Analyze This

This week we read about and discussed defining our competitive set and analyzing our industry and competition.  One of the interesting questions discussed was “Who defines competition?”  My early response, which was shared by the majority at the time, was that the customer defines competition.  However, later in the lecture, I noted that the company can narrow its view of the competition if it has limited resources.  If they market to a large set of customers, then can’t meet those customers’ needs, they can ruin their reputation and end up losing most, if not all, of their customers.  Therefore, in a sense, the company can choose what industry and who it competes against for customers, but it must always keep the customers’ needs in mind.  The customer ultimately decides who the real competitors are for their dollars, especially when their dollars are limited.

There are a multitude of variables to consider when defining the competitive set and analyzing the chosen industry and competition.  I imagine there are some which have not even been considered, yet.  As Lehmann and Winer state, “The easiest way to define competition is to let someone else do it for you.”  They also discuss methods for determining competitors, which include managerial judgment and customer based measures using behavioral data and customer judgment. 

The generally accepted grouping of factors for industry analysis is aggregate category factors, category factors and environmental factors.  Aggregate category factors include category size and growth, stage in a life cycle, sales cycles and/or seasonality and profits. Category factors include the threat of new entrants, the bargaining power of buyers and/or suppliers, current category rivalry, pressure from substitutes and category capacity.  Environmental factors include technological, political, economic, regulatory, and social.

Sources of information for competitor analysis are usually described as primary or secondary sources, but there are other sources.  Primary sources can be expensive and time consuming and can be gathered from the sales force, customers, employees, suppliers, consultants or specialized firms, and investment bankers.  Secondary sources are more readily available and include internal sources, local newspapers, annual reports, 10K statements, patent or trademark filings, general business publications, news releases, promotional literature, trade press, consultants, employee communications, trade associations, government sources, and electronic data services.  Other sources include help wanted ads, trade shows, plant tours, reverse engineering, monitoring test markets and hiring key employees.  Some other sources which are considered ethically questionable include aerial reconnaissance, buying or stealing competitor’s trash, bribing printers, running phony want ads and snooping on airplanes.  Lehmann and Winer then list various analyses and assessments that can be performed.  Some of these will be performed during the next several weeks in our PharmaSim exercises.         

Another PharmaSim report that I am finding useful is the Performance Summary.  This report gives one-stop shopping of general information about the company’s current performance and the decisions made for that period.  One thing it does not provide is the number of people in PharmaSim’s world.  This week we learned how to extract that information and the number of people in Period 0 is 263.9 million.  This will be important for subsequent periods because the population is expected to change with time. 

We’ve been asked to read and comment on one classmate’s blog.  I’ve been trying to read all of my classmate’s blogs, but last week I didn’t get to all of them.  Being a fellow engineer, I obviously enjoy David Griffin’s posts using on subject Dilbert cartoons in most of his posts.  I also like the way David adds graphs and pictures to his posts.  This is something I still want to learn and will spend more time on in the next week or two.