Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 65
Strategic groups have several implications. First, because firms within a group offer
similar products to the same customers, the competitive rivalry among them can be
intense. The more intense the rivalry, the greater the threat to each firm’s profitability.
Second, the strengths of the five forces differ across strategic groups. Third, the closer
the strategic groups are in terms of their strategies, the greater is the likelihood of rivalry
between the groups.
As explained in the Strategic Focus, Amazon appears to be winning competitive bat-
tles against formidable rivals such as Google and Walmart. It must be diligent, however,
because a new competitor, Jet.com, is coming after Amazon’s market. Thus, even such
successful firms as Amazon must continuously analyze and understand their competitors
if they are to maintain their current market leading positions.
2-7 Competitor Analysis
The competitor environment is the final part of the external environment requiring study.
Competitor analysis focuses on each company against which a firm competes directly.
The Coca-Cola Company and PepsiCo, Home Depot and Lowe’s, Carrefour SA and Tesco
PLC, and Amazon and Google are examples of competitors that are keenly interested in
understanding each other’s objectives, strategies, assumptions, and capabilities. Indeed,
intense rivalry creates a strong need to understand competitors.^125 In a competitor analy-
sis, the firm seeks to understand the following:
■■What drives the competitor, as shown by its future objectives.
■■What the competitor is doing and can do, as revealed by its current strategy.
■■What the competitor believes about the industry, as shown by its assumptions.
■■What the competitor’s capabilities are, as shown by its strengths and weaknesses.^126
Knowledge about these four dimensions helps the firm prepare an anticipated
response profile for each competitor (see Figure 2.3). The results of an effective compet-
itor analysis help a firm understand, interpret, and predict its competitors’ actions and
responses. Understanding competitors’ actions and responses clearly contributes to the
firm’s ability to compete successfully within the industry.^127 Interestingly, research sug-
gests that executives often fail to analyze competitors’ possible reactions to competitive
actions their firm takes,^128 placing their firm at a potential competitive disadvantage as
a result.
Critical to an effective competitor analysis is gathering data and information that can
help the firm understand its competitors’ intentions and the strategic implications result-
ing from them.^129 Useful data and information combine to form competitor intelligence
which is the set of data and information the firm gathers to better understand and antici-
pate competitors’ objectives, strategies, assumptions, and capabilities. In competitor anal-
ysis, the firm gathers intelligence not only about its competitors, but also regarding public
policies in countries around the world. Such intelligence facilitates an understanding of
the strategic posture of foreign competitors. Through effective competitive and public
policy intelligence, the firm gains the insights needed to make effective strategic decisions
regarding how to compete against rivals.
When asked to describe competitive intelligence, phrases such as “competitive spying”
and “corporate espionage” come to my mind for some. These phrases denote the fact that
competitive intelligence is an activity that appears to involve trade-offs.^130 The reason for
this is that “what is ethical in one country is different from what is ethical in other countries.”
This position implies that the rules of engagement to follow when gathering competi-
tive intelligence change in different contexts.^131 However, firms avoid the possibility of
legal entanglements and ethical quandaries only when their competitive intelligence
Competitor intelligence
is the set of data and
information the firm gathers
to better understand and
anticipate competitors’
objectives, strategies,
assumptions, and capabilities.
