Business Strategy: Identifying the Competition

Introduction

Many factors play a part in forming a successful business strategy. Part of this involves creating an effective competitive strategy. This helps the company develop an advantage over the competition. A competitive advantage occurs when the business provides a product or service that the competition does not, or when the company provides a better product or better service than the competition. The first step in creating a competitive strategy is to identify the competition. This article will discuss three methods of identifying the competition.

Industry Method

The industry method of identifying the competition is based upon the industry in which the business operates. The competition is identified as companies that produce the same or similar products or provide the same or similar services as your company. Using the industry method, a furniture manufacturer would identify other furniture manufacturers as competitors, and a cleaning service would identify other cleaning service providers as competitors.

The industry method also takes into account the level of competition within the industry. For example, assume an office cleaning service operates in a town that has one other office cleaning service and ten residential cleaning services. In this instance, the company would determine that there is a low level of competition in the office cleaning industry. However, an office and residential cleaning service may determine that there is intense competition in this town.

Market Method

The market method of identifying the competition is based upon marketing products or services to customer needs. The competition is identified as companies that fulfill the same customer need. Using the market method, a movie theater may identify the customer need as entertainment. Competitors could be identified as video rental stores, amusement parks, and concert venues.

The market method depends greatly on how well the customer need is defined. If the need is identified as musical entertainment, a concert venue might identify competitors as music stores and radio stations, but would not identify movie theaters as competition.

Strategic Groups Method

The strategic groups method of identifying the competition is based upon similarity in strategy. The competition is identified as companies that have similar strategies, resources, and customers. Using the strategic groups method, a discount clothing store with low pricing strategies would identify other discount stores, such as discount department stores, as competitors. Another example would be a high end furniture store with high quality product strategies, which would identify other high end stores, such as high end jewelers, as competitors.

The focus of the strategic groups method is business strategy. Strategic factors such as price and quality are often used to form groups of competitors. Using the strategic groups method, the discount clothing store would identify all discount stores as competition, not just other discount clothing stores. This method is much more complex that the industry method or market method. It is often difficult to identify the business strategy of other companies. Use of the strategic groups method requires and in depth understanding of the factors that businesses use to develop strategies.

Melissa Bushman has published additional articles at Associated Content. Please click her name at the top of this page to view her other work.

ReferenceCoulter

ter, M. (2005). "Strategic Management in Action." (3^rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall.