RAPAT® for Excel 365
Competitor Analysis Help Sheet

Why understanding the market competition is important

Before developing a new product or entering a new market it is essential to understand the competition in the market and the competitiveness of the proposed product within the market. Both the market (the micro environment where the business operates) and the company resources to support the business position will influence the business performance relative to the competition.

Understanding and achieving a strong competitive position does not only come from identifying and understanding one's competitors, it depends also on understanding and managing the five forces of the competitive environment (Porter's 5 Forces). These five forces are: Rivalry among existing competitors, threat of new entrants, threat of substitute products, bargaining power of suppliers, and bargaining power of buyers.

The collective strength of these forces determines a market's profit potential and hence its attractiveness. The stronger the forces, the lower the potential profitability. By understanding the strength of each of the 5 forces, this can be used to shape the business / product strategy to take advantage of areas where the business / product is potentially strong and improve areas where it is potentially weak. Understanding where the market competitiveness may be too strong to feasibly achieve market entry, is equally important as well as helping avoid taking the wrong steps in the future.

How to use the competitor analysis worksheet

At the top of the RAPAT “Competitor Analysis” worksheet, the “Competitor Analysis Sheet Completion Status” will initially be set to “Not started”. Use the dropdown list to change this to “In progress”, “Completed” or “Updated” as appropriate.

The competitor analysis is based on understanding the five forces of the competitive environment, in relation to the proposed product and its proposed market. Before undertaking the analysis of the 5 forces of the competitive environment it is really helpful to spend some time identifying the competition to the proposed product and business. In identifying and assessing the competition, it is important first to consider:

• What need my product is meeting?
• How is that need currently being met (competing products/substitute products)?

It is useful to identify each competitor, both direct and substitute competition. The table at the bottom of the Competitor Analysis worksheet can be used to record observations of each competitor. Think about how effectively the alternatives are meeting the need, where they may be stronger than the proposed solution and also where there may be gaps in the existing provision. These can be recorded as advantages and disadvantages in the competitor identification table.

The Competitive Intensity Analysis table introduces the 5 forces of the competitive environment in separate sections:

• Rivalry among existing competitors,
• Threat of new entrants,
• Threat of substitute products,
• Bargaining power of suppliers,
• Bargaining power of buyers

For each section, several questions help the user to evaluate the level of competitiveness. Each question is answered from a multiple choice selection via a drop-down list, specific to each question. Dependent on how each question is answered, this will indicate if the product has a low intensity of competition for that question (i.e. a strong position for the company), a medium level or a high intensity of competition (i.e. weak position for the company). These scores are accumulated for each of the 5 forces, to assess the competition intensity for each competitive force - low, medium or high. Competitive intensity is inversely proportional to profitability. Considerations related to the 3 levels of competitive intensity are presented below.

• Low competitive intensity: means that the external factors do not currently threaten the company's product and represent the most favourable situation.
• Medium competitive intensity: represents a situation where some of the external factors threaten the company's performance and need to be addressed in the business strategy. The business strategy should aim to increase the competitive advantage of the business product.
• High competitive intensity: represents an unfavourable situation where the external forces pose a severe threat to the potential product's performance and capability to produce a profit. This case identifies an environment of high competitiveness providing an impetus to substantially modify the strategy. The analysis can then be repeated to see if the external competitive intensity has been reduced.

Porter's five forces of the competitive environment

For each of the five competitive market forces a number of different factors may need to be considered:

• Rivalry among existing competitors: The intensity of current competition in the marketplace is determined by the number of existing competitors and each competitor's capability. Rivalry is high when many competitors are roughly equal in size and power, when the industry is growing slowly, when consumers can easily switch between competitors at little cost and when exit barriers are high, forcing companies to remain in the market even if profit margins are declining. Barriers to exit can include long-term loan agreements and high fixed costs/investment. When rivalry is intense, competitors are likely to engage in advertising and price wars.
• Threat of new entrants: New entrants into a market bring new capacity and desire to gain market share. The seriousness of the threat depends on the size of the barriers to market entry, for example the need to establish economies of scale, high customer loyalty for existing brands, large capital/investment requirements, the need for cumulative experience, government policies, and limited distribution channels.
• Threat of substitute products: The existence of products that cater to the same customer's need increases the propensity for customers to switch to alternatives. These are products that serve a similar need for the customers, but maybe in very different ways, for example choosing between diesel, petrol, electric, LPG or hydrogen powered car, but also choosing alternatives such as bicycle, motorbike, bus, etc. The presence of many substitute products affects a market's profitability.
• Bargaining power of suppliers: The power and control of a supplier to raise its prices or reduce quality, can lower a market's potential profitability. The number of suppliers and the availability of substitute suppliers both affect supplier power. The cost of switching suppliers, the presence of available substitutes, the strength of their distribution channels and the uniqueness or differentiation in the supplied product all affect their bargaining power. Businesses are in a stronger position when there are many potential suppliers.
• Bargaining power of buyers: The extent that customers are able to put the company under pressure also affects business profitability. Buyers have a lot of power when there are few of them and when they have many alternatives to buy from, when customers can easily compare prices, research a wide variety of products and access offers from other companies. Buying power is low when customers purchase in small quantities, act independently and when the seller's product is very different from its competitors'. Companies reduce buyer power by, for example, implementing loyalty programs or by differentiating their products.

Updating the competitor analysis assessment

The competitor analysis assessment will normally be undertaken at an early stage in the product development. However, it may be beneficial to review and update this at key project decision gates and/or investment points.

Using the output from the competitor analysis assessment

The output from the competitor analysis assessment is used to identify and understand the number and power of a company's competitive rivals, potential new market entrants, suppliers, customers, and substitute products. Each force may be of different magnitude and, either positively or negatively, influence a company's profitability. The Competitor Analysis Dashboard shows visually which of the forces represent the goal of low competitor intensity (green) and which represent high competitor intensity (red). All findings can help the business to plan strategically to achieve a high degree of competitiveness and leverage situations where there is more profit potential. The output from the competitor analysis assessment feeds into the definition of user requirements and the product commercialisation strategy, exploiting identified strengths and opportunities. It supports the commercial risk assessment, highlighting potential weaknesses or threats that need pro-active risk management.