Overview A marketing finance approach requires a greatly increased emphasis on externally oriented analysis and a key element in this is a soundly based competitor analysis. The first stage in any competitor analysis is to establish exactly who are the

company’s competitors. Competitors can only be realistically defined by customers – your competitors are your customers’ alternative suppliers. This definition of competitors should include both existing competitors and new potential competitors. However the focus of the competitor analysis is different for each type of competitor. Potential competitors may be deterred from entering the market (i.e. actually becoming competitors) if sufficiently strong entry barriers are erected in time, existing competitors cannot, by definition, be deterred. Aggressive competitive activity may drive existing competitors out of the industry, but this may not be practical if these existing competitors face high exit barriers. This identification of either entry barriers or exit barriers highlights that

competitor analysis should be used as a decision-making aid. Thus it is not enough to produce an annual analysis of a competitor’s published financial results; competitor analysis needs to be forward looking and focus on relative differences between the businesses. This relative analysis means that the competitor analysis process must be tailored to the particular needs of each company and its competitors; thus the focus of the competitor analysis process will be very different depending on whether the basis of competition is selling price or value-added differentiation. A good competitor analysis system really involves a two-stage process. The

first stage consists of placing each competitor’s business into its correct context, and this can be facilitated by classifying the competitors into a series of nonmutually exclusive categories. These highlight the key role of the competitors and the types of strategic thrusts that they are likely to employ. A major objective of competitor analysis is to predict strategic initiatives by the competitor and their responses to moves made by the company.