3.5 Competition Analysis

Competition Analysis

The third part of the 5Cs framework is competition analysis. Again, there are many ways a company could research and evaluate its competition. In our case, we will look at one simple method that could be used as a starting point. In a real-world situation, a company would want to evaluate different competitors in much more detail, looking at every aspect of their business.

In this chapter, we consider two frameworks for analysing the competitive environment in which a company or brand operates:

• Porter’s Five-Forces Framework
• Simple Competitive Analysis based on Customer Value

What is competition?

Numerous studies use and relate to Porter’s model, and you’ll encounter these regularly. The following provides a short summary of Porter’s original work.

All industries operate in a competitive environment. If a customer has only $1 to spend, they need to choose where to spend it—with your brand or with a competitor’s brand. They may also decide not to spend the $1 at all or spend it on a completely different type of product or service.

For example, Nutella is a popular brand of hazelnut spread found in supermarkets across the world. It is owned by Ferrero,  an Italian company which also makes Ferrero Roche chocolates, Kinder eggs and many others. Ferrero is a highly secretive company^[1] and one of the world’s largest consumers of hazelnuts^[2] and a major industrial consumer of palm oil^[3].

Nutella is a premium product, but there are many other ‘chocolate spread’ products available, each competing with the others. So Nutella competes with all of these products for consumers’ money. When shopping for hazelnut or chocolate spreads, consumers may see Nutella, or a retail brand like Pams [sic], but they may also see other alternatives such as Rose’s Marmalade. This is a different product, but it serves a similar function to Nutella, so it could be considered a competitor in a category (or industry) called “breakfast spreads” or something similar. A customer may decide not to buy a sweet spread at all but rather buy something like canned tuna. These are all potential competitors, possibly redefining the industry as “sandwich fillings”.

Therefore, any alternative option to a brand, product or service represents competition.

Analysing Competition

There are many ways to analyse competition. To evaluate the state of competition in an industry or within a particular market, one possible sub-framework would be the Five Forces model introduced by Professor Michael Porter from Harvard University Business School.^[4]

We then look at a simple Competition Analysis method that seeks to compare brands or companies based on the value provided to customers.