2.1.2 Why is observing your Competitors an important Issue?

Your competitors play a decisive role in the analysis of the supply side of the market, as they can help you gain a better understanding about your position with regards to market competition. For this reason the competition environment can be divided into three levels (Müller-Stewens 2005):

  • Branch: A branch is defined as a group of (competing) companies that offers similar products or services. This definition leads to the assumption that the attitude of companies, which compete with one another, is the decisive issue in sectoral analysis. Therefore the intensity of the competition is a crucial factor in the success of your company. Porter developed a relative concept, which will be discussed in section 2.2. 
  • Strategic groups within a branch: A branch analysis offers you a picture of the processes that determine the profitability of the branch as a whole. However, this is not enough to help you determine the actual ranking of your company, as far as competition is concerned. This can be achieved by observing the strategic group, in which the company is located. Strategic groups will be further analysed in section 2.3
  • Individual competitors: The direct observation of an individual competitor is the last element of the competitive environment. It is aimed at gathering information on the attitude of a single, direct competitor. This is especially important for companies, which may have only one or just a few competitors in the sector where it operates. In such a situation all companies are interested in collecting much information on the objectives and strategies of the other companies in the market. In other, fragmented sectors it would be difficult to analyse and discern all companies in it.