Competitor-Analysis

9-701-120REV.FEBRUARY28,2002________________________________________________________________________________________________________________ProfessorPeterJ.Coughlan,KaihoPatrickLee,MBA2001,andResearchAssociateDebbieFreierpreparedthisnoteasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2001PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.PETERJ.COUGHLANCompetitorAnalysis:AnticipatingCompetitiveActionsDeniseLarsenthoughtintentlyaboutthetwoproposalsthatsatonherdesk.AsCEOofWesternConnectorCorporation(WCC),shehadrecentlybeenexploringoptionsforgrowthbeyondtheUnitedStates,whereWesternConnectorwasalreadyasignificantsupplierofelectricalconnectiondevicesinwhathadrecentlybecomeastagnatingmarket.TheparticularproposalsinvolvedexpansionofWCC'sbusinessinchip-to-boardconnectionsforpersonalcomputersintotwonewmarkets:SouthKoreaandFrance.AsintheUnitedStates,neitherofthesemarketswasexperiencingsignificantgrowth,howeverWCCexecutivesfeltthatthefirmcouldcaptureasignificantshareoftheexistingmarket.TheroughbreakevenanalysisforeachproposalisshowninExhibit1.Exhibit1ApproximateBreakevenAnalysisforWesternConnectorNewMarketEntryProposalsSouthKoreaFranceTotalMarketSize(annualunits)500,0001,100,000AnticipatedMarketCapture(annualunits)200,000250,000AnnualFixedCosts(includingcostofcapital)$2,000,000$1,750,000UnitProductionCost$30$30TotalAnnualCost$8,000,000$9,250,000BreakevenPrice$40$37Giventhattheprevailingpriceforchip-to-boardboardconnectionswas$55inSouthKoreaand$50inFrance,severalexecutivesfeltconfidentthatWesternConnectorcouldachieveitsbreakevenpriceinbothmarketsandthereforerecommendedtoLarsenthatsheapprovebothproposals.Larsenwasconcerned,however,thatthefirm'sanalysistothispointhadfailedtotakeintoconsiderationthepossibleactionsandreactionsofcompetitors.Inparticular,whiletheSouthKoreanmarketwascurrentlyfragmentedwithnofirmcapturingmorethan6%marketshare,VLMCorporation,aJapaneseconnectormanufacturer,wasalsobelievedtobesimultaneouslyconsideringintroducingitsproducttoSouthKorea.InFrance,meanwhile,theRobinetGroupwasthedominantplayerwithapproximately82%marketshare(900,000of1,100,000annualunits).RobinetwouldlikelynotsitidlybywhileWCCchallengeditsmarketposition.ItwascleartoLarsenthat,beforeconsideringeitherproposal,sheneededthefirmtoexecuteathoroughcompetitoranalysis.FortheexclusiveuseofS.Steinberg,2015.ThisdocumentisauthorizedforuseonlybySamanthaSteinberginStrategicManagementHonorstaughtbyDr.NileshKhare,atOHIOSTATEUNIVERSITYfromJanuary2015toMay2015.701-120CompetitorAnalysis:AnticipatingCompetitiveActions2Competitoranalysisistheprocessbywhichafirminvestigatesitscurrentand/orpotentialrivalsforthepurposeofpredictingthelikelynatureandsignificanceofcompetitiveactionsandusingthesepredictionstoshapecurrentdecision-making.Theultimategoalofcompetitoranalysisisafavorablecompetitiveoutcome,whetherthatbeashort-termoutcomesuchasasuccessfulproductintroductionoralong-termoutcomesuchasasustainablecompetitiveadvantage.Achievingsuchanoutcomerequiresmakingtherightstrategicand/ortacticaldecisions,howeverunderstandingwhichdecisionsareoptimalfirstrequiresanticipatingtheactionsandreactionsofrivals.Theremainderofthisnotedelvesintotheprocessofcompetitoranalysis,asillustratedinExhibit2,startingwiththebroadproblemofframingthedecisionissueandendingwiththespecificdetailsofgatheringcompetitiveintelligence.Exhibit2ElementsofCompetitorAnalysisGameTheoryBehavioralTheoryAnalysisFrameworkGoalsStrategyAssumptionsCapabilitiesDataSourcesPublicPrivateSignalsHowdoIframethecompetitivedecisionproblem?HowdoIusethisframingtopredictcompetitiveoutcomes?Whatbehavioralbiasesmightaffectmyrival’sdecisions?Whatcognitive“shortcuts”mightmyrivalbeusing?WhatinformationdoIneedtofillintheblanks?Whatinformationwillrevealpayoffsandbiases?WheredoIfindthedetails?WhatsourcescontainthedataIneed?FramingtheDecision:GameTheoryAvaluableframeworkformodelingcompetitivedecision-makingisthemethodofgametheory.AlthoughtheprinciplesofgametheorydatebacktoWorldWarII,ithasonlywithinthelast10or15yearsbecomeacommontoolformanagerstouseinthetaskofcompetitoranalysis.Implicitingametheoryisthenotionthatthosethatplaythegamewellarethosethatreallyhaveagoodgrasponthegamethattheyareplaying.InWesternConnector'scase,thefirmhadbecomeengagedintwodifferentgames:theSouthKoreamarketentryandtheFrancemarketentry.LetusfirstconsidertheSouthKoreagame,inwhichtheplayersareWesternConnectorandVLM.Bothplayersarefacedwithtwoactionstochoosefrom:enterordon'tentertheSouthKoreamarket.Tofacilitatetheanalysis,wecanillustratetheplayersandactionsusingatwo-by-twomatrix,asshowninExhibit3.Forthe