A competitive analysis is a tool that is used by the upper management to study the competition and other market forces that surround them and their effect on the business of the firm. There are 5 dimensions of competitive analysis. They are as follows:-
1.) The intensity of competitor rivalry/Rivalry among the existing competition:-
The intensity of competitor rivalry indicates how many competitors are there in the market that can influence/affect the company’s profit margin. Example:- If there is a low amount of competitors in the market then the firm will face less competition and will have a high potential profit for it to obtain. But if the opposite happens and a firm has a high amount of competitors in the market it will affect the firm’s profit margin as wells as poses a risk to the position of the firm in the market. So the firms try to maintain a healthy rivalry between them to prevent the outbreak of price war which is bad for all the firms.
2.) The threat of new competitor entry:-
The threat of new competitor entry is always there in the market as whenever a new product comes in the market, new firms try to capitalize on it to gain profit. Measures can be taken to reduce the easy entry of new entrants in the market but it is not possible to entirely block them. So the risk is always there. Example:- Whenever a new product is trending in the market, it creates an opportunity for new entrants to enter the market and get the profit that is associated with the new product. This reduces the company overall profit in the long run and forces the firm to make changes in its strategy to cope with the changes.
3.) The utility of an alternative solution:-
In the modern world, there is almost no product that does not have an alternative or substitute present. So to be the best in the market has become necessary so that your customer does not switch to some other brands. Even a slight dissatisfaction can send you away and they might choose some other brand which will reduce the sales and harm the overall goodwill of the firm.
Example:- If you are a streaming service provider and you suddenly raise your price, some of the loyal customers will accept it but that customer that are new might not take it in the same way and may choose a different streaming service provider.
4.) Bargaining power of customers:-
The bargaining power of the customer is how much power the customers have to influence the company to make a change in the policies, delivery methods, features, and quality of the product. The Company has to listen to its customers and make some changes according to them as the customers have the power to make or break a company.
Example:- Suppose if the customers want that the company should change its policies on the customer care to be more friendly towards the customers and the company does not listen to its customer then the customers will feel dissatisfied with the company leading to shifting in their preference and eventually resulting in the loss for the company.
5.) Bargaining power of the Suppliers:-
The bargaining power of suppliers is how much the suppliers can affect the firm profit capabilities. Suppliers can have a positive or negative effect on the profit earning of the firm as if the suppliers raise the price of the raw material or the labor or some other services that the company take from them, then the price of the product will rise leaving the firm with the choice of either reducing the profit margin or keeping the profit margin same and selling the product at a higher price both of which can seriously affect the profit margin of the firm and the opposite effect can happen if the supplier supplied high-quality raw material at a low price.
TIAS, New Delhi