Do you feel trapped in a bloody war to outdo your competitors? Better strategy can build a stronger defense against the competition and generate higher ROI on your strategic efforts. Attract and keep customers with tools like strategic group analysis map, SWOT analysis, competitive pricing analysis, blue ocean strategy, and porter's five forces that you can download and customize to your needs.
Execs need competitive analysis to get outside of what they think they're good at or what their competitors to do and switch course and pivot as they see areas of weakness in competitors for you to act on. Pivot in terms of technical changes or pivot in terms of brand image or brand positioning. No matter what you do, you feel if they actually need to give a presentation on your findings, the second half of the deck is great for that. With this explainer, you'll learn how top companies like McDonald's, Apple, Robinhood, and Netflix use competitive analysis to be at the top of their industry.
Strategic group analysis map
Competition is a company's biggest threat - but it also informs the company's business model to find unique services that provide additional value not provided by their rivals.
For example, think about the competition in the auto industry. There are so many automotive companies, from legacy giants like Toyota and VW with great assembly lines and scale to new EV upstarts popping up every day that want to compete and become the next Tesla. With a market cap of over $700B, can you blame them? But with so much competition, how do any of these startups offer something unique that other legacy brands don't can't? A strategy group analysis can help.
Strategy group analysis maps, or SGA maps, plots companies in the same industry into different positions on a map. The dimensions, or what will be represented on the map's x-and-y-axis, are first determined depending on what are the most important angles to analyze.
For instance, other dimensions to measure could be brand identity, distribution channels, quality or technology, level of vertical integration, or specific cost position or services offered. In this case, the y-axis represents price and quality while the x-axis highlights the geographic coverage of competitors, or how many locations they have throughout the world. You then group the players according to where they land and plot them on the map.
For example, a brand with high price and quality but low geographic coverage could be a premium retailer, like Porsche or Lamborghini. A retailer with a lower price but much higher geographic coverage would be Toyota.
When all the main players are grouped up, you can use this assessment to evaluate each player's strategy and determine where there is flexibility to enter the market or where the barriers to entry are too high. (Slide 11)
Once you've analyzed your competitive landscape, it's time to assess yourself. SWOT Analysis is a common framework used by execs to determine their company's strengths, weaknesses, opportunities and threats. Strength and weaknesses are internal, company oriented, while opportunities and threats are more external, macro-oriented. (Slide 10)
One of the more interesting companies to analyze with a SWOT analysis is the retail investment app Robinhood. Robinhood was founded in 2013 and recently reached over 18 million funded accounts with $100B under management. Currently, that makes the company the third biggest brokerage in the world. In 2020 alone, the company grew its revenue from $277M to $958M, around 245% annual growth rate.
Robinhood's key strength is its commission-free trading that allows anyone to buy fractional shares of stocks, ETFs, options, and even crypto at any price. It also has an easy-to-use mobile UI and its core service is innovative in that it solves a problem for a majority millennial audience to help make investing affordable.
Now for some weaknesses. The average Robinhood user has around $5,000 per account vs the average Charles Schwab user, which has around $100,000 per account. The Median amount in a Robinhood account is even lower at $240. This limits Robinhood's resources to grow. By contrast, Charles Schwab makes 50% of its revenue purely off interest from its users' accounts, which reached as high as $6.1 billion in 2020. Another way Charles Schwab makes money off account management fees, while Robinhood makes 80% of revenue from payment for order flow. This payment structure is also an external threat against Robinhood, as the SEC recently fined the company $65M for misleading users with the process.
However, Robinhood has opportunities to grow more vertical and offer additional portfolio services. It recently made announcements it would offer crypto wallets and 24/7 customer support, and could even grow with additional advising and consulting services
In addition to SWOT analysis for your own company, you can conduct a SWOT analysis on a competitor to identify any weaknesses that happen to be your strengths. These can be enablers for your growth, while external forces like regulations lobbied against you or your industry could be challenges to overcome.
Competitive pricing analysis
Pricing is a huge element of competition. For products with only so many variations, price competition can be the main way to get ahead of your competitors. So how do you decide how to price your products?
In order for McDonald's to stay in business in so many countries around the world, it uses a "think global, act local" approach. The company's global HQ sets pricing parameters with specific guidelines and tactics for each region. Each region has its own pricing determined by demand, cost, and local competitor offerings in that region. McDonald's will even adopt the products it offers to whatever country it's in. It will serve rice and fried chicken in the Philippines, Beetroot burgers in Australia and poutines in Canada, to name a few. Even still, McDonald's soda and coffee products are some of its most profitable, so its goal is to upsell drinks to customers.
This type of price engineering can be done with a competitive pricing analysis, which is a complete and detailed breakdown of all of your competitor's prices. (Slide 18)
On the left-hand side, you can analyze your product's pricing compared to a main competitor, and how it stacks up to the competition with a market landscape bar chart. This chart compares your product to others and tallies those that are cheaper, equal in price, or more expensive.
On the right-hand side, you can compare how your pricing stacks up against competitive offerings. In a line graph visualization, you can track sales revenue at different prices to see how you position the price range affects customer behavior over time.
Remember, you can download this framework and customize these slides for your needs.
Blue ocean strategy
While competition around price is common, competing on price is often called a "red ocean move" as it can create a "bloody" price war that creates less and less value for each company involved.
Instead, consider Blue Ocean strategy. Blue ocean strategy focuses on an untapped and uncontested area of the market where there's less or no competition and a whole "blue ocean" of value to unlock.
For example, Apple's blue ocean strategy in its competition with peers like Microsoft is the integration of all its hardware with each other and through the iCloud in the Apple ecosystem. Its iPhone integrates seamlessly with the mac, and the iPad, and the Apple watch, all fully integrated to act as an impenetrable barrier that no one can break. In fact, the affordability of the iCloud service is what adds to this integration — and they are doing the same with additional services through the Apple One subscription. This wide moat, or walled garden, is what makes Apple so impenetrable — and so hard to leave.
To create your own blue ocean strategy canvas, begin with a list of products or services you want to compare, and include as many as you like. (Slide 7)
List the products' attributes and factors of competition - but only include those factors that create value for the customer. Rate each product or service on a scale of 0-5, 5 being the best, 1 being the worst and 0 being non-existent. This could be based on your own perception and knowledge of your market, or through third party consumer survey data.
After you've scored everything, plot each on this blue ocean strategy graph to assess the gaps in your competition's features. If you find your current product is uncompetitive, you can manipulate your factors of competition to raise, reduce, eliminate, or create new factors and test how it compares. With these changes, you can create a strategy to develop features that will set you apart from the competition. (Slide 9)
Porter's five forces
So you have a strategy to tackle your competition, but what about how to tackle the outside forces that also constrict your profitability and potential to capture market share.
In his book Competitive Strategies, Michael Porter wrote that the competition in an industry and the ultimate profitability of a firm depend on five fundamental competitive forces: ease of entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among competitors. Competitive strategy aims to create a defensible position for the firm against these five competitive forces with offensive or defensive tactics.
To conduct your own five forces analysis, you should assess your company's tactical strategy against these forces.(Slide 3)
For instance, think about Netflix. Netflix began its competitive rivalry with traditional TV networks and the movie rental industry like Blockbuster, but now has to face new entrants that have popped up recently like HBO Max, Disney+, and the newly formed Discovery+. To combat these competitors and create a defensible position against supplier power in the form of third party licensing rights, Netflix began creating its own original content, which has paid off well in the long run.
But now, with an abundance of streaming choices, the bargaining power of buyers has become higher. Viewers can easily substitute Netflix for another form of entertainment or switch to a cheaper service, and the consumer has higher leverage, so Netflix has pivoted to spend less on original TV content and more on new growth areas like video games.
Netflix CEO Reed Hastings has said multiple times that Netflix sees its biggest competitor as the threat of substitution from sleep. Coming out of the pandemic, streaming companies have been worried that more consumers will choose to diversify their leisure and entertainment through in person gatherings or physical activity instead of staying home and binging a streaming show. Video games also represent a way for Netflix to combat this threat of substitution with the offer of additional entertainment options.
Different industries will find different forces that are more important. For instance, the power of suppliers is especially critical for any company in manufacturing - just look at the problems the automotive industry has faced most recently with the chip shortage. And bargaining power of buyers is more important for less sticky products, like food and coffee, because there's such a large range of choice.
To gain more tools like competitor identification, market share comparison, core competency, product assessment comparison and competitive portfolio analysis, you can download this framework and customize the slides to your needs.