Saturday, April 21, 2007

Competition

Competition can be defined by the five competitive forces in business:
  • new entrants,
  • threat of substitution,
  • the bargaining power of buyers,
  • the bargaining power of suppliers,
  • and rivalry among current competitors.
No organization exists without competitors. Effective marketing management requires an analysis of the competitive environment and an understanding of the nature and conditions of the industry rivalry.

In a competitive analysis, you should
  • identify the major competitors,
  • review their business practices,
  • strengths, and weaknesses,
  • and look for market opportunities for your organization within those competitive gaps.
Competition can come from many sources. Customers can compete with you by deciding to make the product that they were buying from you. Suppliers can decide to bypass you in the value chain and sell directly to your customers. The most likely source of competitive pressure can come from substitutes. Products tend to be close substitutes when there are similar product performance characteristics, similar occasions for use, or they are sold in the same geographic market.

Some examples of substitutes are email for postal service mail, or when the use of one product eliminates the need for another, such as the use of better dental products eliminates the need for frequent visits to the dentist. Of course, not purchasing a product is also a substitute, as anyone who loves chocolate will understand.