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What is a competitor?

This tip is based on the tip published in the June 1998 issue of the AWARE Marketing Tips Newsletter.

Collins Dictionary of Business defines a competitor as:

A business rival of a firm supplying a particular good or service which offers buyers an identical or similar product.

This definition suggest that a competitor is likely to be a firm in the same industry - offering a similar product. But is this definition accurate or sufficient?

Philip Kotler in his definitive Marketing Management (UK edition) / (US Edition) text books gave four possible definitions:

1. A company offering a similar product and services to the same customers at similar prices - e.g. Ford, Toyota, Honda but not Skoda or Rolls Royce.
2. A company making the same product or class of products - e.g. all car/automobile manufacturers.
3. A company making products that supply the same service - e.g. car, truck, motorcycle manufacturers.
4. A company competing for the same customer's available money - e.g. any product or service that a customer could spend money on instead of a new car. Holidays, home repairs, consumer durables, etc.

All these definitions work, and have merits. However they also all have problems. The first is very narrow, while the last appears overly broad. And the middle two also seem to miss the target. Another definition has been given by by Brandenburger and Nalebuff in their book Co-opetition (UK version) / US version), namely that

A company is your competitor if customers value your product LESS when they have the other company's product than when they have your product alone.

Brandenburger and Nalebuff also define the opposite of this - which they call a complementor. i.e.

A company is your complementor if customers value your product MORE when they have the other company's product than when they have your product alone.

Examples given are Pepsi and Coca Cola - as competitors. If you are thirsty, and buy a Coke, then your needs for thirst quenching have been met. So, you will value Pepsi considerably less.

Conversely, when Microsoft brings out new faster software (e.g. the latest version of Windows) then you will be more likely to purchase a new Intel powered computer. So the sale of one product is more likely to lead to the sale of the second. On this basis, Microsoft and Intel are complementors.

The implications of these definitions are interesting - as neither Kotler's definitions or the Collins definitions work. The Brandenburger and Nalebuff definition actually combines Kotler's 4 definitions - competitors can come from your industry selling similar priced products or from adjacent industries or from outside the industry. The important aspect is the customer and his/her needs. Any product or service that makes your product or service less attractive to customers is a competing product IRRESPECTIVE of whether it is in the same industry or not.

Who is a competitor?

Many companies spend a lot of time focusing on similar companies in their industry - ignoring alternatives in other industries. This is a waste of time, effort and resource. It is also likely to result in the alternatives stealing market share from the company.

Part of any competitor intelligence system should be a process for monitoring major competitors and the overall competitive environment. The decision on who is a major competitor should be based on who competes for YOUR customers. The industry is irrelevant. So in the case of the automobile industry, for example:

• Ford should look at Toyota.
• BMW should look at Mercedes.

BMW does not need to worry too much about Skoda. Their customers are completely different, even though they make the same products - cars. BUT can BMW ignore Skoda? The answer here has to be NO. Skoda may move up-market. They are in the same industry. Further, BMW cannot ignore Skoda's parent company - Volkswagon, as it produces cars that overlap with, or compete directly with BMW's target markets.

Another competitor for the quality car market is Lexus. Lexus is produced by Toyota - as its top-end brand. Ignoring Toyota would have meant that there was no early warning that Toyota aimed to compete directly in the quality market with a new brandname - Lexus.

Until news surfaces that there is a move up-market, the focus needs to be on those companies that are actively competing. Other companies full into a category of potential competitors. It is essential to watch them to see what their long term plans are. But their day-to-day activity is less important.

BMW does not need to know Skoda's current models and prices and should not spend time and money collecting this information or benchmarking Skoda products. The focus needs to be on Mercedes, Lexus and other top brands.

There is another implication here. BMW needs to understand its customers and their motivations for buying a BMW. And what were the alternatives considered. A lot of competitor research focuses on the competitor - ignoring why customers choose competitors. Understand your customers and why they buy from you, and you can keep them happy, continually satisfying their needs. Fail to satisfy these, and they will seek out an alternative - your competitors. And these may not be the obvious. If customers buy a BMW as a status symbol - and this then loses status, they may purchase a completely different product to show status such as a Rolex Watch. So, ultimately, it is the customer's values who decides who your competitor is, NOT you!. If the customer values another company's products more than yours, then that company is a competitor!

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