Identifying Competitors

Identifying Competitors
                   The first step in a competitive analysis is to determine who the competition is. This is more difficult than one might think. For example, take a company such as 1-800-FLOWERS. Primarily, the company sells flowers. But 1-800-FLOWERS is not only in the flower business; in fact because flowers are often given for gifts, the company is also in the gift business. If the company sees itself in the gift business rather than just the flower business, it has a broader set of competitors and opportunities to consider. In addition, some firms sell products or services that straddle more than one industry. For example, a company that makes computer software for dentists’ offices operates in both the computer software industry and the health care industry. Again, a company like this has more potential competitors but also more opportunities to consider.
Direct competitors:
                    These are businesses that offer products identical or similar to those of the firm completing the analysis. These competitors are the most important because they are going after the same customers as the new firm. A new firm faces winning over the loyal followers of its major competitors, which is difficult to do, even when the new firm has a better product.
Indirect competitors:
                    These competitors offer close substitutes to the product the firm completing the analysis sells. These firms’ products are also important in that they target the same basic need that is being met by the new firm’s product. For example, when people told Roberto Goizueta, the late CEO of Coca-Cola, that Coke’s market share was at a maximum, he countered by saying that Coke accounted for less than 2 percent of the 64 ounces of fluid that the average person drinks each day. “The enemy is coffee, milk, tea [and] water,” he once said.18
Future competitors:
                   These are companies that are not yet direct or indirect competitors but could move into one of these roles at any time. Firms are always concerned about strong competitors moving into their markets. For example, think of how the world has changed for Barnes & Noble, Borders and other brick-and-mortar bookstores since Amazon.com was founded. And, think of how smartphone technology continues changing the nature of competition for a variety of firms including those selling entertainment services, telephone services, and the like.
                    It is impossible for a firm to identify all its direct and indirect competitors,
let alone its future competitors. However, identifying its top 5 to 10 direct
competitors and its top 5 to 10 indirect and future competitors makes it easier
for the firm to complete its competitive analysis grid.
                  If a firm does not have a direct competitor, it shouldn’t forget that the status quo can be the toughest competitor of all. In general, people are resistant to change and can always keep their money rather than spend it.19 A product or service’s utility must rise above its cost, not only in monetary terms but also in terms of the hassles associated with switching or learning something new, to motivate someone to buy a new product or service.20
                   Creating meaningful value and sharp differentiation from competitors are actions small firms in crowded industries can take to remain competitive and gain market share. Three firms that have successful accomplished this are profiled in the “Savvy Entrepreneurial Firm” feature.