“To be master of any branch of knowledge, you must master those which lie next to it; and thus to know anything you must know all.” – Oliver Wendell Holmes
For you to be a success in business, you need to be in constant touch with your competitive environment. You need to make sure that what you do matches the evolving customer expectations. This is easier said than done. You can’t adapt your strategy to meet the needs of the changing market dynamics unless you perceive them in a correct manner. The inability to recognize or predict the trends and movements in your industry, buyer preferences, economy, and other macro factors can not only affect your market position but also your profit margins, sales, and growth. Hence it is imperative that before you embark on your journey to implement strategies for developing or maintaining your competitive position, you need to understand the various competitive forces at play.
You cannot control the environment you operate in, but with a good understanding of the environment, you can adapt your strategies to leverage opportunities or protect yourselves from potential threats.
Research shows that organizations whose strategies are attuned to their environment achieve 4% to 8% higher annual total shareholder return. With an objective assessment of the broader business environment that your firm faces, you can prepare yourself for the challenges and opportunities coming your way.
The diagram below highlights the various elements in your business environment that could impact your firm’s success. If you ignore any of these elements you could be setting yourself up for failure. Using competitive intelligence to keep tabs on these environmental factors will help you develop a robust plan to reduce market risks and identify opportunities for growth.
Customers & Prospects
Your customers buy your products, your competitors don’t. If you listen closely enough, your customers will provide the most meaningful insights for your business. In the age of the internet, the customer is as well informed about your product as you are and is aware of all his options. Your customer knows what your other customers have to say about you and is not patient enough for you to change your price or quality. The customers will only stay loyal to you as long as your product or service continues to satisfy their needs. Hence it is important that you seek information from them on how to serve them better. Customers can also be a great source of ideas for feature enhancements, new offerings and alternative uses for your products. You need to be informed of your customers’ changing needs and adapt to continue to deliver value. Hence you need to start your competitive intelligence process with your customers to understand what they really want, and how you can deliver value to them before your competitor does. Competitive intelligence supported by traditional market research can provide you with the right intelligence and observations to help you know your customers better.
Competitors
Your competition is any firm, tool or individual that offers a similar product or service as yours and solves the same customer challenge that you do. Competitors are a critical part of your business environment and it is important that you pay attention to what they are doing. Knowledge about how your competitors are positioning themselves in the market, which consumer segment they are targeting and what customer needs they are catering to can help you differentiate your offering and target the opportunities that they are missing out on. Once you identify your primary competitors, you need to ascertain their strengths and weakness and try to benchmark your product or service against theirs. This will help you understand if they are solving a customer challenge that you aren’t and if they are successfully delivering some value to customers that’s different. Keeping an eye on your competitors can help you learn from their mistakes and keep you informed about the marketplace.
Suppliers
Your suppliers have a stake in your business and where your industry is headed. This makes them a good source of information for trends, opportunities, and threats. If you pay attention to what is happening to your suppliers (raw material or packaging providers), you will be able to get a better picture of how the supply or usage of your raw materials may be affected due to changes in your supplier’s industry. You suppliers may also be able to provide you with meaningful information like other companies (potential competitors) that are also sourcing their materials from them.
Distributors
Analyzing your distributors can throw light on some critical information – how and from whom are your consumers buying your products (direct sales, online, resellers)? What are the preferred channels and why? For many industries, distributors are the buyers and the intermediaries to other customers. They sometimes have a better understanding of what your customers need and want and are also aware of your competitor’s strategies to stay competitive. They know what is working in the marketplace and can help you assess the strengths and weaknesses of your company (from an internal perspective) and the opportunities and threats that await you in the marketplace. These critical pieces of information can help you adjust your go-to-market strategies and offerings to gain a sustainable competitive edge. Why would your distributors share this information with you? Because in case you become a raving success, they don’t want to miss out.
Substitutes
Even though you may not understand why, customers do buy substitutes. Substitutes are viewed as alternatives for your product or service by your customers. Even though the substitute may not directly rival or be of the same quality as your offering, the customer sees enough merit in the substitute to warrant a purchase. Every substitute sold is a sale that your company did not make. The differentiators or advantages of your product or service were either not conveyed well or did not matter to the customer buying the substitute. Hence it is a good idea to find out if there is a substitute product or service that may impact your business and understand why it appeals to customers who could be buying your product instead. Understanding why your customers are attracted to the substitute can help you adapt your offering to give the customers what they want.
Technology
Technology has made many booming businesses bite the dust by introducing new and unexpected competitors. Technology changes the way people consume your products. Technology can either give you a competitive advantage or catch you off guard. With the advent of the internet, local players are now losing business to global competition. Undeniably, technology has made the competitive landscape much more uncertain. When studying the competitive landscape, it is important that you keep a track of the latest innovations/technology advancements in your domain, competitor’s R&D strategies and key patents that could affect your business. New technologies can impact your product, service, or industry, directly or indirectly. A regular technology watching exercise will keep you informed when your competition or industry starts leveraging new technology, giving you time to plan your future plan of action.
Demographics
Changes in demographic variables will affect your business. An aging population may change the need for your product or may even change the way it is being used, a growing population or an immigrant boom, on the other hand, may create new opportunities for your business that you may not have previously expected. Market research and competitive intelligence can help you understand who is buying your products, their attitudes, their complaints, and frustrations. For example, a lot of companies have been struggling to connect with Millennials because the traditional methods of marketing are not working on them. Many companies even chose to believe in the inaccurate myth that Millenials aren’t brand loyal to justify their failing marketing methods. What corporations have failed to understand is that Millenials are different in their attitudes and behavior when compared to their previous generations and hence the old school ways of advertising do not appeal to them. Demographics are part of the competitive environment and keeping a keen eye on how your target demographic is changing will help you ratify your assumptions about them and help you adapt to their needs.
Culture
Culture or the broad segment that includes society, lifestyles, and attitudes is constantly changing. Analyzing where the culture is headed, gives you the opportunity to determine whether your products or services live up to the current societal trends and concerns. Understanding the prevalent or emerging culture can help you realign your marketing or offering to match these societal shifts. For example, in 1863 as more and more Swiss women joined the workforce, the need for a quick to prepare yet nutritious product emerged, which led to the creation of Maggi instant noodles. Similarly, the recent investment surge in the solar energy and electric car space is due to consumer’s preference for environmentally friendly products and increased awareness about the effects of global warming. Even though social trends may not seem important to you, they do affect your product or service as much as the other factors that impact your business.
Economy
Periods of recession and boom impact consumer spend and behavior. Keeping an eye on the trends and turns that economy is going through can give you a heads-up about what changes are likely to take place with respect to consumer spending. If you spend time in understanding the economic climate and how it is impacting customer behavior, you will be able to adjust your offerings and marketing strategies to maintain sales even when the tide is turning for your competitors. During times of recession, even though people may be adjusting their budgets and rethinking their spends, they are still buying and may react better to promotional offers or bulk discounts. By adopting a well-informed strategy designed to cater to customers according to their changed outlook, you can win customers from your competitors who may adopt a simple cost reduction strategy during a recession.
Government or Industry Regulations
Many industries like Banking, Insurance, and Pharmaceuticals are directly impacted by the regulatory policies of the countries they operate in. The regulatory policies progressively shape the structure and code of conduct for such industries and the players within. In a recent example, Volkswagen became the target of regulatory investigations in multiple countries for using defeat devices during emission tests. This not only leads to a stock price crash for Volkswagen but also lead to criminal liability in the tune of billions. As a result of the regulatory body’s crackdown, diesel cars have become significantly expensive and less competitive in order to stay compliant with the new emissions regulations. As a result, the industry is witnessing a transformation where small diesel engines are being replaced by bigger ones, and electric car sales have risen. Government and industry regulations do pose a challenge in the form of uncertainties that may affect your business decisions. If you choose to not do your due-diligence or ignore the pending or proposed legislation that can impact your products or services, you may find yourself in a regulatory mess, which may mean a world of trouble.
Other Industries
Your business may sometimes be impacted by movements in other industries as well. Therefore there is value in being aware of industries that may not be directly related to your business but could impact you nonetheless. For example, the recent fall in oil industry favorably impacted the airline industry, for which fuel was a major component of its operating costs. A decline in oil prices helped the airline operators improve their bottom lines which in turn gave them opportunities to expand into newer routes and make investments for modernizing their fleets. Similarly, a change or disruption in any industry that impacts your suppliers may also be worth taking note of. If your suppliers are hit by disruptions in their environment, sooner or later it will impact your business too.
In Conclusion
Only when you see the competitive landscape as a whole picture, will you uncover the real truth. Fixating on just one or two elements of your competitive environment, like competitors, will only provide a myopic view of your playing field. There is a multitude of forces that impact your business, an early indication of how these forces could affect you will help you adapt and maintain your competitive edge. It is important to understand your business environment as it will dictate the strategies that you will adopt. If you work in a predictable business environment, you are one of the lucky few and a classical strategy may work for you. If you, like most other businesses, face a more unpredictable business environment, you may need to build adaptive strategies based on how the marketplace is behaving. Observing what is happening within and outside your industry and keeping an eye on all the competitive forces that have the potential to impact your business in any way can help you reduce your risks and identify the right opportunities. Without an objective view and external perspective, you may be relying on your past experience or assumptions which may not be concurrent with the new business environment that you face today.
More than 50% of companies fail to perceive their competitive environment correctly, resulting in strategies that fail to deliver.
If you are looking to understand the competitive environment that your business faces and prepare it for greater success, click here.
