a vital consideration. The question of ‘balance’ is increasingly being recognized as an important facet of a strengths and weaknesses appraisal and some of the more recent techniques and tasks of strategic appraisal such as portfolio analysis, are particularly useful in this respect.
How can we evaluate what are strengths and what are weaknesses?
Our second practical problem for the strategic marketing planner relates to the seemingly straightforward issue of what constitutes a strength or a weakness, i.e. what is involved in their evaluation. This is not straightforward. To illustrate this issue we consider first the question of what a strength is and the significance of distinctive competencies.
Second, we look at customer needs and the notion of value chains. Third, we examine once more the importance of evaluating competition. Finally, we look at the use of profiles in assessing strengths and weaknesses. To illustrate some of these key issues in evaluating organizational strengths, let us imagine a company has recently completed an analysis of its strengths and weaknesses and that this analysis suggests that the company has the following strengths:
Certainly, any company which possessed these attributes would seem to have a number of significant strengths. The key question for this hypothetical company is the extent to which these are truly strengths, and how the company arrived at this conclusion. Here are some of the important considerations in answering these questions.
First, how strong is ‘strong’? One of the considerations for the company is to assess precisely how strong the company is in each of the areas listed above. For example, the company feels it has a strength in the areas of after-sales service, but does this mean it is ‘very strong’ in this area, or is it only ‘moderately strong’, or is it simply ‘not weak’? At first glance, these distinctions may appear to be pedantic. Nevertheless, in strategic terms the degree of strength is crucial. Being ‘satisfactory’ or even ‘moderately strong’ along some dimension is very different from having a major strength. Where a company has a major strength with respect to some factor, we refer to it as having a distinctive competence.
Hamel and Prahalad15 clarify the importance of being distinctively competent as opposed to merely competent: ‘Differentiation must be unique. If every company in the industry has the skill, then it is not a basis for differentiation unless the organization’s skills in the area are really special.’ There are plenty of examples of companies going out of business because they have failed to identify real strengths, i.e. their distinctive competence as opposed to what they merely ‘can do’. Similarly, many companies fail to capitalize on marketing opportunities to which an identification of their true strengths might give rise.
Next, are these the factors which are relevant to competitive success? A second consideration in assessing a company’s strengths is to relate distinctive competence to customer needs. Let us assume that after-sales service in the company is a distinctive competence. We must then ask whether or not after-sales service is an important factor to its customers.
Put another way, the company has to determine the extent to which after-sales service is important in business success. The point here is that a company can be extremely strong in areas which are unrelated to business success, either in existing, or future/envisaged business areas. Such ‘strengths’ are not strengths at all and they can in fact constitute a major source of weakness if a company attempts to use these to compete strategically.
You will recognize that this consideration is related to the first problem of which attributes to include in the assessment of strengths and weaknesses. You will recall that it was suggested that the key attributes for a strengths and weaknesses assessment are those which underpin customer choice and in particular what they consider to be of value. It was also suggested that most experienced marketing managers in an industry will have a good ‘feel’ for what these key success factors are for their own product/market combinations and that often there are relatively few key factors. Nevertheless, both in the selection of attributes for assessment and in the assessment process itself it is vital to ensure that we understand what the customer considers value to be and the activities of the company which either add to or detract from this value. A useful concept in this respect is the concept of ‘value chains’.
Marketing Management Related Tutorials
|Consumer Behaviour Tutorial||Marketing Strategy Tutorial|
|Marketing Research Tutorial||Principles of service marketing management Tutorial|
|Advertising Management Tutorial|
Marketing Management Related Interview Questions
|Consumer Behaviour Interview Questions||Marketing Strategy Interview Questions|
|Marketing Concepts Interview Questions||Marketing Research Interview Questions|
|Principles of service marketing management Interview Questions||Advertising Management Interview Questions|
|Brand Management Interview Questions||Marketing Interview Questions|
Marketing Management Related Practice Tests
|Consumer Behaviour Practice Tests||Marketing Strategy Practice Tests|
|Marketing Concepts Practice Tests||Marketing Research Practice Tests|
|Principles of service marketing management Practice Tests||Advertising Management Practice Tests|
|Brand Management Practice Tests|
Marketing Management Tutorial
Development Of A Strategic Approach To Marketing: Its Culture; Internal Macro- And External Micro-environmental Issues
Markets And Customers: Consumer And Organizational Buyer Behaviour And Marketing Strategy
Markets And Customers: Market Boundaries; Target Marketing
Product And Innovation Strategies
Channels Of Distribution And Logistics
Customer Care And Relationship Marketing
Marketing Information Systems And Research
Analysing The Environment: (opportunities And Threats) And Appraising Resources (strengths And Weaknesses)
Evaluating And Controlling Strategic Marketing
Strategic Marketing Planning Tools
Services Marketing And Not-for-profit Marketing
All rights reserved © 2018 Wisdom IT Services India Pvt. Ltd
Wisdomjobs.com is one of the best job search sites in India.