:Most industries include smaller firms that specialize in producing products or in offering services to specific sectors of the market,
Most industries include smaller firms that specialize in producing products or in offering services to specific sectors of the market, i.e. in specific segments. In so doing they avoid the competitive thrusts of the larger firms for whom specialization does not offer attractive economies of scale, that is, the segments are too small to generate the kind of return on investment that the larger firms require. This is a strategy called market niching.
Market niching is a strategy that is not only of interest to small firms but is also of interest to the small divisions of larger companies. The latter firms seek some degree of specialization. In cases where the latter occurs the position of small firms is not quite so secure. From a firm’s point of view, an ideal market niche is:
(a) of sufficient size to be profitable to a firm serving it (b) capable of growth (c) of negligible interest to major competitors (d) a good fit with the firm’s skills and resources.
Specialization is the corner-stone of market niching. There is strong evidence to show that a strong brand in a niche market
earns a higher percentage return than a strong brand in a big market. In the case of large markets, competitive threats and retailer pressure can hold back profits even for the top brand.
COMPETITION RESEARCH
Many of the same factors that a firm considers under self analysis are also relevant when looking at competitor analysis. Among these the components of the value chain need to be considered in the context of evaluating competition (see chapter 3). In addition to this the following is relevant to competitor analysis.
UNDERSTANDING COMPETITORS’ STRATEGIES
Understanding competition is central to making marketing plans and strategy. A firm has to be regularly comparing its products, prices, channels of distribution and promotional methods with those of its competitors in order
110 ANALYSING COMPETITION
to ensure that it is not at a disadvantage. In so doing it can also identify areas where it can gain a competitive advantage.
In order to establish a sustainable competitive advantage in the market place it is necessary to know and understand the strategies adopted by competitors. This is more than noting in which markets/segments the competition is operating and their respective market shares and financial performance. In addition, it is important to consider how competition will develop in the future and thus to ascertain the focus of the strategies that competitors are pursuing.
Firms need to monitor competition continually. The main need is for information regarding:
• sales • market share • profit margin • return on investment • cash flow • new investment • in addition, knowledge of competitors’ financial performances is useful.
Such information enables firms to gain comprehensive impressions of their rivals that may be useful in predicting short-term strategies to be adopted by competitors. A knowledge of competitors’ specific objectives would be very welcome since these would give clues as to future strategies that competitors are likely to pursue. This kind of information may be difficult to obtain but may be inferred from present or past activities.