By John Pasinski, Oct 19, 2020
Competition always exists in the business world. Even for novel ideas like Uber, which was once the unexpected entrant and disruptor in transportation, new competition may arise as a challenge (like Lyft, for example). At the same time, Uber continues to grapple for market share with other existing substitutes, like taxis. This example showcases the three kinds of competition businesses may deal with: Established existing competitors, emerging new entrants and unexpected disruptors that change the entire landscape of the market.
Understanding the competition you’re up against is one of the most important things a business does to gain or maintain an industry advantage, and that’s why Forbes says a SWOT (strengths, weaknesses, opportunities and threats) analysis is the first step in any marketing plan. However, this very general analysis is only one part of understanding how to grapple with the competition.
Only prescriptive analytics applied in a simulation provides companies with a complete view of the marketplace to identify competitive threats and take proactive measures to maintain or grow market share.
While each market is unique in its own way, consumers are always making a choice between your product or service, other brands and alternatives, or to not make a purchase altogether. Your internal marketing and analytics teams may be pouring over customer data to drive consumers to choose your product or service instead of taking one of the other routes, but your competition is likely doing the same.
The rise of eCommerce, mobile shopping and changing consumer attitudes have given the competition even more opportunities to gain market share, and your business should be prepared to adapt and pivot quickly. To understand the competition, The Balance Small Business recommends keeping tabs on competitive marketing strategy by reviewing advertisements, promotions and messaging. Similarly, you should browse competitor websites or visit physical locations (where applicable) to understand the kind of customer experience competitors are creating.
These insights will give you some idea of what your current competitors are doing. It’s also helpful to anticipate the actions of new market entrants and to be ready to protect your business from competitive threats. To meet this challenge, prescriptive capabilities are required.
Collecting competitor data is often more challenging than gathering information on your own company. Usually competitive information has some gaps and is less frequent and precise than data about your own company. Luckily, simulation and prescriptive analytics are still able to create an accurate mathematical twin of the market with limited data. More detailed information about your brand can be harmonized with less granular data on competitors using simulation.
Prescriptive analytics leverages your available data to account for competitor actions, predict how they would affect your market share, and provide guidance on how best to respond. Let’s explore some of the most common ways it’s used with prescriptive analytics to determine competitive threats.
What sets prescriptive analytics apart from other analytics methods is that it’s anchored around the consumer decision in a competitive market. As a business user, you pull levers to test different scenarios and see how consumers in the market will respond and the impact it may have on your market share.
Here are five ways prescriptive analytics is commonly applied in relation to competition:
1. Product Changes or Launches
If a competitor released a new update, product or limited edition item, how would it affect your brand? You are able to use simulation to release the product into a test environment and see how much share it is likely to gain, and from which competitors.
You may assume and change variables such as the marketing budget and product features to see how that would change the outcome. This type of analysis helps businesses understand if their market share is at stake when a new product is released and, more importantly, helps them game out how to respond to the launch.
2. Promotional Activities
What if a competitor increases its promotional budget? Will existing customers be drawn to a lower price or new advertisement, or are they still loyal to your brand due to your product quality or other factors? Simulation helps you understand how successful a competitor’s promotion could be while gaining insight into the best response. Perhaps all you need to do is improve your creative messaging and pricing, or run a sale during a different week than your competitor to garner attention.
3. Pricing Changes
Competitors change their pricing all the time in response to consumer trends and demand. No matter if they choose to increase or decrease prices, you should take note of their strategy to adjust your own accordingly. Simulation helps businesses understand the ramifications of a competitors’ price change. Perhaps you need to follow suit and match competitor pricing changes, or maybe there will be a minimal impact on your sales and no change is necessary. Prescriptive analytics can help you assess what to do.
4. Cannibalization and Portfolio Optimization
This specific threat is related to competition from within, sometimes referred to as cannibalization. Many large organizations have a portfolio of products and brands all competing in the same market. If they make a change to one of their products, such as adjusting the price, they want to ensure they aren’t taking away revenue from other brands in their portfolio. Using market simulation, organizations blend data on their own brands and competitors to understand how to optimize growth of their portfolio. This prescriptive analytics capability empowers brand managers to run scenarios to ensure tweaking one brand’s strategy doesn’t negatively impact the portfolio.
5. Environmental Shifts
Sometimes the competitors don’t change, but the environment they operate in does. If one competitor suddenly gains market share due to environmental factors, like a recession that drives consumers to the value brand, how would your business respond to change? Changes in economic conditions, consumer trends and technology may alter what matters to consumers and give different brands advantages or disadvantages. Having a platform to help you assess how to respond when conditions change will position you better for success in a rapidly changing world.
Businesses should make researching and identifying their competitive threats a routine part of their processes. Concentric Market is a unified analytics and simulation platform that makes it easier for your team to collaborate and test strategies to respond to these threats. Contact us today to learn more.